Key elements for the process of financial man Agement

THERE ARE THREE KEY ELEMENTS FOR THE PROCESS OF FINANCIAL MAN-AGEMENT

1 Financial planning

Management needs to ensure that enough funding is available at the right time to meet the needs of the business. In the short term, funding may be needed to invest in equipment and stocks, pay employ-ees and fund sales made on credit. In the medium and long term, funding may be required for significant additions to the productive capacity of the business or to make acquisitions.

2 Financial control

Financial control is a critically important activity to help the business ensure that the business is meeting its objectives.

3 Financial decision-making

The financial decision is whether profits earned by the business should be retained rather than distributed to shareholders via dividends. If dividends are too high, the business may be starved of funding to reinvest in growing revenues and profits further.

4 The role of the budget

            The budget is a part of the foundation upon which an organization justifies its mission.

It establishes financial parameters through which the organization can determine its objectives and attain its goals.

            An estimation of revenue and expenses for a given period of time, usually 1-2 years.

            Anticipate or predict cash flow as well as control cash flow.

5 Financial ratios

Financial ratios are useful indicators of a firm's performance and financial situation. Most ratios can be calculated from information provided by the financial statements. Financial ratios can be used to analyze trends and to compare the firm's financials to those of other firms. In some cases, ratio analysis can predict future bankruptcy.