Financial Planning Essay

1147 words - 5 pages

Financial planning links the goals a business wants to achieve in the future and the resources it will need to achieve these goals. It is also concerned with evaluating the financial resource of a business. Financial management is about setting the goals throughout the business and deciding what resources will be needed to achieve these goals. The main objective of financial management is to properly account for the income and expenditures of a business in order to maximize the value of that business to its owners. To achieve this manager's must balance the following objectives: Addressing the present financial position, determining the financial elements of the business plan, developing budgets estimating cash flows, preparing financial reports, interpreting financial reports, maintaining record systems, planning financial controls and minimizing financial risks and losses.
Funds are the money a business uses to finance its operations. There are two sources of funds: Internal, which includes owner’s equity and retained profits. External, which consist of short-term borrowing mainly overdrafts and bank bills and long-term borrowing, such as mortgages and debentures. The other main forms of financing are: Leasing, which includes operating leases, and finance leasing Factoring Venture Capital Grants In managing funds, a business will use a mix of debt finance and equity finance. There are costs, benefits and risks associated with both types of financing. Gearing is the proportion of debt finance to equity finance. The success of the level of gearing will depend on the circumstances, including the economic cycle.

The accounting framework is necessary for a business to be able to record its flows of revenue and expenditure accurately. The financial reports issued by the Australian businesses are general-purpose reports that meet the interests of users. The two basic financial reports are: Revenue Statement, which show income and expenditure and can be used to calculate profit. Balance Sheet, which presents details of a firms assets, liabilities, and owner’s equity at a given point in time. A fundamental element of the accounting framework is the accounting equation, which shows the relationship between the businesses assets and its liabilities. In this equation the amount of assets must equal to the sum of total liabilities and owners equity. Assets = Liabilities + Owners Equity Assets are the item of value possessed by a business. There are two groups of assets: Current Assets (short term, less then 12 months will be cash) Non-Current Assets (long term, more then 12 months to turn into cash) Equity is the ownership in a company. There are two main types of equity Owners equity, which is the money invested by the owner Shareholders Equity, which is the money invested by shareholders Financial ratio analysis is one of the most common methods of analysing and interpreting financial statements. Ratios on their own provide very little...

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