Finance: Role of Financial Management Flashcards
what are the strategic roles of financial management
-having financial objectives
-preparing budgets
-forecasting finance/cash flow
-sourcing finance efficiently (loans, banks, equity)
-distributing funds efficiently
-record keeping and analysis
what does the mismanagement of funds lead to
-insufficient funds to pay debts
-inadequate capital for expansion
-non-productive assets
is the strategic role of financial management long term or short term
long term
what are the five objectives of financial management
GELPS
growth
efficiency
liquidity
profitability
solvency
what is growth
increase in size and value of business
what does growth allow a business to do
expand
produce a wider product mix
access to innovations
what is internal growth caused by
increase in demand for product
improved productivity
new market technologies
what is external growth caused by
purchasing other businesses
mergers
acquisitions
define merger
combining two companies into one
define acquistions
attaining an asset
what is the purpose of growth
increasing capital and return on profits
what does too much or too little growth cause
cash flow problems
define profitability
the degree to which a business or activity yields profit or financial gain.
why do business owners expect profitability over a long period of time
to ensure the business’ long term viability
why do investors/shareholders expect the business to be profitable
so that they can make financial gains, and if it isnt profitable theyll likely withdraw from investing
define efficiency
generating maximum return for minimum costs
how do you increase efficiency
increasing amount of output with same number of inputs
OR
have the same amount of output with decreased input
define liquidity
Liquidity is a measure companies use to examine their ability to cover short-term financial obligations
define working capital
amount of funds required by a business to meet its short term debt
define cash flow
availability of short term funds to meet short term debts
define solvency
how much a business’ current assets exceed their current liabilities
if a businesses current assets exceed its current liabilities, may it be described as solvent?
yes
does solvency also refer to the businesses ability to pay off its debts at they become payable
often 30 days
yes
what are short term financial objectives primarily concerned with
managing cash flow
what are long term financial objectives primarily concerned with
growing the business
what are the two primary ways to fund growth of a business
- debt
- equity
how does finance interdepend with the other key functions of a business
marketing=provides budgets
HR=wages
operations=budgets
