Role of Financial Management Flashcards
What is the strategic role of financial management
- Setting financial objectives and ensuring the business is able to achieve these goals
- Sourcing finance
- Preparing budgets and forecasting future finances
- Preparing financial statements
- Maintaining sufficient cash flow
Define short term objectives
They are the tactical ( 1-2 yrs ) and operational ( day to day ) plans of a business
Define long term objectives
They are the tactical plans for a business ( 5yrs )
What are the financial objectives of a business
- profitability
- growth
- efficiency
- liquidity
- solvency
define profitability
The business ability to maximise their profits
Eg. purchase new equipment, hire more employees, develop new products, invest in marketing + advertising
define growth
The ability of the business to increase its size in the long term
Eg. better position + market itself against its competitors, increase stability + profit, earn more revenue
define efficiency
The ability of a business to maximise its costs and manage its assets so that maximum profit is achieved with the lowest possible level of assets
Eg. increase product range, earn more revenue
define liquidity
The extent to which a business can meet its financial commitments in the short term ( less than 12 months )
Must have sufficient cash flow to convert current assets into cash quickly
Eg. overcome financial challenges, secure loans, minimise risk of cash flow shortages
define solvency
The extent to which the business can meet its financial commitments in the long term ( more than 12 months )
GEARING is a good indicator of solvency
Eg. companies ability to manage its operations in the future, determine capability of growth
define interdependence
INTERDEPENDENCE in the business environment means that the 4 main functional areas of a business need each other in order to carry out their own responsibilities, and in order for the business to operate effectively
