The purpose of a managerial approach, however, is to understand what the figures mean.
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Managerial finance is the branch of finance that concerns itself with the managerial application of finance techniques. Financial management refers to the strategic planning, organizing, directing, and controlling of financial undertakings in an organization or an institute. The goal of financial management is to provide management principles to any financial assets of an organization, business, or even personal financial management; this goal also plays an important role in fiscal management corresponding to the input from financial management techniques. Managerial finance can embodied a multitude of various subsections, each with a specific niece into the vast disciplinaries of both managerial accounting and corporate finance (see Financial analyst#Corporate and other).
The difference between a managerial and a technical approach to finance can be found in the questions one may ask of a company’s Annual Report. Annual reports contain vital corporate information such as Income Statements, Balance Sheets, Statement of Cash Flows, and Statement of Stockholders Equity, which all aid in Managerial Financial analyses. The technical approach is primarily based on measurements. The technical approach is meant to ask a manager “is the accounting correct, in that money is assigned to the right categories in an organized manner, and were accounting principles followed? The technical approach can also assist with developing technological plans to improve the financial reporting process. These approaches can include:
- Analytical Skills
- Spreadsheet Proficiency
- Interpersonal Communication.
The purpose of a managerial approach is to be able to interpret what the figures and numbers actually mean. Managerial decisions can be categorized into three interrelated business processes: Planning, Directing, and Controlling.
- Someone using such an approach might compare the returns to other businesses in their industry and ask the following questions regarding this approach: are we performing better or worse than our competition? If we are performing worse, what is the source of the problem? Do we have the same profit margins? If not, why? Do we have the same expenses? Are we paying more for something than our competition?
- Managers may look at changes in asset balances (Asset balances refer to the balances in the asset accounts which will be summarized and reported on the company’s balance sheet), or red flags that may indicate problems with bill collection or bad debt expenses.
- Managers can analyze working capital to anticipate any potential cash flow problems that could arise in the future. This is an important concept to comprehend because it allows managers to measure a company’s ability to pay off its short term debts or expenses it anticipates to accumulate.
Role of managerial accounting
To interpret financial results in the manner described in the Approach, managers use Financial analysis techniques in order to accurately display and interpret the results of a financial analysis.
Managers should also examine how resources are allocated within an organization or from a company level, as this will provide information for managers relating to the understanding of certain activity costs and how these cost are effecting the organization's bottom line. In order to solve these problems, managerial accounting techniques such as activity based costing are required understanding in order to interpret the manager's role in Managerial Accounting.
In order to anticipate future potential expenses to an organization, managers should have a good understanding of how accuracy is vital during the budgeting process. If managers are having issues regarding this topic, then variable budgeting should be explored further to create a better grasp on the topic.
Role of corporate finance
Managerial finance is also interested in determining the most optimal way to earn revenue in order to improve future opportunities of the company or organization, while also minimizing the potential impact of any financial shocks. To accomplish these goals, managerial finance uses techniques borrowed from Corporate finance to address the following:
- Working capital management - addressing short term current assets and current liabilities
- Capital budgeting, i.e. valuation and funding of "projects" - addressing long term investments
- Capital structure and dividend policy - addressing long-term financial capital
- MIT Open Courseware - 15.414 Financial Management, Summer 2003.
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- Lawrence Gitman and Chad J. Zutter (2019). Principles of Managerial Finance, 14th edition, Addison-Wesley Publishing, ISBN 978-0133507690.
- Clive Marsh (2009). Mastering Financial Management, Financial Times Prentice Hall ISBN 978-0-273-72454-4
- James Van Horne and John Wachowicz (2009). Fundamentals of Financial Management, 13th ed., Pearson Education Limited. ISBN 9780273713630