Outline the Objectives of Financial Management and Analyze Financial Strategies Which Need to Be Addressed When Managing Global Expansion.
- Submitted by: darren6721
- Views: 1328
- Category: Politics: Economics
- Date Submitted: 09/29/2010 07:06 PM
- Pages: 6
- Report this Essay
Globalisation has changed the way businesses operate extensively. Businesses are now not just targeting their products and services at the domestic market, but also are expanding their distribution channels to include international markets as well. This is being done to take advantage of the economic integration that has been taking place in order to achieve the various objectives of financial management more successfully. In order for this to take place numerous financial strategies are used by business.
The objectives of financial management include:
Liquidity- The ability of an organization to pay its short term obligations as they fall due. This is measured by the current ratio (short term assets/short term liabilities) and is based on being able to obtain cash to pay the general short term costs associated with production, distribution and sale of the product. Liquidity needs to be maintained by a business or their productive capacity is restricted.
Solvency – the extent to which a business can meet its financial commitments in the longer terms. Solvency is measured using leverage or gearing ratios (total liabilities/total equity.) If a business is insolvent then the business entity may become bankrupt leading to liquidation of assets to pay debts.
Profitability- The ability of an organization to maximize its profits. This can be measured in numerous ways including net gross profit ratio (gross profit/sales) and net profit ratio (net profit/sales). It demonstrates how much money the owners actually earn after expenses and costs of the goods sold. Without effective profitability, short and long term debt requirements won’t be able to be paid. Profitability is a major issue for every business, for instance Telstra, one of the most prominent Australian businesses, net profit was only at 1.8% which is significantly below industry standards.
Efficiency – The ability of an organization to minimize its costs and manage its assets so that maximum...
The objectives of financial management include:
Liquidity- The ability of an organization to pay its short term obligations as they fall due. This is measured by the current ratio (short term assets/short term liabilities) and is based on being able to obtain cash to pay the general short term costs associated with production, distribution and sale of the product. Liquidity needs to be maintained by a business or their productive capacity is restricted.
Solvency – the extent to which a business can meet its financial commitments in the longer terms. Solvency is measured using leverage or gearing ratios (total liabilities/total equity.) If a business is insolvent then the business entity may become bankrupt leading to liquidation of assets to pay debts.
Profitability- The ability of an organization to maximize its profits. This can be measured in numerous ways including net gross profit ratio (gross profit/sales) and net profit ratio (net profit/sales). It demonstrates how much money the owners actually earn after expenses and costs of the goods sold. Without effective profitability, short and long term debt requirements won’t be able to be paid. Profitability is a major issue for every business, for instance Telstra, one of the most prominent Australian businesses, net profit was only at 1.8% which is significantly below industry standards.
Efficiency – The ability of an organization to minimize its costs and manage its assets so that maximum...