Net income ratio = (Net profit / sales) *100. The term "ratios" is use to explain relationship connecting figures on a balance sheet, in profit and loss account, budgetary control system or any other part of accounting organization. Here, Net assets = Fixed assets + Current assets – Current liabilities. Primarily, financial management helps you prepare for your future. Creditor days: Creditor days = (Creditor / Cost of goods sold ) * 365. Such are: Financial statement plays a decisive role in setting the frame work of managerial decisions for the financial statements viz; income statement and balance statement are prepared to help the management in taking decisions. Financial management involves the application of principles of general management to the finance function. Content Guidelines 2. HR & Administration function is to Plan, organize, control and implement an efficient Human Resource Management and Administration functions for CPOC to ensure the right level of manning with the right capability at the right time with efficient administration to support and achieve business objectives. The main function of financial management is to ensure that the firm must have sufficient funds to meet financial obligations when they are needed and to take advantage of investment opportunities. Cash may be required to (i) make payments to creditors (ii) for purchase of materials (iii) to meet wage bill (iv) to meet everyday expenses. Financial management can also be defined as that part of management, which is related mainly with raising or acquiring the funds for the enterprise or firm in the most economical way, utilizing those funds as profitably as possible, for a given risk level, planning the future investment of those funds and controlling the current performance plus future development by adopting budgeting, cost accounting and financial accounting. Prohibited Content 3. (Universal teacher publications). (e) Sustained increase in the value of firm. These functions influence the operations of other crucial functional areas of the enterprise or firm such as marketing production and personnel. After reading this essay you will learn about:- 1. The finance executive must take into consideration the merits and demerits of the alternative scheme of utilizing the funds generated from the enterprise’s own earnings. The modern thinking in financial management accords a far greater importances to the management decisions and making policy. A very high ratio indicates a greater risk to creditors as also to the share holders under adverse business conditions. Ensuring that assets are controlled and used in an efficient manner. Role in a Business 5. RONA = net income / (Fixed assets + Networking capital). This example has been uploaded by a student. Cash flow management is also an important task of finance executive. Net income is for the full fiscal year (before dividends paid to common stock holders but after dividends to preferred stock.) However, it will vary between industries and so it is important to compare within an industry. Finance managers are likely to draw attention on other disciplines also, like accounting and budgeting. The estimations should be based on sound financial principles so that funds available with the firm are neither inadequate nor excess. The job responsibilities of financial accountant is supporting financial decision-making information such as collecting data, analyzing and variances investigating, summarizing information and trend, and reporting financial data. Financial accounting is concerned with record keeping directed towards the preparation of income statement and financial position statement. While spending on various assets, management should be guided by three important principles of safety, liquidity and profitability. Financial management is concerned with the acquisition (investment), financing (arranging funds), and management of assets with some overall goal in mind. The amount of net incomereturnedas a percentageof shareholders equity.Return on equitymeasures a corporation’s profitabilityby revealing how muchprofit acompany generateswith the money shareholders have invested. The type of analysis varies according to the specific interest of the stakeholders. Financial management will then be able to analyse these financial information’s to predict likely future results and to plan more carefully their proposed course of action. Introduction to Financial Management 2. Ratio analysis shows inter-relationship between the different items in the data. The company’s liquidity position was very low in the initial years where as it is very high in the later years. The ratios are seen as "red flags" as [...], Does capital structure affect firm value? Cost of sales to sales ratio = Cost of sales / Total sales. This is the most important decision. We will send an essay sample to you in 2 Hours. Planning the financial strategies. 3. Which of these assertions should have been of most concern to Price Waterhouse regarding the large period-ending adjustments AMRE recorded during the fourth quarter of fiscal 1989? Arranging the funds when required, in the form needed in the most economical way. Quick (or) Acid test ratio: Quick ratio = (Current assets – Inventory) / Current liabilities. The need, purpose, objective, cost involved may be the factors affecting the selection of a suitable source of financing, for instance, if the finances are required for short periods then banks, public deposits and financial institutions may be appropriate, and for long term financial requirements, the share capital and debentures may be useful. Meaning: Current ratio: Current ratio = Current assets / Current liabilities. Social responsibility includes service to the people, protecting the consumer, paying fare wages to the employees, upliftment of the weaker sections, welfare facilities like medical education, environment improvement programmes etc. Identifying the present strengths and weaknesses of the organisation, and the scope for improvement, by conducting the financial analysis. 31, Evidential matter, identifies five management assertions that underlie a set of financial statements. While taking financing decisions, the influence of inflammation on financial markets and on the cost of funds to the firm is also considered. The finance required for procuring fixed assets as well as the working capital needs will have to be ascertained. In order to understand the environment in which a finance manager is required to take decision, a sketch indicating business system is given hereunder: The Financial Management’s main role is therefore to create profit on the capital invested (fixed as well as working capital). Ratio analysis is a technique of quantitative analysis and thus ignores qualitative factors such as management skills, track record and the rate of change in the market which may be important in decision making. In making financial decisions, it is important to set out clear objectives. Orders:19 In the words of Solomon, E.: ‘In this broader view the central issue of financial policy is the wise use of funds, and the central process involved in a rational matching of advantages of potential uses against the cost of alternative potential sources so as to achieve the broad financial goals which an enterprise sets for … Content Filtration 6. Thus we can say that, “the improvement of shareholders value is the one mission that continually guides all corporate decisions and actions” or “the goal of a firm is maximizing the shareholders’ value”. Introduction: Financial planning is the process of estimating the required funds and to determine the competition. It must be full fill the business concern’s requirement. 16 students ordered this very topic and got original papers. The main object ive of accounting is to provide the necessary information, which is useful for the person within the organization i.e. The analytic method exercised is designed to ascertain the development, prompt evaluation of the organization progress, profit and possible areas of development all aimed at ensuring business sustainability, market suitability, and profitability. This shows that attitude toward matters that are financial is a key predictor of financial behavior. Assets that cannot be economically justified, may be reduced, eliminated or replaced. Preparation of detailed cash budgets and/or forecast funds flow statement so that future problems can be foreseen and remedial measures taken in advance. The cash management should be such that neither there is shortage of it and nor it is idle. It is their overall responsibility to see that the resources of the firm are used most efficiently and that the firm’s financial condition is sound. The main objectives of financial management are to arrange the sufficient funds for meeting short term long term requirements of the enterprise. Following are the basic financial objectives: (b) Maximisation of shareholders’ owners’ wealth. This maximisation of value should be achieved from long term point of view. Role of Financial Management in a Business: Essay # 5. This chapter will first give a foundation of accrual and cash flow accounting, then discuss the advantages as well as drawbacks of both methods and give the conclusion which type of accounting is suitable to record. 16 students ordered this very topic and got original papers. Essay # 1. He has to assess the various cash requirements at different times and then make arrangements for cash needed. Management is the agents of the owners or shareholders, and financial management acts for achieving the goal of profit maximization in the shareholders’ best interests. Definition of Financial Management: Essay # 3. A balance should be struck even in these principles for the purpose of optimum returns on investment. Our writers will create an original "Importance of Financial Management" essay for you. Account Disable 12. Accounting ratios as a result shows the relationship between financial data. Finance manager is required to determine the best financing mix or capital structure. For feasibility study, only broad estimates are sufficient and are generally obtained from the past experience of the similar works by interpolating the present trends and the condition of the proposed project in comparison to the one whose figures are being adopted. 9. He should be accountable also for his role. In the overall of a business is to earn a satisfactory return on funds invested in it, consistent with maintaining a sound financial position. The higher the stock turnover the better, because money is then tied up for less time in stocks. In order to know the cash requirements during different periods, the management should arrange for the preparation of cash flow statement in advance.