Role of financial management:
Strategic plan encompass a long-term view of where the business is going, how it will get there and a monitoring process to keep track of progress along the way.
Business goals are the longer term outcomes of a business.
Business objectives give a clear indication to management of where the business wants to be.
Objectives of financial Management
Profitability - The ability of a business to maximize its profit. Business must carefully monitor its revenue and pricing policies, cost and expenses, inventory levels and levels of assets.
Liquidity - The ability of a business to pay its debt as they fall due. Business must have sufficient cash flow to meet its financial obligations. Control over the flow of cash into and out of the business ensure that it has supplies of cash when needed.
Efficiency - The ability of a business to minimize its costs and manage its assets so that maximum profit is achieved with lowest level of assets
Growth - The ability of the business to increase its size in the longer term.
Solvency - The extent to which the business can meet its financial commitments in the longer term.
Tactical objectives are objectives for one to two years.
Operational objectives are day-to-day plans of a business.
Influences on financial management
Is the funds provided by the owners of the business or from the outcomes of business activities.
Is the funds contributed by owners or partners to establish and build the business.
The most common source of internal finance, which all profits are not distributed, but are kept in the business as a cheap and accessible source of finance for future activates.
Refers to the funds provided by sources outside the business, including banks, other financial institutions, government, suppliers or financial intermediaries.
Short term borrowing
Provided by financial institutions through bank overdrafts, commercial bills and bank loans. (one to two years) * Bank overdraft - the bank allows a business or individual to overdraw their account up to an agreed limit and for a specified time, to help overcome a temporary cash shortfall. * Commercial bills - a type of bill of exchange issued by institutions other than banks * Factoring - the selling of accounts receivable for a discounted price to a finance or factoring company.
Long term borrowing
Relates to funds borrowed for periods longer than two years. It can be secured or unsecured, and interest rates are usually variable. * Mortgage - loan scored by the property of the borrowers. * Debentures - are issued by a company for a fixed rate of interest and for a fixed time. * Unsecured notes - is a loan for a set period of time but is not backed by any collateral or assets. and therefore presents the most risk to the investors in the note. * Leasing - usually a long term source of borrowing for businesses
Refers to the finance raised by a company by issuing shares to the public for purchase through the ASX. * Issuing ordinary shares to the public for purchase * Private shares in companies not listed on the ASX
Banks - receive saving as deposits from individuals, business and government and, in turn make investment and loans to borrowers.
Investment Banks -- make up one of the fastest growing sectors in the Australian financial system, providing services in both borrowing and lending, primarily to the business sector.
Finance and life insurance companies - are non-bank financial intermediaries that specialize in smaller commercial finance. Finance companies provide loan to business and individuals through consumer hire-purchase loans, personal-loans and secured loans to business.
Superannuation funds - provide funds to the corporate sector through investment of funds received from superannuation