INTRODUCTION TO

FINANCIAL MANAGEMENT
Presented by:

Mr. Moses Bazibu

Lecturer – Faculty of Commerce
Makerere University Business School
Kampala - Uganda

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 Objectives of the module
• To define and understand the concept of
financial management.
• To appreciate the functions of a Financial
manager.
• To appreciate the major financial
management decisions.
• To assess the tax environment.
• To appreciate the basic tools of financial
analysis and planning.
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 FINANCIAL MANAGEMENT
DEFINED
• This is the business management
function that is concerned with
managing a business’ finances. 
• It refers to the application of
financial management tools and
techniques to coordinate all the
financial functions in the business.
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Functions of a Financial Manager
• Spearheading the process of capital budgeting
• Managing the liquidity of the firm.
• Sourcing and utilization of funds
• Financial analysis and planning.
• Taking custody of company’s valuable
documents
• Paying suppliers
• Monitoring the banking operations
• Budgeting and forecasting
• Proper earnings management
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 Importance of Proper Financial
Management

Maximum use
of resources
Make sound Evaluate new
FINANCIAL business
business
decisions MANAGEMENT opportunities

performance
Measure
business

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 Importance of FM Contd…

• Maximize use of financial

resources
FM allows you to identify and
plan for the use of your financial
resources.
It provides information for
financial decision making.
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 Importance of FM Contd…

• Evaluate new business opportunities

FM provides the key information and
answer questions of whether to exploit such
opportunities or not.

That is, entrepreneurs can effectively

analyze a business opportunity and
determine whether it is worthwhile or not.

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 Importance of FM Contd…

• Measuring business performance

FM helps the investor to monitor
the progress of their business
towards achieving business goals
and to take corrective action
where necessary.

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 Importance of FM Contd…

• Making sound business decisions

The financial information systems
provides a wide range of
information that can be used to
make better decisions.
This is done using financial ratios,
break even analysis etc.
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 MAJOR FINANCIAL
MANAGEMNET DECISIONS
• Investment decision
• Working capital decision
• Financing decision
• Earnings management decision

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1. Investment decision
This is also known as the Capital
budgeting, and it refers to the decision to
invest in long term assets.
The assets are expected to be used over a
long period of time e.g. when a firm
acquires plant and equipment or replaces
an old equipment or when you invest in
research and development.
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 Importance of Capital Budgeting:

• It determines the asset mix and hence

the business risk.
• It involves heavy initial outlays of the
business resources.
• Benefits accrue in future which future
is associated with risk and
uncertainty.
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 Practical Financial Management
Problem.
• Investment appraisal using
NPV, IRR, Pay back period.
• Cost of capital

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2. Working capital decision
This is the decision concerned with the short
term assets/resources an organization uses to
meet its day to day obligations.
Such assets include:
• Cash reserves of the organisation
• Funds collected from debtors of the
organization.
• Inventories
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 3. Financing decision
• This is the decision concerned with the
sourcing of funds that are utilized under the
investment decision.
• Much management time and effort is
devoted to trying to ensure the adequacy of
the company's profit flow.
• However, it is just as important that a
company has an adequate flow of funds if it
is to remain in business and very much less
management time and effort is devoted to
this need.
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 Financing decision Contd…

• As companies expand, they require

growing amounts of cash to finance
acquisitions of fixed assets. They also
require growing amounts of cash to finance
their growing working capital (net current
assets) requirements.
Some of this funding requirement will come
from INTERNAL sources, whilst some will
need to come from EXTERNAL sources.

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 4. Earnings management
decision
The Financial Manager has to decide on what to
do with the earnings once they have been
realised. There are three options,
• To declare and pay all dividends to
shareholders
• To retain all the earnings and hence declare and
pay no dividends
• To decide on what proportion to be paid and
what to be retained.
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 Considerations in dividends payment

• Internal restrictions that do not favour dividend

payment
• Legal considerations.
• Level of the firm’s leverage position.
• Ease of raising additional capital.
• Will payment of dividends disadvantage the
shareholders or investors?
• The preferences of the majority shareholders.
• Existence of profitable investment portfolio.
• The levels of control desired by the shareholders

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 THANK YOU FOR YOUR
ATTENTION

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 Question time
Comments/Remarks
Experiences

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