Financial Management

Financial Management

•       Financial Management

–      Financial management deals with two things: raising money and managing a company’s finances in a way that achieves the highest rate of return

–      Chapter 10 focuses on raising money.  

Financial Objectives of a Firm

1.      Profitability

·       Is the ability to earn a profit : Many start-ups are not profitable during their first one to three years while they are training employees and building their brands.

2.      Liquidity

·       Is a company’s ability to meet its short-term financial obligations :  Even if a firm is profitable, it is often a challenge to keep enough money in the bank to meet its routine obligations in a timely manner.

3.      Efficiency

·       Is how productively a firm utilizes its assets relative to its revenue and its profits. Southwest Airlines, for example, uses its assets very productively.  Its turnaround time, or the time its airplanes sit on the ground while they are being unloaded and reloaded, is the lowest in the airline industry.

4.      Stability

·       Is the strength and vigor of the firm’s overall financial posture : For a firm to be stable, it must not only earn a profit and remain liquid but also keep its debt in check.

Financial Statements

1.      Historical Financial Statements

·       Reflect past performance and are usually prepared on a quarterly and annual basis.

           2. Pro Forms Financial Statements

·       Are projections for future periods based on forecasts and are typically completed for

Important of Keeping a Good Records

The first step towards prudent financial management is keeping good records.