NOTES

TOPIC

FINANCIAL MANAGEMENT

Definition:

“Financial management focuses on ratios, equity and debt.

It also refers to the efficient management of money (funds)

in such a manner as to accomplish the objectives of the

organization .It is the specialized function directly accociated

with the top management.”

.investment decision
.financial decisions

.dividend decision

.liquidity decision

.Authorship/Referencing/ to give authority

1. Investment decisions:
One of the most important finance functions is to intelligently
allocate capital to long term assets……
2. Financial decisions
Financial decision is yet another important function which
A financial manager must perform…….

ROLE OF FIANANCIAL MANAGEMENT

An organization’s financial management plays a critical role in

the financial success of business.. some of the specific roles

 included in financial management systems include accounting

bookkeeping, account payable and receivable, investment

opportunities and risk.

TYPES OF FINANCIAL MANAGEMENT

The three types of financial management decisions are capital

Budgeting, capital structure, and working capital management.

A business transaction that would include capital budgeting is

if your company should open another store or not.

TYPES OF FINANCIAL MANAGERS

. Cash Managers

A cash managers is in charge of cash receipts and disbursement.

. Risk and insurance managers

. credit managers

. treasury and finance officer

. controllers

. chief financial officers

GOAL OF THE FIRM

From finance’s stand-point there are two main goal:

a. Profit maximization
b. Shareholder’s wealth maximization

Let’s look at what is

 PROFIT MAXIMIZATION

. Simply a single-period or a short-term goal to be achieved within one year

. Management mainly focus on efficient utilization of capital resources to

Maximize profits WITHOUT considering the consequences of its actions towards

the company’s future performance.

Drawbacks/disadvntages of profit maximization goal:

a. It is only a SHORT TERM concept

b. It does not consider the timing of returns
c. It IGNORES risk

Next, let’s look what is

SHAREHOLDER’S WEALTH MAXIMIZATION

. shareholder’s wealth is regarding the maximizing of the total market / market

price of existing shareholder’s common stock

. it can be achieved by considering many factors whether short or long term

Pertaining to decisios/action made affecting the present and future earnings

Per share, timing of and returns, dividend policy and other factors

That can be affect the market price of the company stock

Unlike profit maximization, it has following advantages:

. its applies to the principle of time value of money whether

In a dollar receive today 1 year later. By considering time value of money

This will be lead to an overall increase in the company’s earning.

. to achieve shareholder’s wealth maximization’ management needs to consider

 the uncertainty or risk factor. It accept certain degree of risk when it is
compensated with the same level of return

. increase in shareholder’s wealth will directly lead to increase in cash flows.

It is not concern only with accounting earnings/profits but CASH FLOWS.

. To achieve shareholder’s wealth maximization, the firm has to achieve all the

Short –term target like sales/earning growth and dividend payout targets. Only
when these short-term targets being achieved, the firm will then be attractive

To the potential investors which might raise the stock price.