Understanding Financial Management

B10821
Understanding financial
management

Table of Contents
INTRODUCTION...........................................................................................................................3
1. Understand finance within the context of an organization.......................................................4
1.1 Describe the organization’s sources of finance.................................................................4
1.2 Analyze the range of financial stakeholders and explain their various expectations of the
organization.................................................................................................................................6
1.3 Explain the importance of cash flow forecasting and cash flow management to the
organization.................................................................................................................................8
1.4 Provide a general assessment of business/organizational performance using appropriate
financial measures.....................................................................................................................10
2. Understand the value of recording financial management information.................................11
2.1 Explain the role of financial performance indicators in monitoring the achievement of
objectives...................................................................................................................................11
2.2 Explain the purpose of main financial documents used within the organization............11
3. Understand budgets for the management of own area of operation.......................................12
3.1 Explain the process of budget setting used in the organization......................................12
3.2 Explain how to use budgetary techniques to contribute to controlling cost in own area of
operation....................................................................................................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
The purpose of this report is to have better understanding of finance within the context of
organization. There are basically two types of resources debt and equity to raise fund for any
company. Financial stakeholders are those internal and external parties which have stake in the
business like managers, investors, banks and various others. Cash flow management is the part of
forecasting of future cash to be coming to the organization and can be measured by measuring
actual result with forecasted expectations. The project also discusses about budgetary techniques
and process of setting budget for an organization. Today finance is becoming the core activity for
every business besides statistics; as this accounting tools help business in making set up plan
through trend analyses, forecasting, demand forecasting and capital budgeting.

1. Understand finance within the context of an organization
1.1 Describe the organization’s sources of finance
Sources of finance are the alternatives available with organization to raise funds
required for business. These funds are usually for long-term or say non-current
liabilities for the organization. Finance can be raise through two sources; debt and
equity, where debt financing are the borrowings through issuing debentures, borrow
from bank or any other non-banking institutes. On the other hand; equity funding is
basically raising funds through issuing shares (Van Horne James, 2002). Funds can be
raised on three basis; period, ownership basis and generation of source:
Long term equity Medium term Short term
 Equity shares
 Retained
earnings
 Preference
shares
 Debentures
 Loan from
financial
institute
 Bank loan
 Public deposits
 Loan from
financial
institute.
 Trade credit
 Factoring
 Banks
 Commercial
paper
On the basis of Period