Role of Financial management Flashcards
To improve memory (14 cards)
What is the strategic role of financial management
The role is to plan and monitor the business financial resources so the business can achieve it’s financial objective of profit maximisation.
Why does Financial management play a crucial and long term role in the business.
- Enables a business to achieve goals
- essential for growth
- biggest causes of business failure
- Plays a role in all aspects
- completed by senior management
What are the financial objectives
- Profitability
- Liquidity
- Efficiency
- Growth
- Solvency
What is profitability?
The ability of a business to maximise its profits.
What is growth?
The ability of the business to increase size in the longer term. The business can achieve this through using assets structure to increase sales, profits and market share.
What is Efficiency?
The ability of a business to minimise its costs and manage its assets so that maximum profit is achieved with the lowest possible level of assets.
What is Liquidity?
The ability of a business to its debts as they fall due. Less than 12 months
What is solvency?
The extent to which a business can meet its financial commitments in the longer term. Greater than 12 months. The business pays both short and long term liabilities as they fall due.
Short- term objectives
Objectives the business aims to achieve within a relatively short period, usually within a few months to a year.
Long- term objectives
Objectives of the business that aims to achieve goals within a set period of time, generally longer than 5 years. Goals are broad and require a series of short- term goals to assist in it’s achievement.
Interdependence with other key business functions
In business Finance exists with other key functions of the business which include, Operations, Marketing and Human Resources.
Why are finance and operations independence on each other?
because finance funds the operations department to be able to supply product. To achieve maximal output. Without finance the business would not be able to put money into the operations, so finance and operations are mutually dependent on each other.
Interdependence Finance and Marketing.
The finance manager can increase the profitability of the business through marketing if they have allocated enough funds to produce effective marketing campaigns. But if money is wasted on marketing profitability can decrease as they do not have enough funds to produce saleable goods.
Interdependence Finance and Human Resources.
Finance ensures that the best people are employed through allocating funds in their budget to train, acquire and maintain staff.
