How organisations operate
Managerial finance is the branch of finance that concerns itself with the managerial significance of finance techniques. It is focused on assessment rather than technique.
Contents
- How organisations operate
- Principles of managerial finance
- Role of managerial accounting
- Role of corporate finance
- References
The difference between a managerial and a technical approach can be seen in the questions one might ask of annual reports. The concern of a technical approach is primarily measurement. It asks: is money being assigned to the right categories? Were generally accepted accounting principles (GAAP) followed?
The purpose of a managerial approach, however, is to understand what the figures mean.
Managerial finance is an interdisciplinary approach that borrows from both managerial accounting and corporate finance.
Sound financial management creates value and organizational agility through the allocation of scarce resources amongst competing business opportunities. It is an aid to the implementation and monitoring of business strategies and helps achieve business objectives.
Principles of managerial finance
Role of managerial accounting
To interpret financial results in the manner described above, managers use Financial analysis techniques.
Managers also need to look at how resources are allocated within an organization. They need to know what each activity costs and why. These questions require managerial accounting techniques such as activity based costing.
Managers also need to anticipate future expenses. To get a better understanding of the accuracy of the budgeting process, they may use variable budgeting.
Role of corporate finance
Managerial finance is also interested in determining the best way to use money to improve future opportunities to earn money and minimize the impact of financial shocks. To accomplish these goals managerial finance uses the following techniques borrowed from Corporate finance: