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Hrm/531 Week 1 Managerial Finance

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Managerial Finance
Managerial finance is important in our personal life as well as in a business realm. Every day personal decisions are made as to how much should be spent on bills, savings, spending and investing. “In a business context, finance involves the same types of decisions: how firms raise money from investors, how firms invest money in an attempt to earn a profit, and how they decide whether to reinvest profits in the business or distribute them back to investors” (Gitman, 2015, pg. 4). Finance managers use financial techniques to make changes that need to be made to prevent a loss to the company. Cash flow, balances, accounting information and other financial figures are all used for the organization and dispersement of the companies …show more content…

When doing so, the financial tools can be put to use with other helpful resources to build, coordinate and control business actions for success. Cash planning assembles the business’ cash budget while profit planning includes a formulation of pro forma statements. The financial process starts with long term (strategic) financial planning and ends with short term (operating) financial plans. (Gitman, 2015) Long term plans effect actions over a time frame of two to ten years whereas short term plans are one to two years. “Long-term financial plans are part of an integrated strategy that, along with production and marketing plans, guides the firm toward strategic goals” (Gitman, 2015, pg. 127). These plans are detailed spread sheets of the business’ assets, activities, marketing and product development as well as capital composition and financial sources. “Also included would be termination of existing projects, product lines, or lines of business; repayment or retirement of outstanding debts; and any planned acquisitions” (Gitman, 2015, pg. 127). Short term plans start with a sales prediction and from there a production plan is devised. With that production plan, the business can project labor and factory overhead expenditures as well as the prediction of expected raw materials needed. Once these estimates have been established, the business can prepare a pro forma income statement along with a cash

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