FM - Finance in Marketing [OVERVIEW]

Finance in Marketing

Introduction

Often marketing professionals are criticized since they are viewed as creative and innovative people that tend to spend the company's money without worrying about how effectively or efficiently it is being spent.
You must monitor the efficiency and effectiveness of your marketing activities, as well as other important business functions such as production and the quality of products or services. However since the purpose of a business is to earn a profit, finances had better be one of your marketing foundations.
There are some key financial tools that are essential to this monitoring task. Taken together they provide an overview of the firm's health and future prospects:
It may not be readily apparent to you how financial statements are relevant from a marketing perspective. You may ask - What can financial statements tell you about your Marketing Plan? Perhaps your original owners' equity is too committed to capital to launch an expansive marketing campaign. Past results may show advertising had to be scaled back due to insufficient inventory. You may not have funds to sustain a long term marketing strategy.
A company's financial statement tells what has occurred and provides data to aid you in making informed projections for the future. Monitoring them may lead to the appropriate revisions in your marketing strategy.

Essential Questions

  1. What is the role of finance in business?
  2. What is the difference between business finance and personal finance?
  3. What are the types and purposes of credit?
  4. What are the various types of financial records that should be analyzed in making marketing decisions?
  5. How do profit, cash flow, margin, and sales relate to the financial plan?

Key Terms

  • Corporate finance - the area dealing with monetary decisions that corporate enterprises make.
  • Managerial finance - the area dealing with monetary decisions that all types of companies make, except corporations.
  • Personal finance - individual taking care of their money.
  • Dividends - a small payment to each person who owns a stock of a company.
  • Liability - an obligation, debt or responsibility owed to someone.
  • Allocate - to distribute according to a plan.
  • Capacity - the ability of the borrower to repay the loan.
  • Capital - the money the entrepreneur has personally invested in the business.
  • Collateral - an asset pledged to the lender as a security for the money being borrowed.
  • Conditions - intended purpose of the loan.
  • Character - general impression the entrepreneur makes on the potential lender as to their trustworthiness to repay the loan.
  • Interest - the cost of borrowing money.
  • Principal - the amount of the loan.
  • Interest rate - a rate which is charged or paid for the use of money.
  • Assets - the resources from which it expects to gain some future benefit.
  • Liabilities - debts owed.
  • Net worth - how much an entity is worth.
  • Profit - a financial gain.
  • Cash flow - amount of money being transferred into and out of a business.
  • Sales - a quantity or amount sold.

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