Managerial finance is the branch of

finance Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...

that concerns itself with the financial aspects of managerial decisions. What is managerial finance?

Corporate Finance Institute Corporate Finance Institute (CFI) is an online training and education platform for investment management, finance and investment professionals based in Vancouver Canada. It provides courses and certifications in financial modeling, valuation (fin ...

Finance Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...

addresses the ways in which organizations (and individuals) raise and allocate monetary resources over time, taking into account the risks entailed in their projects; Managerial finance, then, emphasizes the managerial application of these finance techniques and theories. The techniques assessed (and developed) are drawn in the main from managerial accounting and

corporate finance Corporate finance is an area of finance that deals with the sources of funding, and the capital structure of businesses, the actions that managers take to increase the Value investing, value of the firm to the shareholders, and the tools and analy ...

; 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; see . In both cases, the discipline addresses these from the Managerial perspectives of Planning, Directing, and Controlling; here in the more specific context of

strategic planning Strategic planning is the activity undertaken by an organization through which it seeks to define its future direction and makes decisions such as resource allocation aimed at achieving its intended goals. "Strategy" has many definitions, but it ...

, organizing, directing, and controlling of the organization's financial undertakings. Academics working in this area are typically based in

business school A business school is a higher education institution or professional school that teaches courses leading to degrees in business administration or management. A business school may also be referred to as school of management, management school, s ...

finance departments, in accounting, or in

management science Management science (or managerial science) is a wide and interdisciplinary study of solving complex problems and making strategic decisions as it pertains to institutions, corporations, governments and other types of organizational entities. It is ...

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 analytics here are thus concerned with forward-looking decisions, as opposed to the historical and compliance perspective of

financial accounting Financial accounting is a branch of accounting concerned with the summary, analysis and reporting of financial transactions related to a business. This involves the preparation of Financial statement audit, financial statements available for pu ...

. 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, project or investment. It is per ...

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 in ...

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 ...

analysis, cost–volume–profit analysis, and variance analysis – as well budget analytics more generally. (See also

cash flow forecast Cash flow forecasting is the process of obtaining an estimate of a company's future cash levels, and its financial position more generally. A cash flow forecast is a key financial management tool, both for large corporates, and for smaller entr ...

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. Depending on context, the term may also refer to listed company (quarterly) earnings gui ...

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 utilized in

Corporate finance Corporate finance is an area of finance that deals with the sources of funding, and the capital structure of businesses, the actions that managers take to increase the Value investing, value of the firm to the shareholders, and the tools and analy ...

, usually organized re the following: *

Working capital management Working capital (WC) is a financial metric which represents operating liquidity available to a business, organisation, or other entity, including governmental entities. Along with fixed assets such as plant and equipment, working capital is consi ...

- addressing short term

current assets In accounting, a current asset is an asset that can reasonably be expected to be sold, consumed, or exhausted through the normal operations of a business within the current fiscal year, operating cycle, or financial year. In simple terms, current ...

and

current liabilities Current liabilities in accounting refer to the liabilities of a business that are expected to be settled in cash within one fiscal year or the firm's operating cycle, whichever is longer.Drake, P. P., ''Financial ratio analysis'', p. 3, publish ...

and optimizing cash flow *

Capital budgeting Capital budgeting in corporate finance, corporate planning and accounting is an area of capital management that concerns the planning process used to determine whether an organization's long term capital investments such as new machinery, repla ...

, 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 Dividend policy, in financial management and corporate finance, is concerned with Aswath Damodaran (N.D.)Returning Cash to the Owners: Dividend Policy/ref> the policies regarding dividends; more specifically paying a cash dividend in the pr ...

– addressing long-term

financial capital Financial capital (also simply known as capital or equity in finance, accounting and economics) is any Economic resources, economic resource measured in terms of money used by entrepreneurs and businesses to buy what they need to make their prod ...

and attempting to optimize the balance sheet. The discipline also considers the various applications of risk management here.

Managerial accounting techniques

Corporate finance techniques

See also

References

Further reading