Overview of Financial Management
Financial management therefore entails the act of planning, recruiting, allocating, coordinating and monitoring of financial resources and the activities they support. It entails management of financial resources with overall management principles for the achievement of the organisation’s objectives.
Relevance to A-Level Business Course
In the course of Business Studies a level, one of the most important components is financial management because it helps inculcate the necessary financial prudence to the learners. Gunlock captures definitions of a range of concepts invaluable to apprehending financials’ roles within and effects on performances of businesses.
Function of an A-Level Business Teacher
A competent A-Level business tutor has a very important role of ensuring that his/her students understand various issues concerning financial management. They help students with coaching, clear their confusion, and share real examples that will help the students to perform well in their classes as well as exams.
Fundamentals of Financial Management
Definition and Scope
Financial management encompasses controlling and using the available funds towards accomplishing the stipulated financial objectives of an organization. They include investment decisions, financing decisions and dividend decisions This policy area is vast in the coverage of activities that it undertakes.
Key Objectives
The main goals of financial management include generating the highest profits, creating the maximum wealth, being capable of meeting any form of payment, and minimizing the risks. These objectives are used to direct the financial managers on which decisions will help increase the value of the organisation.
Financial Management Process
The financial management process involves several steps: The four fundamental activities of financial management are therefore; financial planning, financial analysis, financial decision making and financial control. Each one of them is necessary for the efficient use of financial resources at the enterprise.
Financial Statements
Balance Sheet
The balance sheet of an organization can be described as a statement of the organization’s situation at a given time. They consist of balance sheets that indicate the value of the firm’s’ assets; the amount of debt or liabilities and shareholders’ wealth or equity.
Income Statement
Revenue statement or the statement of profit and loss as they are commonly referred to present the organisation’s revenue, expenditures, and gains or losses for a given period of time. Thus we have seen how it helps in evaluation of operating efficiency of a company.
Cash Flow Statement
Operating activities are identified as the source of cash and include cash received from customers and sales, while investing activities refer to cash spent on investments mostly in other businesses or assets while financing activities are the amounts paid by or received from shareholders. It assists in analyzing the level of operating activity in relation to the availability of cash among the business.
The statement of changes in equity shows the movement in the shareholder’s equity of a company and is prepared in line with the accounting standards.
This statement in essence describes a change in the holding of equity portion of the balance sheet over a period. It consists of the reserves, Adjusted and Proposed Dividend Paid and any variation in share capital.
Financial Analysis
Ratio Analysis
This method involves the calculation and evaluation of the performance of an organisation by means of a quantitative analysis of specified financial ratios. Some of the most used ones are; liquidity ratios, profitability ratios, and solvency ratios.
Budgeting
Types of Budgets
There are several types of budgets which are distinguished by leading authors, and these include the following; operational budgets, capital budgets and the cash budget. They all play the following roles in the management of finance in an organisation.
Budget Preparation
It is the process of estimating the inflows and outflows of money, distribution of funds, and establishment of goals for raising and spending money. This entails the involvement of several other departments as well as working in line with the rest of the organization.
Budgetary Control
Budgetary control can be described as the method of comparing the actual results with the budgeted ones. There is the investigation of the reasons behind deviations and appropriate actions to guarantee accomplishment of financial goals.
Variance Analysis
Variance analysis is the tool which determines and reasons out why actual figures have been different from the budgeted ones. They assist in identifying the causes of deviations and enhance better the following budgeting techniques.
Investment Decisions
Capital Budgeting
Capital budgeting is a strategic process of analyzing the value of long-term investment proposals that support the company’s strategic plan. It entails the evaluation of the prospect of getting high returns in the projects being looked forward to by the firm.
Investment Appraisal Techniques
Such common investment appraisal techniques include; Net present value (NPV), internal rate of return (IRR) and the pay back period. It assists in the assessment of the returns and prospective gains of the investment projects.
Risk and Return Analysis
Risk and return analysis entails the analysis of risk associated with a decision of an investment as well as its likely returns. To summarize, it assists in making the appropriate investment decisions, which in turn tries to define risk/reward ratio.
Financing Decisions
Sources of Finance
Finance can be obtained in many forms, but it is taken as equity, debt and those which are retained by the business organizations. Each source contains relative benefits and drawbacks that define the organizational finances’ overall plan and strategy.
Cost of Capital
The cost of capital is thus the overall cost incurred for acquiring funds from the investors to finance the operations of the organization. Some of the purposes include; It is used to appraise investment projects With the help of this measure, one can make the right decision in financing.
Capital Structure
Capital structure can be defined as the proportion of the organisation’s capital sourced through debt and equity. Cost of capital and financial risk are the two aspects which directly relate to the theory of capital structure.
Leverage
Gearing implies the use of debt to increase the potential gain from investment. Although the use of leverage does enhance returns, it also enhances the level of risk on the financial assets.
Working Capital Management
Components of Working Capital
There is an understanding about the fact that the working capital is made up of current assets and current liabilities. Working capital management guarantees the organization’s efficiency in the short term by ensuring that it has the necessary supplies and cash to meet such obligations.
Working Capital Cycle
The working capital cycle depicts the time that is required in an organization in order to convert the current assets to cash. These are inventory management, receivable management, and payable management.
Cash Management
The fundamental involves the processes of receiving, utilizing, and preserving cash and cash equivalents in an organization. It incorporates cash balance estimate, cash budgeting, and cash reserves.
Inventory Management
Inventory control helps to make certain that the organization has the appropriate amount of inventory to serve the customer’s needs while at the same time the organization ties up its capital in inventory to the minimum. They are such as Just-In-Time and Economic Order Quantity.
Receivables Management
Receivables management is all about credit sales to the consumers and collection for products sold on credit. They include; credit policies; credit terms; and collection procedures.
Payables Management
Account payables can be defined as the process that is employed in handling of the organization’s responsibilities towards the suppliers or creditors. It encompasses availing credit terms with the suppliers and ensuring that one pays most of the suppliers on the agreed time.
Financial Planning
Short-term Financial Planning
Writing short-term financial forecasts, this method is considered for managing the organizational financial requirements for a short period, which is usually one year. This is the forecasting of cash inflow and outflow over short-term as well as identification of places to invest in the short-term.
Long-term Financial Planning
This means that long-term financial planning entails setting of financial objectives and also identification of a long-term plan for their achievement. It includes capital budgeting and strategic financial planning Any organization’s future financial planning cannot be complete without identifying a strategy for the strategic funds that the company/organization will be willing to allocate for future investments.
Financial Risk Management
Types of Financial Risks
These are market risk, credit risk, the liquidity risk and operational risk. Despite the fact that potential risks may accumulate in various areas of the organization, it important to identify and control the indicated risks in order to protect organization’s financial position.
Risk Assessment
Risk assessment includes activities such as risk identification, evaluation, and ranking in accordance with the level of risk they pose. On this front, it assists in formulating sound frameworks to contain risks.
Risk Mitigation Strategies
These are; risk elimination, risk reduction, risk transfer and risk assumption. They are useful in the management and containment of the financial risks with positive impacts on the control of the situation.
Dividend Decisions
Dividend Policies
Dividend policies refer to how the profits made are to be distributed to the shareholders or the company’s reinvestment. There are three types of dividend policies which are; stable dividend policy, constant dividend policy, and residual dividend policy.
Factors Influencing Dividend Policy
Some influences that affect dividend policy include profitability of the organization, availability of cash and the opportunities that are available for investment, the shareholders’ desire.
Types of Dividends
Some of the possible categories of dividends are the cash dividends, the stock dividends and property dividends. Savings for each type are also different, and therefore have different consequences for the organization and its shareholders.
Cost Management
Types of Costs
Some common examples of costs include; fixed costs, variable costs, direct costs, and indirect costs. These costs are very essential to be understood as a part of cost management and determining the price for products and services to be offered.
Cost Control Techniques
Budgeting is one of the costing control techniques, which provides a general and fixed price for products or services that need to be controlled, while variance analysis refers to the comparison of the actual costs with the estimated costs of a certain product or service. These techniques assist in managing costs for the purpose of enhancing the organizational profit margins.
Cost Reduction Strategies
Cost strategies entail the following: This entails the elimination of all expenses that are not necessary while providing solutions that might not have been eliminated if quality factors were fully considered. This includes process improvement methods such as BPR, outsourcing and the application of economies of scale.
Financial Performance Evaluation
Key Performance Indicators
Financial performance indicators are measures used in the evaluation of the organization’s performance. Some of the most popular KPIS are; the return on investment (ROI), the earnings per share (EPS) and the operating profit margin.
Benchmarking
Comparing the actual results of the organisation’s readiness with the industry standards or with the business competitors is called benchmarking. They assist in defining where the organization can improve and measures the performance of the company.
Balanced Scorecard
The balanced scorecard is a strategic performance measurement system that addresses two aspects of an organisation namely the financial and the non-financial aspects. It includes four perspectives: The four perspectives of the BSC are financial, customer, internal business process, and learning and growth.
Financial Markets and Instruments
Overview of Financial Markets
Financial markets are markets where securities such as stocks, bonds and derivatives are bought and sold. It is very important in the process of sourcing for funds and the management of risks associated with these funds.
Types of Financial Instruments
Financial instruments comprise equity securities, debt securities, and derivatives. A distinction is made between types depending on the purpose they are used, as well as on their risk-return profile.
The central function of financial markets in the operation of business is as follows.
Thus, financial markets offer the services of liquidity provision, establishment of prices in risky securities and risk management. It covers all aspects of corporate business management and it is central to the proper running of the economy.
Corporate Governance
Principles of Corporate Governance
Using the principles and practice, corporate governance works to provide the best management practices for organizations. Accountability, transparency, fairness and responsibility are some of the principles which are well espoused in this aspect.
Role in Financial Management
Adherence to good corporate practices contributes to the efficiency of financial management as it instills ethical conduct, compliance with the law, and better decisions on matters concerning finance.
Corporate Social Responsibility
CSR can be defined as the idea that a corporation is managed according to a shareholders’ charter, is accountable to society at large for its activities, and is committed to being an economic, social, and environmental force for good, through its influence over the behavior of workers, customers, and third parties.
International Financial Management
Exchange Rate Management
Currency risk forms the main component of exchange rate management, whereby an organization is able to control the risk caused by fluctuations in the exchange rates. Examples include hedging, forward contract and currency swap.
International Financing
Thus, international financing means obtaining funds in the international markets. Latest figures for overseas investment comprise Foreign Direct Investment (FDI) FDI, international bonds an cross-border loans.
Multinational Financial Management
Multinational financial management refers to the management of financial operations of the companies of the multinational segment. It also comprises the handling of risks in foreign exchange, taxation in international business, and global cash management.
Ethical Problem in Financial Management
Ethical Standards
There is a set of ethical practices that shareholders apply in the management of financial affairs, and these are the ethical standards of conduct in financial management, which include truthfulness, integrity, reasonableness, and fairness. It is necessary to follow such standards in order to gain consumers’ confidence and have a positive reputation.
Common Ethical Issues
Some of the familiar ethical dilemmas relate to finance such as embezzlement, trading based on material nonsingleton information, and self-dealing. Eliminating such matters is a noble cause for the advancement of ethical practices.
Addressing Ethical Issues
Ethical work management can be defined as a set of activities aimed at creating a high ethical tone for an organization, utilizing efficient controls and meeting the requirements of the law.
Personal Financial Management
Personal Budgeting
Personal budgeting is known as the act of organizing one’s or a household’s finances, that is the process of determining how much money is needed to meet financial goals. Personal finance is comprised of a few processes for instance; recording of income, putting up of financial aims and objectives as well as development of a financial plan.
Savings and Investments
For this reason, savings and investments are priorities since these drive the accumulation of assets and the realization of financial plans and goals. It entails putting asides funds to cover the future expenses and, acquiring facilities whose value will improve and create revenue.
Personal Financial Planning
Personal financial planning is the procedure of formulating a personal finance strategy to attain certain objectives. It comprises retaining, earning, protecting, and growing the money apart from the interest.
Technology in Financial Management
Financial Management Software
It refers to the handling of money requirements preferably with the use of a computer application to make the operations efficient, accurate and timely and produce real time financial information. Popular examples of software are accounting software, budgeting and financial planning software.
Technology today plays an important part in the efficiency of different analyses with emphasis to the financial field.
Technology improves the measurement of financial analysis by offering incredible analytical tools, graphics, and projections. As a result of using this system, people can make right decisions at the right time with regard to their financial processes.
Emerging Trends
Some of the newest approaches in FMT are artificial intelligence, blockchain, and cloud solutions. They are causing changes in approaches to managing the finances of organizations and enhancing the processes.
Expert Insights
Interviews with Financial Experts
So, conducting interview with the financial specialists is an important task in order to reveal the more optimal ways of multiple aspects of managing the finances, trends in this sphere and the prospects. Opinions of experts help to make the right financial decision and adjust the future activity.
Case Studies
The papers featuring the best practices in financial management provide best practices and descriptions of possible pitfalls. They explain how companies are or have been able to manage their resources and meet their objectives.
Conclusion
Summary of Key Points
Financial management is one of the significant subjects in business studies and applies concepts like financial statement, budgeting, investments, and risks. These concepts are vital and significant in the financial realities of business as well as for the purpose of improving the results of financial decision-making.
Trends for the Future in Financial Management
The future developments in financial management relate to the rising importance of technological advancement in the development and implementation of pro-ethical standards and a sustainable financial management process. These will become trends to watch in the future of financial management and these will need to be taught to be learned of and adapted to.
Final Thoughts and Recommendations
Financial management is one of the most progressive sections of management that hinge on a strong foundational knowledge of the subject, besides knowledge in change. In financial management, thus, continuous learning, ethics, and technologies are key success factors. Thus, the availability and access to information and professional help such as A-Level business tutor can greatly improve students’ and professionals’ managerial financial skills and career.