This paper examines the distinct roles of accountants and financial managers in their use of financial information. It explains why cash flow holds greater significance for financial managers than for accountants, how financial planning determines external financing requirements, the advantages of internally generated funds for asset investment, and the purpose and behavior of the break-even point in relation to changes in the contribution margin. Drawing on foundational financial management texts, the paper provides concise, principle-based answers to core questions in corporate finance.
To a large extent, accountants use financial information to report on financial transactions that have occurred in the past. Financial managers, by contrast, use financial information to plan for future undertakings of relevance to the organization. Cash flow is more significant to a financial manager because, as Moyer, McGuigan, and Rao (2012) indicate, a cash flow statement can be instrumental in budgeting efforts and in the prediction of future cash flows. As the authors further note, "a cash flow statement is a valuable measure of strength, profitability, and the long-term future outlook of a company" (Moyer, McGuigan, & Rao, 2012, p. 216).
Financial planning is instrumental in establishing a company's optimal capital structure. Considerations relating to risk, return, and cost of capital fall within the scope of financial planning. For instance, when risk is low and the cost of capital is manageable, debt financing may be taken into consideration as a viable source of external funds.
"Advantages of equity over debt financing"
"Break-even purpose and margin relationships"
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