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 f ...

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 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 of the firm to the shareholders, and the tools and analysis used to all ...

; 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?

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, ...

. 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 prof ...

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 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 Analysis of variance (ANOVA) is a collection of statistical models and their associated estimation procedures (such as the "variation" among and between groups) used to analyze the differences among means. ANOVA was developed by the statisticia ...

– as well budget analytics more generally, where conditional budgeting may be explored in some settings. (See also cash flow forecast and financial forecast.)

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 of the firm to the shareholders, and the tools and analysis used to all ...

, usually organized re the following: * Working capital management - 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 th ...

and

dividend policy Dividend policy is concerned with financial policies regarding paying cash dividend in the present or paying an increased dividend at a later stage. Whether to issue dividends, and what amount, is determined mainly on the basis of the company's un ...

– 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 provi ...

and attempting to optimize the balance sheet

Managerial accounting techniques

Corporate finance techniques

See also

References

Further reading