Question

There are three key elements in the process of financial management. Explain them.

Answer 1

1. Financial planning: Management need to ensure that enough funding is available at the right time to meet the needs of the business.
   (а) The short term funding may be needed to invest in equipment and stocks, pay employees and fund sales made on credit.
   (b) The medium and long term funding may be required for significant additions to the productive capacity of the business or to make acquisitions.
2. Financial control: It ensures that the business is meeting its goals and objectives. Financial control addresses questions such as:
   (a) Are assets being used efficiently?
   (b) Are the business assets secure?
   (c) Does management act in the best interest of shareholders and in accordance with business rules?
3. Financial decision-making: The key aspects of financial decision-making relate to investment, financing and dividends. For example, it is possible to raise finance from selling new shares, borrowing from banks or taking credit from suppliers.
   (a) A key financing decision is whether profits earned by the business should be retained or distributed to share¬holders through dividends.
   (b) If dividends are too high, the business may be starved of funding to reinvest in growing revenues and profits further.
4.