Business - Financial Planning

HSC Topic 2- Financial Planning and Management

    • The Role of Financial Planning
        ≥ Financial Management refers to how businesses raise, use and monitor funds. It involves the process of Planning, Monitoring and Controlling the business’s financial position and performance.
        ≥ Effective financial management will allow a business to maximise profits.
    • Strategic Role of Financial Management
        ≥ To give the business long-term, big picture goals to aim for, as wells as the specific objectives needed to reach these goals.
    • Objectives of Financial Management (GELPROC)
        ≥ Liquidity
              ✓ Liquidity is the ease with which an asset can be concerted into cash
              ✓ Liquidity measures the ability of a business to repay its debts as they fall due.
              ✓ It is a short term indicator of the financial stability of a business.
              ✓ Assets that can be transformed into cash within a year are called “current” assets
              ✓ Current Assets include inventory (stock), accounts receivable (debtors) and cash.
              ✓ The stability of the external environment may influence a business’s liquidity( An uncertain external environment will force management to increase its liquidity by maintaining large excess cash reserves or increasing its proportion of current assets, in case large demands are placed on the business.
        ≥ Profitability
              ✓ Profitability is an objective of financial management concerned with the earning performance of the business. It can be measured as a proportion of sales or owner’s equity.
              ✓ Revenues are the returns generated by the ownership and use of assets
              ✓ Profit = Revenue (money in) – Expenses (money out)
              ✓   Profits created by a business will be used to reimburse the owners of the business and/or to create further opportunities for the business to grow.
              ✓ The...