Libyan International University

Faculty of Business Administration

Financial Management

Presenter: Mr. Ahmed.Alfaitory 1

Ahmed.Alfaituri@limu.edu.ly
30/ March/ 2021

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 Chapter 1
An Overview of Financial Management

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Expectations

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Content
 Definition and Goal of financial management.
 Functions of Financial Management.
 Importance of financial management.
 Career Opportunities.
 Forms of Businesses.
 Goals of the Corporation.
 Agency Relationships.

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 ILOs
At the end of this class students will be able to understand:
 The concept of the Financial Management.
 The basic types of financial management decisions and the role of

the financial manager

 The goal of financial management

 The Differences between an Accounting and Financial Manager

 The financial implications of the different forms of business

organization
 The conflicts of interest that can arise between owners and managers

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What is financial management

Financial management means planning, directing,

controlling the financial activities and resources of
the institution in order to achieve its goals,
especially in the long-term.
Goal of Financial Management

 Minimize Costs?
 Maximize Profit?
 Minimize Risk?

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How to Fund Borrowing loan

my Project
Issuing Securities

Stocks
Bonds
NGOs
How Firms Issue Securities

Primary
Market
(IPO)

Company to Investors Secondary

Market

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 Difference Between
Accounting and Finance
The difference between finance and accounting is that accounting focuses on the
day-to-day flow of money in and out of a company or institution,
whereas finance is a broader term for the management of
assets and liabilities and the planning of future growth and investment opportunity
appraisal.
 Functions of Financial Management

Three Major Functions:

Dividends Payout Investment Decision Financing Decision

Decision
 Financial Management Decisions

 Capital Budgeting
 What long-term investments or projects should the
business take on?
 Capital Structure
 How should we pay for our assets?
 Should we use debt or equity?
 Working Capital Management
 How do we manage the day-to-day finances of the
firm? 1-12
 Importance of Good Financial
Management

Important in economic growth and development

Improves standard of living

Allows better financial decision

Alleviation of poverty and creates job

Provide long range financial planning

Analyze the risk and profitability of a firm

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Career Opportunities in Finance

 Investment or commercial Bank

 Financial institutions ( Insurance Company)
 Financial Analyst
 Finance Advisor – Planner  
 Financial Controller (Auditor )
 Accountant

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Responsibility of the Financial
Staff
 Maximize stock value by:
 Forecasting and planning
 Investment and financing decisions
 Coordination and control
 Transactions in the financial markets
 Managing risk

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 Alternative Forms of Business
Organization
 Sole ownership
 Partnership
 Corporation

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 Sole ownership
Business owned by one person

 Advantages  Disadvantages
 Easiest to start  Equity capital limited

 Least regulated
to owner’s personal
 Single owner keeps all of wealth
the profits  Unlimited liability

 Difficult to sell

ownership interest
 Partnership
Business owned by two or more persons

 Advantages  Disadvantages
 Two or more owners  Unlimited liability
 More capital  Difficult to transfer

available ownership (when one

 Relatively easy to partner wants to sell).
start.

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 Corporation
 Advantages
 Limited liability
 Unlimited life
 Separation of ownership and
management
 Transfer of ownership is easy
 Easier to raise capital
 Disadvantages
 Separation of ownership and
management (agency
problem).
 Double taxation (income taxed
at the corporate rate and then
dividends taxed at personal
rate, while dividends paid are
not tax deductible)
 Agency Relationships

 An agency relationship exists whenever a principal

hires an agent to act on their behalf.
 Within a corporation, agency relationships exist
between:
 Shareholders and Managers
 Shareholders and Creditors
 Shareholders versus Managers

 Managers have tendency to act in their own interests.

 But the following factors affect managerial behavior:
 Managerial compensation plans
 Direct intervention by shareholders
 The threat of firing
 The threat of takeover

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 Shareholders versus Creditors

 Managers could borrow money to repurchase shares to

decrease the number of shares and increase stockholders
return. However, creditors will concern about the increase
in debt that would affect future cash flow and increase the
cost of debt.

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Factors that affect stock price

 Projected cash flows to

shareholders
 Timing of the cash flow
stream
 Riskiness of the cash
flows

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 Factors that Affect the Level and
Riskiness of Cash Flows
 Decisions made by financial managers:
 Investment decisions
 Financing decisions (the relative use of debt financing)
 Dividend policy decisions
 The external environment

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 Example: Work the Web

 The Internet provides a wealth of information

about individual companies
 “finance.yahoo.com” is an excellent site
 Example:
 Southwest Airlines (LUV)
 Apple Inc. (AAPL)
 American Express (AXP)

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Cash Flows Between the Firm and the
Financial Markets

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Cash Flows Between the Firm and
the Financial Markets

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