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Lecture Financial Management Chap 1 2 Rev
Lecture Financial Management Chap 1 2 Rev
CHAPTER 1.
FINANCIAL MANAGEMENT – the process of planning decisions in order to maximize wealth, which is the
primary goal of a business enterprise. (purpose of financial management)
- Role is given to financial manager whose function: cash management, acquiring of
funds, raising and allocating of financial capital, manages the trade-offs between risks
and returns. (nature and scope of financial management).
- Adequate knowledge in accounting and financial data
FUNCTIONS:
1. Record keeping
2. Performance evaluation
3. Variance analysis
4. Budgeting
5. Utilization of resources
GOALS:
1. Shareholders wealth maximization
2. Profit maximization
3. Managerial reward maximization
4. Behavioral goals
5. Social responsibility
Shareholders wealth maximization is the primary goal of the business because it increases the value of
the company’s share capital.
FINANCIAL MANAGEMENT has two fields of functions which help achieve its goals:
1. MANAGERIAL/MANAGEMENT ACCOUNTING which provides financial data to be used in making
decisions about the future of the business enterprise. It is future oriented and emphasizes
making right decisions today to ensure future performance. It is usually headed by a comptroller
or accounting manager which has the control features of the finance functions.
2. FINANCIAL ACCOUNTING records the financial history of the business and involves the
preparation of reports for use of external parties like investors and creditors. It uses
information from management accounting to improve decisions affecting the business
enterprise wealth. It is usually headed by a financial manager or treasurer.
The boundaries between the money markets and capital markets are blurred because most financial
institutions deal with both kinds of financial instruments.
Review the basic forms of business organization: single proprietorship, partnership and corporation –
its characteristics, advantages and disadvantages