Managerial finance combines economic principles with accounting practices to help executives and management teams make smart business decisions. Corporate finance and managerial accounting are the two major components that make up managerial accounting. Although each serve different functions, both complement each other when it comes to helping managers make important financial and operational decisions.
Corporate finance and managerial accounting performed together comprise the world of managerial finance. Financial managers supply data and figures to accountants, who advise top executives on cost issues ranging from product manufacturing to employee hiring. Unlike financial accounting, managerial accounting and corporate finance work in tandem to influence internal operations, rather than informing stakeholders and public entities about company performance. Corporate finance and managerial accounting personnel ultimately help executives such as CFOs determine where and how to fund invest corporate funds.
Nevertheless, corporate finance performs a separate function from managerial accounting. Corporate finance encompasses the tools used to create financial statements and analyze financial data to assess whether a company is growing or failing. For example, corporate finance professionals often look at the relationship between a business’ cash flow versus its liabilities to determine whether it can continue operating. Additional duties that fall under corporate finance include forecasting, risk management and analysis, capital raising and the valuation of company assets.
One of the major differences between corporate finance and managerial accounting is that managerial accounting analyzes companies at the department or product level, rather than as a whole. Senior managers need a way to measure their performance and demonstrate that their management efforts result in financial gains for the firm. Financial benchmarks or standards such as budgets (which are developed by corporate finance personnel) help managerial accountants guide managers in their daily decisions within organizations. Moreover, managerial accounting interprets, measures and communicates information from analyses produced by finance professionals. While finance professionals base their findings and analysis on financial data, managerial accountants consider external factors including employee morale, environmental and market changes and media coverage.
Corporate finance arms organizations with essential financial data that helps them compete in an increasingly competitive marketplace. Managerial accounting uses this data to help develop processes around internal decision-making, financial planning and budgeting. Combined, these two functions give organizations a complete view of how costs affect their business, and what actions they need to take to improve productivity. Because significant overlap exists between corporate finance and managerial accounting, controllers, accountants and other financial managers collaborate closely to ensure that data is accurate and streamlined across their organization.
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