Financial management

• The goal of financial management is to maximize shareholder wealth by making decisions that increase the value of the firm.
• Learning outcomes for a financial manager include:

  • Performing financial analysis and planning
  • Making investment decisions
  • Making financing decisions

  
• A financial manager balances the timing of returns and cash distributions to equity participants in lieu of prevalent and pending risks
• Ethical considerations for a financial manager's conduct include evaluating the ethical considerations underlying their actions and describing the agency problem and the associated risk posed by a financial manager to the corporate entity
• The primary responsibilities of a financial manager are financial planning and analysis, investment decisions, and financing decisions
• Financial planning and analysis consists of forecasting and budgets, and financial coordination and control
• Forecasting involves predicting future financial trends using historical information, with forecasts typically done three times a year
• Budgeting is a financial plan for the year following the current year, predicting expected cash flows
• Financial control is essential for managing a business's funds, monitoring and reviewing activities and financial performance, and ensuring objectives are met
• Investment decisions involve managing funds for short-, medium-, and long-term needs, considering projects, working capital management, and capital budgeting tools
• Financing decisions require evaluating and deciding on the capital structure, raising funds through debt or equity financing
• Cash management involves ensuring funds are available for working capital requirements, salaries, and utilities, and optimizing fund usage
• Relationship management by financial managers includes interactions with shareholders, creditors, employees, government, customers, and the community
• Dividend decisions involve determining how much should be paid to shareholders and how much should be retained, using the dividend payout ratio
• Risk management for financial managers includes financial, operational, and strategic risks
• Ethical considerations in financial management involve adhering to laws and regulations, maintaining high ethical standards, and considering the impact of decisions on shareholders and stakeholders
• The agency relationship describes the delegation of authority from shareholders to managers, with the risk of the financial manager not acting in the best interest of shareholders
• The agency problem arises when the objectives of the financial manager are not aligned with those of the business, potentially due to personal interests conflicting with business goals
• Performance-related rewards can help ensure financial managers remain responsible for taking on business risks
• Advantages of a performance-related reward scheme include attracting qualified finance personnel and motivating finance managers and their team
• Disadvantages of a performance-related reward scheme include neglecting unrewarded tasks and demotivating low-rewarded employees