Different Approaches for Effective Decision Making in Financial Management

This presentation discusses different approaches and principles in financial management that support effective decision making. It covers topics such as knowledge management systems, the role of stakeholders, financial statistics, and ratio analysis. It also explores the role of management accountants and accounting control systems in decision making. The presentation emphasizes the use of financial statements to help in decision making.

FINANCIAL
MANAGEMENT
PRINCIPLES AND
STRATEGIES
Name of Student
Name of the University
Author Note
Different Approach used to support Effective decision Making
Role of Management Accountant and Accounting Control system
Sustainable performance with the help of Effective financial decision
Learning outcome
Financial management principles which support effective financial
strategies

Different Approach used to support Effective decision Making
Knowledge
management
system
Explicit
knowledge
Tacit
knowledge
(also called communicative knowledge) is Knowledge that can be instantly expressed, organised,
retrieved and put into words. It can be effortlessly conveyed to others. The information included in
Records, manuals, audio visuals are good models of explicit knowledge
It is the form of Knowledge that is hard to transmit to another person by medium of inscription or
articulating it. The tacit features of knowledge are those that cannot be codified, but can only be
communicated by training or individual experience
Tacit Knowledge
Explicit
Knowledge

The role of stakeholder in decision making using the knowledge tacit
knowledge.
Financial statistics is used by a variety of investors, this information therefore, needs to be truthful to help, and to conform to
legislation. Financial information has to follow a severe auditing procedure. The figures of the financial data therefore, has to be
correct, trustworthy, up-to-date and comprehensible.
Different stakeholders have different needs from the organisation’s financial accounts
Company Managers – require the information to empower them to handle and run the business proficiently.
Shareholders – will require the information to evaluate how successfully management are carrying out the business, how much
they can extract in dividends and how lucrative the business is to invest in for long term.
Trade contracts – trader or the supplier of the raw material on credit to the business, wants the information to know
organization credibility in making payment.
Finance Providers – such as banks who will need to identify that the company can have enough money for the repayments of
loans provided.
The Government – how much tax the company is owing to pay and also any taxation which the establishment gathers on behalf
of the administration .

Financial management principles which
support effective financial strategies
Objectives have many purposes.
They empower the total objectives of the organisation to be fragmented into clear announcements of
what require to be done at every level.
They deliver clear declarations of what action require to be taken.
They deliver an emphasis for every activity.
They offer goals for both personal and group accomplishment.
They simplify the control of authentic performance.
They deliver a ground for assessing how effectively the plans are being executed.
Generally, the financial management planning process concludes in the formulation of corporate
strategy. The strength of the entire process of strategic planning is tested by the efficacy of the strategy
finally forged by the firm. Corporate strategy is the game plan that actually steers the firm towards
success. The degree of aptness of this game plan decides the extent of the firm's success. That is why
formulation of corporate strategy forms the crux of the strategic planning process (Hilton, and Platt,
2013).
Setting objectives to achieve financial goals
Objectives are the expected end result of sequencers of activity, and therefore have a main part in
strategy preparation. Objectives should always be specified as concise as possible, so that it can
quantity whether objectives have been realised (Otley, 2016).

Role of Management Accountant and Accounting Control system
Management accounting is a professional work that encompasses associating in management decision
making, formulating planning and performance management structures, and providing know-how in
financial reporting and control to help management in the preparation and execution of an organization's
strategy.
Important function
of the
management
accountant
Management
accounting
Business accounting
Financial management comprises of design and management of the recording structures for cash and
bank amount, receipts, expenditures and several assets and liabilities.
Cost and management accounting
It includes satisfying the information requirements of organization. It help in organization decision
making, planning the entity financial performance, monitoring costs and increasing profitability (Castilla,
and Fernandez, 2017).
Auditing
It investigate the compliance with governance rules and regulation in line with company processes and
external audits to confirm the existence, ownership and basis of estimate of fixed assets and
investments.
Management accounting is consider as a crucial feature of the strategic development of the entity, as
such it is an instrument to be apply in the several business processes of the entity.

Role of Management Accountant and Accounting Control
systemAuditing plays an important role, this is because corporate organisations evolve due to
• The growing size or organisations, especially in the business sector
• The dive toward globalisation in business
• The technologically driven upsurge in organisational complexity
• The high demanding socioeconomic and legislative structures executed by the European Union
• The rising political compressions for companies to be conscious of their social accountability in the
delivery of correct and truthful financial information
• The social and political pressure on business to improve their intelligence towards ethical obligation
• The proprietors, managements and administrators of every business must be completely cognizant of
their accountability to their stakeholders.
• It is the responsibility of auditors to help directors in this movement through the making of the
accounts of the business in a accountable manner.
Stakeholders will include the following:
• Shareholders
• Local authorities
• Employees
• Customers/clients
• Government
• Financial institution

Sustainable performance with the help of Effective
Financial decisionRatio analysis is a significant financial instrument to make informed business decision. Ratio analysis
pursues to scrutinize the final account of the entity by seeing important key ratio. The broad
classification for the ratio analysis are
• Liquidity ratio
• Activity ratio
• Profitability ratio
• Debt ratio
Liquidity ratio
In order to meet the short-term debts, an entity must have assets that can be sold to generate cash. In
a usual balance sheet, the following assets would be called as current assets
• Account receivable (debtors)
• Bank balances
• Stock (inventory)
• cash
• Pre-payment made
The current liabilities of the entity would comprise such items as
Accounts payable (creditors)
• Notes payable
• Bank credit
The three important of liquidity ratio are:

Sustainable performance with the help of Effective
Financial decisionNet Working Capital
Net Working Capital (NWC) is computed by deducting current liabilities with current assets. As a
common rule of thumb, NWC should always be positive, this means the business has more current
assets as compare to current liabilities. Circumstances might rise where the positive variance can be
excessively high, and this means that the business is not utilizing its current assets competently. For
example, the company may be retaining too much cash in the business, permitting trade debtors too
much time to reimburse their unpaid bills
Net Working Capital= Current Assets - Current Liabilities
Current ratio
The current ratio is the liquidity ratio that evaluate a business capacity to pay short term due within one
year time frame. It represent the investor how a business can maximize the current assets on its
balance sheet. The formulae comprise the following
Current ratio = current assets / current liability
The Acid Test ratio
It is usually measured that the least liquid of a business current assets is its stock holding or inventory.
Most financial management analysts recommend that a better barometer of an business liquidity is the
Acid Test Ratio, which eliminates the least liquid of the entity assets from the liquidity ratio
measurement.
Formulae: cash + marketable securities +Account receivables / Current Liability
Return on Investment – ROI

Sustainable
performance with
the help of Effective
Financial decision
Use of Financial statements to help in decision making
Management use of financial statements such as cash flow, trial balance
and break even to effectively run the organization, to decide future
business strategy, to take day to day and longer term decisions. Outside
stakeholders also use the financial data to make decisions regarding their
investment.
Cash flow statement (CFS)
The aim of the cash flow is to show the business profits and cash; it also
provide information on where the money originates from and where the
cash is invested. The duration cover by the cash flow statement should be
decided by the company but is often made on monthly basis. This is to be
noted the cash flow statement is frequently measured in advance so that
the entity can ensure that funding is available for money borrowed and is
from time to time CFS joint with the budget to develop a budget cash flow
forecast.
Trial Balance
A trial balance is a conclusion of the transactions documented in
the ‘books’ recognised as ledger accounts and is used to test the
correctness of double entry accounting records at the same time it also
assist in easier creation of the final accounts and the financial statement.
Each ledger account is summed and this data is incorporated for the
statement of financial position or the balance sheet.

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