What is the role of financial management and other areas of management?
Answers
As you pursue your study of financial management, you should keep in mind that financial management is not a totally independent area in business administration. Instead, it draws heavily on related disciplines and fields of study. The most important of these are accounting and economics; in the latter discipline, both macroeconomics and microeconomics are significant. Marketing, production, human resources management, and the study of quantitative methods also have an impact on the financial management field. Each of these is discussed here.
Accounting
Financial managers play the game of managing a firm’s financial and real assets and securing the funding needed to support these assets.Accountants are the game’s scorekeepers. Financial managers often turn to accounting data to assist them in making decisions. Generally a company’s accountants are responsible for developing financial reports and measures that assist its managers in assessing the past performance and future direction of the firm and in meeting certain legal obligations, such as the payment of taxes. The accountant’s role includes the entrepreneurial ISSUES
Shareholder Wealth Maximization
Entrepreneurial finance deals with the financial issues facing small businesses an important sector of the U.S. economy. Small business firms may be organized as sole proprietorships, partnerships, or corporations. According to criteria used by the Small Business Administration, over 95 percent of all business firms are considered small.
These firms account for the majority of private sector employment and nearly all of the recent net growth in new jobs. It is difficult to arrive at a precise definition of a small, or entrepreneurial, business; however, the characteristics of small business firms can be identified. In general, small businesses are not the dominant firm in the industries in which they compete, and they tend to grow more rapidly than larger firms. Small firms have limited access to the financial markets, and they often do not have the depth of specialized managerial resources available to larger firms. Small firms also have a high failure rate.
Economics
There are two areas of economics with which the financial manager must be familiar: micro-economics and macroeconomics.Microeconomics deals with the economic decisions of individuals, households, and firms, whereas macroeconomics looks at the economy as a whole.
The typical firm is heavily influenced by the overall performance of the economy and is dependent upon the money and capital markets for investment funds. Thus, financial managers should recognize and understand how monetary policies affect the cost of funds and the availability of credit. Financial managers should also be versed in fiscal policy and how it affects the economy. What the economy can be expected to do in the future is a crucial factor in generating sales forecasts as well as other types of forecasts.
Marketing, Production, Quantitative Methods, and Human Resources Management
We depicts the relationship between financial management and its primary supportive disciplines.Marketing, production, quantitative methods, and human resources management are indirectly related to the key day-to-day decisions made by financial managers. For example, financial managers should consider the impact of new product development and promotion plans made in the marketing area because these plans will require capital outlays and have an impact on the firm’s projected cash flows.
Similarly, changes in the production process may necessitate capital expenditures, which the firm’s financial managers must evaluate and then finance. The tools of analysis developed in the quantitative methods area are frequently helpful in analyzing complex financial management problems. Compensation policies may impact the extent of agency problems in a firm.