The Role of Finance Management

7250 Words Mar 25th, 2015 29 Pages
ROLE OF FINANCIAL MANAGEMENT
FINANCE= ensures the business has the necessary financial resources to achieve its goals and objectives.
Financial management deals with analysis, interpretation and evaluation of all financial records of the business. It also deals with the planning, monitoring and controlling of a business’ financial resources.
Finance is the monetary or lifeblood of the business, whereas accounting is the reporting process.

STRATEGIC ROLE OF FINANCIAL MANAGEMENT
Strategy- long term plan of action to achieve a goal and the contribution that each unit makes to achieve them.
Involves developing goals, planning and making decisions.
Organisational objective- businesses mission to give management and
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E.g. reduce costs as they produce their output.
FINANCE AND MARKETING
Marketing generates sales.
It helps with short-term financial goals.
FINANCE AND HUMAN RESOURCES
Need to make sure there are enough employees available.
Employees need to have the right skills.
Finance is the main source of performance measurement data.

INFLUENCES OF FINANCIAL MANAGEMENT
INTERNAL SOURCES OF FINANCE- RETAINED PROFITS
Sources of finance= ways a business can obtain money to perform business activities.
Financing= the sourcing and utilisation of these funds.
Also known as equity.
CAPITAL (OWNERS EQUITY)
Money the owner invests into the business.
Also called shareholders’ funds, proprietorship or proprietor’s funds.
RETAINED PROFITS
Profit not distributed to owners but reinvested back into the business.
Used for things such as: machinery, vehicles.
Reinjected into the business.
SALE OF ASSETS
Sale of assets like buildings, plant and equipment.
Can be sold and allow funding of new projects.
BENEFITS OF INTERNAL SOURCES
Debt levels do not rise.
Doesn’t have additional costs
Doesn’t give up control of the business
COST OF INTERNAL SOURCES
Equity is seen to be misused or used inefficiently because the use is not accountable to anyone other than the owners.
Retained profits can be limited by not having enough profits.

EXTERNAL SOURCES OF FINANCE
Obtained from individuals and institutions outside the business.
It is seen as external because it involves

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