ROLE OF FINANCIAL MANAGEMENT- Financial management is one of the functions of management- Financial management is concerned with o Profit and loss of operationso Control over fund Ensuring availability of adequate cash flowso Capital managemento Raising funds/internal fund controlo Investing the fund Cost control / pricingo Forecasting / measuring financial performance against expectations - Accounting is a subset of financial management. Financial transactions must be recorded, classified, archived and possibly communicated to managers.- OBJECTIVES OF FINANCIAL MANAGEMENTo Liquidity Refers to the cash reserves held or the ability to transform an investment into liquidity with little or no delay or loss of capital Solvency Refers the ability of a company to pay its debts when due and remain a going concerno Profitability Refers to how profitable the company is from the perspective of profit on sales, assets and equityo Efficiency Examines how well working capital is managed, i.e. how quickly it is collected is collected from debtors, inventory sold and creditors paid.o Growth Once a business is established and operations begin, it enters a growth phase, where there should be an increase of the number of goods or services sold- THE PLANNING CYCLEo Strategic or business plans involve how the company can achieve its objectives, typically to create a strong competitive advantage. Organizational planning processes involve the formulation of mission, goals and objectives, an analysis of the main environmental variables that present opportunities, threats and constraints. It is known as an environmental auditAn organizational audit to assess strengths and weaknesses and identify where change needs to be metFormulation of strategies within deadlines to achieve specific objectivesMonitoring and review to ensure that the mission is aligned with the objectives and that the indicators performance levels are met Tactical plans focus on the most efficient use of resources by a business unit or department Operational plans address the implementation of the strategic plan through daily processes, procedures, workflows and efficiency. Financial plans represent the dollar quantification of the stra...... half of paper ......the lease has come to an end. Here the emphasis is on rent, rather than what is actually a deferred purchase. • The lessee may be responsible for paying all or part of the costs of maintenance, insurance, etc. Factoring • Is the sale of receivables or debtors' ledgers to a third party for less than book value Sale and leaseback• Refers to a 'transaction in which the seller retains the use of an asset such as the occupation of a building, simultaneously entering into a rental agreement, with the buyer of the asset at the time of sale - EFFECTIVE FINANCIAL PLANNING or EFFECTIVE CASH FLOW MANAGEMENT Source of funds = use (application) of funds Sources include• Injection of new capital• Raising of new loans• Inventory reductions Applications include• Payment of loans• Taxes paid• Purchase of fixed assets Management strategies for problems of cash flow include: • Shortening the operating cycle • Increasing net profit margins • Increasing trade payables • Lending money • Maintaining a minimum cash reserve