Role of FM

• Financial management


  Planning and monitoring of a business's financial resources to achieve its financial objectives
• Financial objectives


  • Liquidity
  • Profitability
  • Solvency
  • Efficiency
  • Growth
• Strategic role of financial management


  • Ensures business can operate (short-term), grow (long-term) & achieve their goals through management of financial resources
• Profitability


  Maximise profits
• Growth


  Increase the size and value of the business (long-term)
• Efficiency


  Maximise use of assets in a cost effective way
• Liquidity


  Ability to meet short-term financial commitments
• Solvency


  Ability to meet long-term financial commitments
• Time horizons of business objectives


  • Short-term
  • Long-term
• Short-term objectives


  Operation (day to day & tactical (1-2 years) plans of a business)
• Long-term objectives


  5+ years plans, broad goals such as increasing profit/market shares & requires short-term goals to assist
• Growth (expansion)


  Increased costs and gearing = lower profits in short-term / long-term owners pleased with it, increases overall value of business
• Long-term profitability


  Minimises ability to meet short-term obligations
• Liquidity


  Shows the business how able it is to pay its current debts as they fall due, allows the business to maintain a good credit rating and avoid late fees and additional interest payments
• Key business functions (KBFs)


  Depend on finance to fund their activities, finance depends on KBF to increase profitability & efficiency
• Key business functions


  • Operations
  • Marketing
  • HR
• Operations


  Reduces production costs, produces high quality products that can be sold at a higher cost, new technology improves efficiency
• Marketing


  Generates revenue through the promotion & selling of products, provides information on sales & profit forecasts
• HR


  Manages employees, provides training & ongoing support to employees, offers performance rewards and incentives