Abstract
Financial management is crucial for tourism enterprises as well as the other enterprises that focus on obtaining and effectively utilizing the funds necessary for efficient business operations. The primary objective of an enterprise is to generate profit that is the revenues must exceed the expenses. The indisputable fact is that financial managers require the skills to make the best decision for profit maximization. Otherwise, the resources are wasted, poor decisions get made, and the financial performance of the organization suffers, as a result. The aim of this chapter is to determine the essential financial management skills for owners/managers of tourism enterprises to improve their financial performance. Therefore, essential financial management skills are identified according to the financial characteristics of tourism enterprises for financial managers to improve and develop the financial performance of the enterprise.
TopIntroduction
Financial management is one of the most crucial aspects of any kind of business and an integral part of overall management and concerned with effective funds management in the business (Paramasivan & Subramanian, 2009). Financial management focuses on decisions relating to how much and what types of assets to acquire, how to raise the capital needed to buy assets, and how to run the firm to maximize its value (Brigham & Houston, 2009). Financial management is concerned with the acquisition, financing, and management of assets with the overall goal of the enterprise (Van Horne & Wachowicz, 2009). Moreover, financial management is a managerial activity which is concerned with the planning and controlling of the firm's financial resources (Gitman & Zutter, 2010). In other words, financial management is the management of an entity's financial position to achieve certain financial objectives. It is the subject of financial management to determine the external resources and capital that the enterprise needs and to invest the relevant funds in suitable assets that the enterprise will benefit from. In concise, financial management provides the funds required by the enterprise under the most appropriate conditions, then protects and ensures the effective use of these funds.
Today, financial management has become one of the most important business function that plays a prominent role in the success of the goals and objectives of the enterprise. An enterprise’s financial strategic plan is determined by achieving its goals and objectives that yield a profit. Achieving the goals and objectives of the enterprise requires both long-term and short-term financial planning that brings together forecasts of the enterprise’s sales with financing and investment decision-making (Drake & Fabozzi, 2010). Financial management skills contribute to the ability of enterprises to develop and grow in a balanced way, to survive under adverse economic conditions and to make financial decisions in line with the goals and objectives of the enterprises (Ercan & Ban, 2010). Budgets are employed to determine the information used in this planning; cash flow management provides cash forecast and changes in cash flow; and financial analysis is used to evaluate progress toward the strategic goals and objectives (Drake & Fabozzi, 2010). In addition to ongoing involvement in financial analysis, budget preparation, and cash flow management; the financial manager’s primary activities are making investment and financing decisions. Financing decisions determine how the firm raises money to pay for the assets in which it invests (Gitman & Zutter, 2010). Investment decisions are of particular importance in the success or failure of businesses. Investment decisions determine what types of assets the firm holds. It is possible to increase the success of the business depending on the effectiveness of the decisions (Aydın et al., 2010).
Key Terms in this Chapter
Net Working Capital: Net working capital, is the difference between the short-term (current) assets and the short-term (current) liabilities of a firm.
Cost of Capital: The amount of cash flow allocated to the provider of the capital divided by the amount of capital provided.
Current Assets: Current assets include the firm’s inventories, accounts receivables, and a minimum level of cash so the firm can operate normally and maintain its commercial transactions.
Profitability: As a measurement of efficiency, it refers to the ability of a firm to produce a return on an investment based on its resources.
Opportunity Cost: Opportunity cost represents the benefits that are lost by not taking the next best investment alternative.
Current Liabilities: Current liabilities are a firm’s debts that are incurred within one year or an operating cycle such as accounts payable.
Liquidity: The degree to which an asset can be quickly converted into cash without price concession in the market.