1 Role of Financial Management - Business Studies

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Role of Financial Management
1. Strategic role of financial management
Businesses have specific goals they wish to achieve in relation to the investment in capital (machinery and
technology), training of staff, marketing and the expansion of operations. The strategies that a business adopts work
towards achieving its goals both in the short and longer term. Developing a strategic plan will ensure that the
business
Business goals and objectives
Businesses exist for a number of purposes that are translated into goals. For example, a business’s goals may
include:
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Business objectives break the business operations into achievable and manageable outcomes that can be measured
and evaluated. Objectives give a clear indication to management of where the business wants to be. Goals are the
longer term outcomes of a business and can be achieved by using financial strategies. A strategy is
Strategic plans
Strategic plans are the most important plans for a business. They encompass a long-term view of
The strategies that a business uses to achieve its goals are incorporated into a strategic plan.
Managing financial resources
Financial resources are those resources of a business that have a monetary or money value. Financial management
is the planning and monitoring of a business’s
Financial management is crucial if a business is to achieve its financial goals. The mismanagement of financial
resources can lead to problems such as:
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Strategies for monitoring the financial resources of a business must be incorporated into its strategic plan. This
involves:
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
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2. Objectives of financial management
For a business to achieve its longer term goals it must have a number of short-term, specific objectives. The
objectives of financial management are to maximise the business’s:
1.
2.
3.
4.
5.
The responsibility of financial management is to make decisions
This will involve
Profitability
Growth
Efficiency
Liquidity
Solvency
Short-term and long-term financial objectives
The financial objectives of a business are based on the goals of its strategic plan, which can be translated into both
the short and long term.
 Short-term financial objectives –
 Long-term financial objectives –
3. Interdependence with other key business functions
The interdependence of the key business functions (operations, marketing, finance and HR) means that each one
must interact with all of the other functions in order to achieve the goals of a business. Finance plays a crucial role in
funding extra resources. Business goals tend to be based on improvements to profit levels and have their origins
within the financial function of a business.
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