Financial Management Report: BHND5206 - Financing and Planning

This report provides a comprehensive overview of financial management, addressing key concepts and practical applications. It begins by outlining the main purposes and tasks of financial management, including profit maximization, proper mobilization of business finance, and ensuring corporate survival. The report then delves into the role of a finance manager, covering financial planning, capital structure determination, and maintaining proper liquidity. It explores the importance of corporate finance, discussing capital investments, financing, and short-term liquidity. The report further examines the significance of financial planning, emphasizing its role in forecasting fund requirements and preventing financial uncertainties. The report also identifies various financing methods, such as debt finance, equity finance, debtor finance, and trade finance, along with their implications. Finally, it evaluates these financing options using criteria like cost, risk, and dilution of ownership to determine the best capital structure for a business. The report incorporates references to academic sources to support its analysis.

BHND5206 - Financial
Management

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK 1............................................................................................................................................3
Main purpose/tasks of financial management:.......................................................................3
Describe role of finance manager in company:......................................................................4
Importance of corporate finance and its roles:.......................................................................4
Financial Planning and its importance:..................................................................................5
TASK 4............................................................................................................................................6
Identify possible financing methods to business:...................................................................6
The implication for each financing method:..........................................................................6
Evaluate the options using appropriate criteria to select the best financing option:..............7
REFERENCES................................................................................................................................8

INTRODUCTION
Financial management is vital business area. This is because an organisation cannot work
without the appropriate utilisation funds. It may also be increasingly rising. In order to
comprehend and implement proper management practices in managing and using funds,
one need to consider how important financial management is for an organisation (Herdjiono and
Damanik, 2016). The study covers various aspects of financial management through different
tasks.
MAIN BODY
TASK 1
Main purpose/tasks of financial management:
Following are certain major purposes/tasks of financial management as described below:
Profit Maximisation: One major purpose an organization hires a financial-manager is to enhance
profit by controlling the corporation 's finances. The profit can be short-term or longer-term.
However, the emphasis is mainly on ensuring that the person or department managing the
financial problems of the business is sufficiently profitable.
Proper mobilisation of business finance: the accumulation of finances to run business is also an
essential aspect of FM, which management requires to handle properly. Upon completion, the
Manager would be able to request the requisite sum from all legal means, such as debt securities,
stocks or even mortgage loan applications, after the calculation of the sum necessary for business
operation. However, the main point is that capital that the company has and sum borrowed must
be properly balanced (Chandra, 2020).
Survival of corporation: The corporation's survival is crucial. That's also main purpose why
management is mainly concerned with employing financial administrators. In order to establish a
successful business, the manager must make appropriate financial decisions.
Effective Coordination: The different divisions must have an effective working bonding and
corporation. For business to work efficiently, finance department should comprehend and
collaborate with some other business units.
Reduces cost of capital: Financial managers are also working hard to lower capital costs, which
are significant for the corporation. They ensure that capital borrowed enjoys low rates
to maximize profits.

Describe role of finance manager in company:
Here are several major roles of company’s financial manager, as follows:
Financial Planning and Forecasting: The role of financial manager is to prepare and
assess financial requirements of the organisation. He must include specifics of the sum of capital
needed for the organization to buy different assets. He must be able to decide what to invest
towards working capital as well as capital expenditure, too. Another critical role for financial
manager is planning for funds the organisation needs for the future. And even for financial
manager, way the funds are realised and utilised is extremely significant (Barr and McClellan,
2018).
Capital structure determination: The capital composition must be defined until the preparation
and projecting is completed. capital composition is defined as the combination of debts and
equities used to fund potential productive investment opportunities for the business.
Maintain Proper Liquidity: Cash is best source of liquidity management. The organization has
to purchase raw materials, make payments, and satisfy the corporation's other fiscal
requirements. A financial manager must, therefore, decide if liquidity assets are needed. He must
also manage such assets to avoid a shortage of funding in the corporation.
Financial Controls: This can be viewed by evaluating the real performance of a organisation, as
opposed to shorter, medium and longer-term goals and business strategies from various
viewpoints at varying periods.
Importance of corporate finance and its roles:
Corporate finance is finance component concerned with the management of borrowing, capital
structuring, including investment decision-making by businesses. The key goal of corporate-
finance is to enhance the shareholder values that enable managers to align capital funds among
project activities that maximise a corporation's long-term productivity and sustainable
development (Al Breiki and Nobanee, 2019). Following is discussion about role of corporate
finance in an organisation, as follows:
Capital Investments: The roles of corporate finance involve investment capital and leveraging
long-term investments in a business. The decision-making mechanism for capital investment
involves mainly the budgeting of money. The organisation determines capital expenses by
capital budgeting, forecasts future cash-flows by capital projects contemplated by the

organisation, compares expected investments with the projected profits and determines the
projects to be included in capital budget.
Capital Financing: Corporate-finance is also responsible for sourcing of debts or equity. A
business can loan or offer debt securities via Investment Banks on capital markets via
commercial banking institutions and other finance intermediaries. In particular when large
amounts of capital are required to expand business, a corporation can decide also to selling
shares to equity shareholders.
Short-Term Liquidity: Corporate finance's role includes short-term financial management
with aim of ensuring that liquidity flow is available to continue operational processes. Shorter-
term financial management is concerned with existing assets and obligations or operating capital
as well as cash flows.
Financial Planning and its importance:
Financial planning starts when the overall capital needs are determined. In this respect, financial
managements carry out the revenue projection and if potential outlook is promising and profits
are projected to rise, business manufacturing capacity requires to be expanded, which implies
more demand for longer-term financing (Siminica, Motoi and Dumitru, 2017). Following are
certain points which help to describe importance of financial planning, as follows:
 Financial planning forecasts the exact requirement for funds that eliminate wastes and
over-capitalization.
 Funding may be distributed from different sources and used for long , medium and short-
term purposes. For sufficient resources to be taped in period, financial planning becomes
crucial as long-term finances are usually supplied by stakeholders, debtholders, financial
institutions in the medium run and banking institutions in the short term.
 This demonstrates how funds should be distributed for different purposes by contrasting
different investments.
 Financial planning allows to prevent shocks or uncertainties in unknown circumstances
by predicting financial requirements.
 This helps to determine the debt-to - equity proportion and determine how these funds is
to spend. It establishes a relation between the two opinions.

TASK 4
Identify possible financing methods to business:
Debt finance: Debt finance implies borrowing money, form bank or another financial institution
or lender. Credit cards, notes payable or loans are the most commonly used. On other hand, this
enables business as well as profit management because the company is constantly shared with no
other entity. In addition, interest is also exempt from taxes (Ameliawati and Setiyani, 2018).
Equity Finance: Another common business capital source is equity financing. In return for
owning portion of the company, an investor offers funding. Common instances of investors
involve risk entrepreneurs (specialists investing in established firms), angel investors
(individuals investing in start-ups) etc.
Debtor Finance: This source utilizes the most important asset that any organisation can
have: accounts receivables, debtors. In a nutshell, business can turn up to around 85% of unpaid
sales-bills invoices in money within short period. That means business will collect the funds
immediately without waiting for 30 or 60 days, business debtors will usually pay organisation.
Trade Finance: Trade Finance will also provide business with a floating credit facility to pay
off their suppliers across different nations. Again, business don't need to guarantee their property
or personal belongings are safe. Secure business's financing is only assured by a corporation
and owners.
The implication for each financing method:
Debt Finance: When a company collects funds through debt finance, cash flow statement has a
positive aspect in the finance section and balance sheet liabilities have been increased. Debt
finance protects principals and interests, to be reimbursed to debt holders. Since the debt
doesn't dilute ownership, interest's payments decrease net sales and cash flows. This drop is
also tax gain from the reduced taxable profits.
Equity finance: Collecting capital by sale of new equity shares has little effect on profitability
of a business, but may dilute the interests of current shareholders as net income is split into a
bigger percentage. If a corporation raises capital via equity financing, cash flows arising from
funding operations and rise on balance sheet of ordinary shares are positive.
Debtor finance: In particular, businesses with lower reserves of work capital may have issues
with cash flow since invoices are charged on net thirty terms. Debtor financing strategies finance

slow payment invoices that increase company's cash flows and allow it to pay operational costs
more efficiently.
Trade Finance: This is short term capital finance which affects current liability status of
business. Financing through this means improves cash flows for short period but excessive trade
finance may lead to adverse working capital conditions. In long run excessive trade finance may
also lead to unfavourable liquidity positions.
Evaluate the options using appropriate criteria to select the best financing option:
Costs of financing, associated risk, dilution of ownership, and flexibility of
repayments are considered criteria for selecting the appropriate source. Contrasting and
evaluating different options on the grounds of these vital criteria helps create an effective capital
structure. The company is working in a competitive world in today ’s time. decision-making
is important factor, particularly in procurement and use of funds which are backbone of any
organisation.
Cost of Finance: Every funding source has costs, referred as capital costs. When we speak of
debt servicing, the value of tax-deductibility implicitly reduces the expense of debt rather than
the creditors assume. The interest or discount rate shall be the expense of the corporation to use
the debt money. Comparing costs of two different sources means that debt is a better form of
financing, as financial payments on debts are tax-deductible, while the dividend does not occur
(Musah, Gakpetor and Pomaa, 2018).
Risk Associated with Source of Finance: There are different types of risks for an organisation.
These risks must be taken into consideration when determining on the financing source. For
example, if a business depends primarily on debt funding, high financial risks are considered to
be heavily leveraged. In other words, debt repayments will contribute to legal initiative and thus
to the possibility of insolvency if they are not done in good time. High debt per share also
impacts profits. So, a corporation can determine the amount of leverage this can handle in
evaluating an acceptable capital structure.
Dilution of Control and Management: control as well as management in hands of owner is
diluting from outside company with ever more equity. Proponents or shareholders that don't want
to sacrifice leverage of a corporation and still want to retain big decision-making can only allow
equity finance to some degree.

REFERENCES
Books and Journals:
Herdjiono, I. and Damanik, L.A., 2016. Pengaruh financial attitude, financial knowledge,
parental income terhadap financial management behavior. Jurnal Manajemen Teori dan
Terapan| Journal of Theory and Applied Management, 9(3).
Chandra, P., 2020. Fundamentals of Financial Management|. McGraw-Hill Education.
Barr, M.J. and McClellan, G.S., 2018. Budgets and financial management in higher education.
John Wiley & Sons.
Siminica, M., Motoi, A.G. and Dumitru, A., 2017. Financial management as component of
tactical management. Polish Journal of Management Studies, 15.
Ameliawati, M. and Setiyani, R., 2018. The influence of financial attitude, financial
socialization, and financial experience to financial management behavior with financial
literacy as the mediation variable. KnE Social Sciences, pp.811-832.
Musah, A., Gakpetor, E.D. and Pomaa, P., 2018. Financial management practices, firm growth
and profitability of small and medium scale enterprises (SMEs). Information
Management and Business Review, 10(3), pp.25-37.
Al Breiki, M. and Nobanee, H., 2019. The role of financial management in promoting
sustainable business practices and development. Available at SSRN 3472404.