Managing Financial Resources – Article Example
Managing the financial resources of a company is a very important function that must be administer well by the managerial staff of the firm. The mostimportant financial resource that must be tightly controlled is the cash account of the organization. Without cash a company will seize to exist. The movement of cash in a company is depicted in the statement of cash flow of a firm. The statement of cash flow divides the movement of cash in three activities which are operating, financing, and investment activities. The assets of the company are a resource that also must be administer well. A ratio that tells a manager whether the organization is using its assets well is the return on assets (ROA) metric. Return on assets measures how effective a company has been at generating profit from its assets (Garrison & Noreen).
It is important form managers to establish control mechanisms to protect the financial resources of a company. A way to monitor the use of financial resources is by doing recurrent internal audits of the resources of the enterprise. I agree that managing the financial resources of a company is a very important function. When companies do not protect its financial resources it could lead to bad economic outcomes. Take for example the case of the Enron corporation. This company filed the largest bankruptcy in the history of the United States at the time because the managerial team did an extremely poor job of protecting its financial resources. Instead the executives robbed Enron of millions of dollars in bonuses by cooking up the books. The success of a business is highly depend on the ability of the company to manage its financial resources well.
Garrison, Ray, and Eric Noreen. Managerial Accounting (10th ed.). Boston: McGraw-Hill Irwin. 2003. Print.