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The Strategic Role of Financial Management in Finance Market

Uploaded by joeydaprof on Jun 12, 2006

The strategic role of financial management
Financial management refers to how businesses raise, use and monitor funds. It involves the processes of planning, monitoring and controlling the business's financial position and performance. Effective financial management will allow a business to maximise profits, increase the wealth of its owners and expand the business. Its strategic role is to give the business long term, big picture goals to aim for, as well as the specific objectives needed to reach these goals. Financial reports are crucial for effective financial management. There are two main types of financial reports
General Purpose Financial Reports (GPFRs) • Specific Purpose. Financial Reports (SPFRs)
GPFRs are financial statements that all public companies are required by law to produce. They include the Balance Sheet ('Statement of Financial Position')-, the-Revenue Statement (`Statement of Financial performance) and the Statement of Cash Flows.GPFRs are the greatest insight many stakeholders have into the financial position of a business. These reports allow the business to be analysed over time and against other companies. GPFRs are produced in accordance with Generally Accepted Accounting principles.
SPFRs are financial statements, created by the business, to-be used by internal stakeholders such as management. They are more detailed than GPFRs and are only created at the instruction of management. They can be created for any purpose are not bound by regulations, determining- how, they should be produced. Typical SPFRs include budgets, break-even, analyses and sales reports.
SPFRs allow management to plan for the future, and compare actual and predicted performance. They are strategically designed to give management all the necessary information to maximise efficient decision making.
When managing the finances of a business, there are a few key objectives that a business will try to achieve: Liquidity, Profitability, Efficiency, Growth, Return on Capital
A business must try to balance each of these independent objectives and find the financial position that best suits its needs.

Liquidity- measures the ability of a business to pay its debts as they fall due. It is a useful indicator of the short-term financial stability of a business. Those assets that can be transformed into cash within a year, and thus contribute to the liquidity position of the business, are called `current' assets. Current assets commonly include inventory (stock), accounts receivable (debtors), and cash. Effective liquidity management will ensure that the business has enough current assets to meet its obligations, without having to frequently sacrifice business opportunities. The stability of...

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Uploaded by:   joeydaprof

Date:   06/12/2006

Category:   Business

Length:   25 pages (5,555 words)

Views:   18388

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