Cycle of Financial Management

SOURCE OF FUNDS -> OPERATIONS -> PRODUCT / SERVICE -> SELLING PRICE -> AFTER SALES -> SALES

Financial management can be defined as an ongoing activity which takes care of every facet of the organization. An organizations functionalities can be classified broadly as mentioned above.

These are the areas which need financial management as a key factor, and the decision of finance has an impact of these areas of an organization.

A - SOURCES OF FUNDS
For any organization, the firm requires capital to have its operations rolling. Also, the initial funding is crucial for sustainability of the firm. The firm needs to plan not only for operations, but also the buffer period, till the time the organization starts generating revenue.

B - OPERATIONS
Every business has a operation module. This module is the period or the working or back-end of the firm. The financial management for the money required for operations is very crucial. This determines the output as well as productivity of the firm.

C - PRODUCT / SERVICES
This is when the company needs to have a planning for the exact output that needs to be generated. The financial management of this module is very important, as it is directly affecting the deliverable to the customer or the consumer.

D - SELLING PRICE
For any product or service, there has to be a good financial analysis in order to determine the sale price of the product or service.

E - SALES
Sales means realizing value for any product or delivery. In financial sense the sales are dependent on different key factors, responsible for increase and decrease of sales. The management of the financial aspects of these key factors is an important aspect of financial management.

F - AFTER SALES
After sales is basically delivering the product, accessories, service and all other services - after the sale is being done.These aspects require monetary terms to be considered in order to calculate cost and profit from the same.

When all these aspects are considered and then the management of finance is being done, it gives a true and clear picture for the financial management.

Ratio Analysis

Ratio analysis is one of the prime indicator for analysis in finance.

Ratio analysis is used to evaluate the performance in different areas of an organization. Ratio analysis uses key components present in financial statements for comparison and the ratios (answers) are used as a base for further financial analysis. The financial statements comprises of different cost centers and income centers.

By doing a comparison of two components, we arrive at a barometer indicating the performance.

In financial sense, ratio analysis is comparing two financial components as per the nature of components, and arriving at a logical conclusion. Broadly, the ratios are classified as per their nature.

The classification of the ratios are -

- Liquidity Ratios
- Profitability Ratios
- Activity Ratios
- Investment Ratios
- Leverage Ratios