Manage the finances of a unit
UNDERSTANDING THE KEY CONCEPTS OF MANAGERIAL FINANCE
Financial figures, by themselves, usually do not mean much. When you compare the financial figures with certain other numbers you can learn much about how your organisation is doing. For example, you can compare the planned expenses depicted in your budget with your actual expenses to see if your spending is on track. You could also use ratios to analyse the financial figures. A ratio is a comparison made by dividing one figure by another, such as how salaries are related to the total expenses for a department to find the implications thereof.
Difference between finance and accounting
Finance has been called “The science of money”.9 It studies the principles and the methods of obtaining control of money from those who have saved it, and of administering it by those into whose control it passes.
“Finance is the process of conversion of accumulated funds to productive use. It is so intermingled with other economic forces that there is difficulty in appreciating the role it plays.”10
Howard and Uptron11 in their book introduction to Business Finance defined finance “as that administrative area or set of administrative functions in an organisation which relate with the arrangement of cash and credit so that the organisation may have the means to carry out its objectives as satisfactorily as possible”.
Finance can be defined as the activity concerned with the planning, raising, controlling and administering of the funds used in the business. Finance is the activity concerned with the raising and administering of funds used in business.
Financial management is managerial activity which is concerned with the planning and controlling of the firm’s financial resources. Financial Management is an integral part of the overall management of other disciplines and fields of study like economics, accounting, production, marketing, personnel and quantitative methods. The relationship of financial management with other fields of study is explained as follows:
Accounting and finance are closely related. Accounting is an important input in the financial decision-making process. Accounting is concerned with the recording of business transactions. It generates information relating to business transactions and reporting them to the concerned parties. The end product of accounting is financial statements, namely profit and loss accounts, Statements of Financial Position (balance sheets) and the statements of changes in financial position. The information contained in these statements assists the financial managers in evaluating the past performance and future direction of the firm (decisions) in meeting certain obligations like payment of taxes and so on. Thus, accounting and finance are closely related.
Financial analysis starts with accounting. Accounting is a service-based profession that provides reliable and relevant financial information for making decisions.
Accounting is the method in which financial information is gathered, processed and summarised into financial statements and reports.
Financial analysis is part of financial management, which includes:
- The management and recording of the flow of money
- Planning the future use of money
- Ensuring that the money is well spent and not misused
- Building the financial sustainability of the organisation
