INTRODUCTION TO FINANCIAL

MANAGEMENT
MODULE 1 WEEK 1
LEARNING OUTCOMES:

 Determine the legal forms of business organization

 Explain financial management and the three key elements to the
process of financial management.
 Discuss the major role of financial management
 Identify the functions of financial management
 Recognize the scope of management
 LEGAL FORMS OF BUSINESS ORGANIZATION

 Sole Proprietorship: Is a business owned by one person and operated

for one’s own profit.
 Partnership: Is a business owned by two or more people and operated
for profit. This is based on the agreement called Article of Co-
Partnership.
 Corporation: Is an entity or artificial being created by law with the right
of succession. It is covered by the Board of Directors, in case of a profit
organization, or Board of Trustees, in case of not-for-profit
organization.
WHAT IS FINANCIAL MANAGEMENT?

 Is concerned with procurement, allocation, and control of financial

resources of a business entity.
 Involves the process of planning, organizing, leading, and controlling,
the financial activities of the firm.
 It also deals with the application of general management principles and
capitalizes on the financial resources of the enterprise. It means using
good management practices to make smart decisions about how to use
and invest the money within a business.
 THREE (3) KEY ELEMENTS IN THE PROCESS OF
FINANCIAL MANAGEMENT

 1. Financial Planning: Management needs to ensure that enough

funding is available at the right time to meet the needs of the business.
 2. Financial Control. This element ensures business that objectives are
met. It determines if assets are secured and being used efficiently. It
also confirms, if management acts in the best interest of shareholders
and in accordance with business rules.
 3. Financial decision making. The key aspects include investment,
financing, and dividends.
 MAJOR ROLE/OBJECTIVES OF FINANCIAL
MANAGEMENT

1. To ensure regular and adequate supply of funds

2. To ensure adequate returns to the shareholder
3. To ensure optimum funds utilization at least cost
4. To ensure investment of funds in safe venture so that adequate rate of
return can be achieved
5. To design a sound capital structure by maintaining a fair composition
of capital through a balance between debt and equity capital.
 FUNCTIONS OF FINANCIAL MANAGEMENT

1. Estimation of capital requirements. Is to make estimation with

regard to capital requirements of the company.
2. Determination of capital composition. After the estimation has
been made, a decision on the capital structure follows so this involves
short-term and long-term debt equity analysis.
3. Choice of sources of funds. For additional funds to be procured, a
company has many choices like:
 Additional issuance of shares of stock and/or use issue bonds;
 Loans from banks or any willing financial institution
 Investments from the public in the form of bonds
 FUNCTIONS OF FINANCIAL MANAGEMENT

4. Investment of funds. The excess funds have to be decided for

allocation into profitable ventures so that there is safety on investment
and regular returns are possible.
5. Management of cash. Maintaining enough cash is required for
continuous operation and working capital like payment of salaries and
wages, payment of utilities, purchase of raw materials, etc.
6. Financial controls. Financial management involves not only planning,
procurement and utilization of funds but also exercising control over
finances. This can be done through many techniques like ratio analysis,
financial forecasting, cost and profit control, etc.
 SCOPES OF FINANCIAL MANAGEMENT

1. Anticipation. The financial needs of a company are being estimated, as it finds

out how much finance is required.
2. Acquisition. It collects finance for the company from different sources.
3. Allocation. It uses the collected or acquired finance to purchase fixed and
current assets for the company.
4. Appropriation. It distributes part of the company profits among the
shareholders, bond holders, while some are kept as reserves.
5. Assessment. It means controlling all the financial activities of the company. It
checks if the objectives are met; if otherwise, it determines what can be done
about it.
THANKYOU