TOPIC 1:

Overview of Financial
Management

Ms. Redem P. Quinagoran, MBA,CFMS

 Introduction to
Financial Management
What is Financial
Management?
 Finance?
Management?
 WHAT IS FINANCE?

NOYEM MGANAEMNET

Answer: MONEY MANAGEMENT

 WHAT IS FINANCE?

AIRSE NYEMO RFMO VROSSENIT

Answer: RAISE MONEY FROM
INVESTORS
 WHAT IS FINANCE?
• It can be defined as the science and art of managing money.

Personal Level Business Level

• In a business context, finance
• At the personal level, finance is
involves types of decisions about
concerned with individuals’
how firms raise money from
decisions about how much of
investors, how firms invest money
their earnings they spend, how
in an attempt to earn a profit, and
much they save, and how they
how they decide whether to reinvest
invest their savings.
profits in the business or distribute
them back to investors
What is the Difference
between FINANCE and
FINANCES?
 FINANCE VS. FINANCES

FINANCE FINANCES
• It is the study and • It refers to an individual ‘s or
management of money, organization’s monetary resources
particularly in businesses and and how they manage them-it’s like
the economy at large. a personal financial report card.
 WHAT IS MANAGEMENT?
• According to Krietner (1995) management is a social process of
working with and through others to achieve organizational
objectives in a changing environment.
• He emphasized the importance of the effective and efficient use
of the organization’s limited resources.

MEN MONEY MATERIALS METHODS

MACHINES MARKET MEDIA

 EFFECTIVE VS. EFFICIENT

EFFECTIVE EFFICIENT
• It is a prompt achievement of • It is attaining desired objects with the
goals and objectives. least amount of resources.
• It is the measure of quality of • It is getting things done with the
work. least cost.
Effectiveness is doing the right things; Efficiency is
doing things right.
Efficiency + Effectiveness = Productivity
Financial Management
• It is the efficient and effective
allocation, acquisition (raising),
and utilization (controlling) of
funds.
• It is otherwise called managerial
finance
• Financial management starts
where accounting ends.
Functions of Finance
• Allocation – means determining
where to use funds currently
available to the firm.
• Acquisition (Raising) – means
obtaining funds from the right
sources at the right time.
• Utilization (Controlling) – means
using the funds.
Financial Manager
• Decide where to get
financial resources like
cash, inventories,
equipment, and other
assets needed by the firm
in its operation
• It plays a vital role in the
company’s success.
Important Functions
of the Financial
Manager
1. Raise needed funds for the business
operations
• Financial manager ensures that the company meet the
obligation and required funds needed for the business
2. Proper allocation of financial resources
• Factors to consider for proper allocation of funds: The
size of the business, status of assets where the funds
will be used (long-term or short-term), and manner on
which the funds are raised.
3. Profit Planning
• To generate profit is one of the most desired outcomes of
any business organization.
• It requires a tremendous amount of rational forecasting
of revenues and management of costs and expenses

4. Knowledge of Capital Markets

• The Financial Manager should be able to make strong
calculations and analysis of the various risks involved in
the trading of shares and securities including the capital
markets.
The Role of Financial
Managers
1. Investment Decision
• It is the most important of the three decisions when it comes to
value creation.
• It entails an outflow of resources with the expectation of a
benefit in the form of cash inflow in the near future.
• Investments have to be evaluated in terms of their expected
returns and corresponding risks that could affect the firm’s
valuation in the market.
2. Financing Decision
• The financial manager finds ways to provide money for the
activities of the firm
• Short-term or long-term debt equity financing has to be
considered.
• The main idea in financing decision is to look for resources that
will give the company the lowest weighted average cost of
capital.
2. Dividend Policy Decision
• Firms with a good history of dividend payment have better
potential in luring investors.
• Dividend declaration reflects the profitable status of the
company. On the other hand, companies with earnings retention
have more funds for investment; hence, it indicates the growth
potential of the company.
• The board of directors decides if the company will pay or not
pay dividends through the advice given by the financial
manager.
Goals of the Firm
Profit Maximization
Goals of the firm
1. Acquisition of funds with the least cost from the right
sources at the right time;
2. Effective cash management
3. Effective working capital management
4. Effective inventory management
5. Effective investment decisions
6. Proper asset selection and
7. Proper risk management
 Profit Maximization Vs. Stockholders’ Wealth
Maximization
Goal Objective Advantages Disadvantages
Profit Obtain large 1. Calculating profits 1. The short term is
Maximization amount of is easy. more emphasized.
profits 2. Determining the 2. Risk or uncertainty is
link between ignored.
financial 3. The timing of returns
decisions and does not matter
profits is simple. 4. Immediate resources
are necessary
 Profit Maximization Vs. Stockholders’ Wealth
Maximization
Goal Objective Advantages Disadvantages
Stockholders Achieve the 1. The long-term is 1. There is no clear
’ Wealth highest emphasized relationship
Maximization market value 2. Risk or uncertainty between financial
of common is recognized. decisions and stock
stock 3. The timing of price.
returns is taken into 2. Management
account. anxiety and
4. Stockholders’ frustration may be
return is experienced.
considered.
Career Opportunities in Financial
Management
•THANK YOU