Managerial finance is the branch of
finance
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...
that concerns itself with the
managerial application of
finance techniques and theory,
emphasizing the financial aspects of managerial decisions.
The techniques addressed are drawn in the main from
managerial accounting
In management accounting or managerial accounting, managers use accounting information in decision-making and to assist in the management and performance of their control functions.
Definition
One simple definition of management accounting is t ...
and
corporate finance
Corporate finance is the area of finance that deals with the sources of funding, the capital structure of corporations, the actions that managers take to increase the Value investing, value of the firm to the shareholders, and the tools and anal ...
;
the former allow management to better understand, and hence act on, financial information relating to profitability and performance; the latter are about optimizing the overall financial-structure.
The discipline is somewhat academic in nature, and "is concerned more with the assessment of financial techniques versus the financial techniques themselves";
[What is managerial finance?](_blank)
Corporate Finance Institute
Corporate Finance Institute (CFI) is an online training and education platform for finance and investment professionals, providing courses and certifications in financial modeling, valuation, and other corporate finance topics. These are the s ...
its emphasis though, is managerial as opposed to technical.
Putting the techniques into practice – i.e. performing
financial management
Financial management is the business function concerned with profitability, expenses, cash and credit, so that the "organization may have the means to carry out its objective as satisfactorily as possible;"
the latter often defined as maximizin ...
– entails strategic planning, organizing, directing, and controlling of the organization's financial undertakings; see and .
Correspondingly, the discipline will assess the various techniques from the perspectives of Planning, Directing, and Controlling.
Managerial accounting techniques
Management accounting techniques are applied in the preparation and presentation of financial and other decision oriented information "in such a way as to assist management in the formulation of policies and in the planning and control of the operation undertaking".
Institute of Certified Management Accountants
The Institute of Certified Management Accountants (ICMA) is an Australian organisation operating globally, focused on management accounting. It differs from other Australian Accounting societies: CPA Australia, Institute of Chartered Accountants ...
The analytics here are thus concerned with forward-looking decisions, as opposed to the historical and compliance perspective of
financial accounting
Financial accounting is the field of accounting concerned with the summary, analysis and reporting of financial transactions related to a business. This involves the preparation of financial statements available for public use. Stockholders, s ...
.
Undertaking these tasks, financial managers use various
management accounting
In management accounting or managerial accounting, managers use accounting information in decision-making and to assist in the management and performance of their control functions.
Definition
One simple definition of management accounting is th ...
and
financial analysis
Financial analysis (also known as financial statement analysis, accounting analysis, or analysis of finance) refers to an assessment of the viability, stability, and profitability of a business, sub-business or project.
It is performed by profes ...
techniques to accurately assess the results and performance of the business lines and units, and to monitor resource allocation within the organization;
this includes
profitability analysis and
cost analytics
– employing techniques such as
activity based costing
Activity-based costing (ABC) is a costing method that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each. Therefore, this model assigns more ind ...
,
whole-life cost
Whole-life cost is the total cost of ownership over the life of an asset. The concept is also known as life-cycle cost (LCC) or lifetime cost, and is commonly referred to as "cradle to grave" or "womb to tomb" costs. Costs considered include the f ...
analysis,
cost–volume–profit analysis
Cost–volume–profit (CVP), in managerial economics, is a form of cost accounting. It is a simplified model, useful for elementary instruction and for short-run decisions.
Overview
A critical part of CVP analysis is the point where total revenu ...
, and
variance analysis –
as well
budget analytics more generally, where
conditional budgeting
Conditional budgeting is a budgeting approach designed for companies with fluctuating income, high fixed costs, or income depending on sunk costs, as well as NPOs and NGOs. The approach builds on the strengths of proven budgeting approaches, leve ...
may be explored in some settings.
(See also
cash flow forecast and
financial forecast
A financial forecast is an estimate of future financial outcomes for a company or project, usually applied in budgeting, capital budgeting and / or valuation; see .
Depending on context the term may also refer to listed company (quarterly) ea ...
.)
Corporate finance techniques
Managerial finance is, as above, also focused on the overall financial-structure of the business, including its realized impact on cash flow and profitability. It is thus interested in long-term revenue / business optimization, while also minimizing the potential impact of any financial shocks on short term performance. To accomplish these goals, managerial finance addresses techniques borrowed from
Corporate finance
Corporate finance is the area of finance that deals with the sources of funding, the capital structure of corporations, the actions that managers take to increase the Value investing, value of the firm to the shareholders, and the tools and anal ...
, usually organized re the following:
*
Working capital management
Corporate finance is the area of finance that deals with the sources of funding, the capital structure of corporations, the actions that managers take to increase the value of the firm to the shareholders, and the tools and analysis used to allo ...
- addressing short term
current assets
In accounting, a current asset is any asset which can reasonably be expected to be sold, consumed, or exhausted through the normal operations of a business within the current fiscal year or operating cycle or financial year (whichever period is ...
and
current liabilities
In accounting, current liabilities are often understood as all liabilities of the business that are to be settled in cash within the fiscal year or the operating cycle of a given firm, whichever period is longer.
A more complete definition is t ...
and optimizing cash flow
*
Capital budgeting
Capital budgeting in corporate finance is the planning process used to determine whether an organization's long term capital investments such as new machinery, replacement of machinery, new plants, new products, and research development projects ...
, i.e. selection /
valuation and funding of "projects" – addressing long term investments
*
Capital structure
In corporate finance, capital structure refers to the mix of various forms of external funds, known as capital, used to finance a business. It consists of shareholders' equity, debt (borrowed funds), and preferred stock, and is detailed in the ...
and
dividend policy – addressing long-term
financial capital
Financial capital (also simply known as capital or equity in finance, accounting and economics) is any economic resource measured in terms of money used by entrepreneurs and businesses to buy what they need to make their products or to provide ...
and attempting to optimize the balance sheet
See also
*
List of management topics
The following outline is provided as an overview of and topical guide to management:
Business management – management of a business. Business management rule #1 is delegation, assign the best qualified people to each position and trust ...
*
List of accounting topics
This page is an index of accounting topics.
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A
Accounting ethics - Accounting information system - Accounting research - Activity-Based Costing ...
*
FP&A
A financial analyst is a professional, undertaking financial analysis for external or internal clients as a core feature of the job.
The role may specifically be titled securities analyst, research analyst, equity analyst, investment analyst, ...
References
Further reading
* Jonathan Lewellen (2003)
Financial Management MIT OpenCourseWare
MIT OpenCourseWare (MIT OCW) is an initiative of the Massachusetts Institute of Technology (MIT) to publish all of the educational materials from its undergraduate- and graduate-level courses online, freely and openly available to anyone, anyw ...
15.414
* Weston, Fred and Brigham, Eugene (1972), ''Managerial Finance'', Dryden Press, Hinsdale Illinois, 1972
* Chen, Henry editor, (1967), ''Frontiers of Managerial Finance'', Gulf Publishing, Houston Texas, 1967
* Brigham, Eugene and Johnson, Ramon (1980), ''Issues in Managerial Finance'', Holt Rinehart and Winston Publishers, Hindale Illinois,
*
* Lawrence Gitman and Chad J. Zutter (2019). ''Principles of Managerial Finance'', 14th edition, Addison-Wesley Publishing, .
* Clive Marsh (2009). ''Mastering Financial Management'', Financial Times Prentice Hall
*James Van Horne and John Wachowicz (2009). ''Fundamentals of Financial Management'', 13th ed., Pearson Education Limited.
{{DEFAULTSORT:Managerial Finance
Corporate finance
Financial management
Corporate development