January 12, 2015
Financial management consists of planning, forecasting, analysis, evaluation, and legal and regulatory issues. Financial management is the key to an efficiently running operation. Planning and forecasting are used to set goals and determine how the company will achieve those objectives. Analyzing and evaluations ensure that the organization is on track and achieved the set goals. A company is often made up of financial managers: accounts receivables and payables, payroll, tax and regulatory compliance, risk management, shareholder and investor relations, and accurate record keeping. The finance department is made up of the chief financial officer (CFO), controller, accountants, and analyst.
The objectives of sound financial management are: profitability, growth, efficiency, liquidity, and return on capital. It is important that a company be profitable so that liabilities can be paid and, in turn, foster growth. The management team should also focus on covering debt, ideally three times over, not just revenue. Objectives should be obtainable and in the right areas. Financial efficiency primarily means accounting accuracy to maintain a balance of liquidity to pay debts. An indicator of a corporation’s health is return on equity or well investors’ money is being used.
The Financial Planning Cycle The financial planning cycle includes: addressing the financial position, creating a business…