Introduction to financial management

Business Studies

Strategic role of financial management

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* the planning and monitoring of the cash inflow and outflow
* the assets and liabilities of the business
* To enable the business to achieve its financial objectives

Financial objectives

* profitability
* efficiency
* liquidity
* solvency
* growth

profitability

* the ability of a business to maximise its profits, satisfying owners and shareholders in the short term
* also important for longer term sustainability.

growth

* the ability of the business to increase its size in the long term.

efficiency

* the ability of a business to minimise its costs
* manage its assets
* so that maximum profit is achieved with the lowest possible level of assets.

liquidity

* the capacity for current debt to be repaid through the use of current assets

solvency

* the capacity of a business to meet its debts as they fall due. (most likely long term, but also short term)

short term financial objectives

* business goals within the duration of 12 months

long term financial objectives

* Broader business goals that have a duration over 12 months

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interdependence

* Business functions rely on financial management to allocate them funds for each of their functions
* In return, the finance department relies on the other three business functions to generate sales 
* and therefore provide income to the finance department