Strategic Financial Management Essay

2225 Words Feb 28th, 2008 9 Pages
Overview of the objectives of strategic financial management

What is financial management?
‘That part of management accounting concerned with setting financial objectives, planning and acquiring the optimum finance to meet them, and seeing that fixed and working capital are effectively managed.' (CIMA).
Two fundamental questions: 1. What investments should a firm make?
• Long term investments are referred to as ‘capital investment projects'
• e.g. build a new supermarket or factory. 2. How should the firm pay for those investments?
• Sources of finance, i.e. where should the money come from? o e.g. Should the supermarket or factory be financed by borrowing money from the bank? Diagrammatic overview of a public limited
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(b) The financial structure of the enterprise.
(c) The liquidity and financial viability of the enterprise.

A balance sheet does not (except by coincidence) show the value of the relevant enterprise (PR/ASB). Assets
Assets are rights or other access to future economic benefits controlled by the entity as a result of past transactions or events (FRS 5).

Liabilities
Liabilities are obligations of the entity to transfer economic benefits as a result of past transactions or events (FRS 5/CIMA).

Illustrative balance sheet (IAS1 format)
XYZ Group
Balance sheet as at 31 December 20X2 20X2 20X1
ASSETS
Non-current assets
Property, plant and equipment X X
Goodwill X X
Other intangible assets X X
Investments in associates X X
Available-for-sale investments X X
Total non-current assets X X Current assets
Inventories X X
Trade receivables X X
Other current assets X X
Cash and cash equivalents X X
Total current assets X X
Total assets X X EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Share capital X X
Other reserves X X
Retained earnings X X X X
Minority interest X X
Total equity X X Non-current liabilities
Long-term liabilities X X
Deferred tax X X
Long-term provisions X X
Total non-current liabilities X X

Current liabilities
Trade and other

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