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The Role of Financial Planning

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The Role of Financial Planning By Brooke, Chris and Jake Strategic Role Of Financial Management The role of financial management is to provide the link between what a ... – PowerPoint PPT presentation

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Title: The Role of Financial Planning


1
The Role of Financial Planning
  • By Brooke, Chris and Jake

2
Strategic Role Of Financial Management
  • The role of financial management is to provide
    the link between what a business wants to achieve
    in the future and the resources that will be
    needed to achieve its objectives.
  • The STRATEGIC role of financial management is the
    process of ensuring that the resources needed to
    achieve business goals are available when they
    are needed large businesses go about this process
    by establishing a senior management team the
    teams sets the direction of the business and
    turns the goals into achievable objectives.
  • The long term, or strategic, role of financial
    management is to ensure that a new business
    continues to operate, grows and provides
    substantial profits to owners and shareholders.
    Financial manager will plan the financial aspect
    for years into the future.

3
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4
  • 2) Objective of financial management
  •  
  • One of the objectives of every business is to
    become wealthy. This is how many business manage
    there success.
  • The first objective that business owner want to
    measure is the profit of a business and how much
    or if any the business is taking on. This profit
    can be reinvested into the business or the owners
    can use it for there themselves
  •  

5
Objective Definition Data from financial reports analysis
Profitability The earnings of the business after expense have been paid Gross profit NET PROFIT earning before interest and tax(EBIT) formulas are calculated as a percentage of sales
Efficiency How much total revenue is spent on expenses expenses Formula is calculated as a percentage of sales
Return on capital The financial return to the owners as a percentage of their capital contribution net profit owners equity Compare return to owners against alternative investment
Growth The size of business compared to its competitors in the same market market share number of outlets Compare business sales to total sales in the market
Liquidity The ability of the business to pay short term liabilities using its current assets current assets and current liabilities Compare current assets and current liabilities.
6
  • Liquidity
  • Liquidity is the ability of a business to be able
    to pay its short term debts by doing a balance
    sheet business managers are able to measure
    current asset and the current liabilities which
    are debts that are due to be paid within 12
    months.
  • This is an example of 2 different business
    liquidity situations

7
Current assets Dollar Current liabilities Dollars
Cash 1000 Bank overdraft 2000
Stock 6000 Accounts payable 3000
Accounts receivable 3000
Total current assets 10000 Total current liabilities 5000
Business A has twice as much finance available
to pay is short term debts however if the
suppliers need to be paid immediately the
business not have enough cash on hand.
8
Current assets Dollars Current liabilities Dollar
Cash 4000 Bank overdraft 2000
stock 3000 Accounts payable 3000
Accounts receivable 3000
Total current assets 10000 Total current liabilities 5000
Business b with liquidity is in a much better
position than business A as it has more cash in
hand to pay the suppliers if they need to be paid
immediately.
9
Liquidity lingo list
Debtors The business or individuals that owe money to a business also known as accounts receivable
Liabilities Amount of money owed to individuals e.g. suppliers of institutions
Current assets Assets such as cash in the bank and accounts receivable that earn revenue for a business in a time shorter then usually 12 months
Current liabilities Money that is owed to external business or person that will be repaid in the shorter term usually fewer than 12 months
Account payable The money a business owes to its suppliers accounts payable is also known as creditors.
Accounts receivable Money owed to the business in the short term. This money is owed to business by customers who are yet to pay fore good or services they have already received.
10
  • The equation for liquidity
  • Liquidity current assets/current liabilities
  • Profitability
  • Profitability is the most recognisable financial
    objective as nearly all businesses will sell to
    increase profit.
  • Profitability lingo list

Gross profit The profit made on the sale of good after paying expenses of purchasing good and transporting them to the business
Net profit The final amount of revenue remaining after all expenses have been paid
11
Revenue-cost of goods soldgross profit-expenses
net profit
  • Efficiency
  • Efficiency is related to profitability because a
    business will be able to increase its profit when
    it can decrease its costs. Efficiency had to do
    with getting the same amount of profit out of
    using less amount of assets. Another measure of
    efficiency is the business ability to collect its
    accounts receivable sooner rather than later.

12
Growth
  • A business that grows will increase its
    profitability in the long term.
  • Growth can be achieved by
  • -increasing the physical size of the business by
    expanding or moving to a large office or factory
  • -increasing the value of assets in a business
  • -increasing sales and profits
  • -increasing market share
  • -opening more branches or offices in Australia or
    overseas
  • -taking over a competitor
  • -merging with another business in the same
    industry
  • -diversifying by buying other businesses

13
Return on capital
  • Return on capital is the money that is returned
    to the owner of the business and if they are a
    shareholder the dividends that are returned to
    them for the input of money they have given the
    business.

14
THANK YOU!!
  • By
  • Brooke
  • Chris
  • Jake
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