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Working capital management

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.

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 accounting principles followed?

The purpose of a managerial approach, however, is to understand what the figures mean.

  • Someone using such an approach might compare the returns to other businesses in their industry and ask: are we performing better or worse than our peers? If we are performing worse, what is the source of the problem? Do we have the same profit margins? If not, why? Do we have the same expenses? Are we paying more for something than our peers?
  • They may look at changes in asset balances or red flags that indicate problems with bill collection or bad debt.
  • They will analyze working capital to anticipate future cash flow problems.

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