Financial Management

• FINANCIAL MANAGEMENT

  Also referred to as: Managerial Finance

  Corporate Finance

  Business Finance
• It is a decision making process concerned with:

  Planning

  Acquiring

  Utilizing
• corporate finance is a specific area of finance that analyzes the financial decisions of corporations.
• managerial finance concerns the acquisition, financing and management of assets with some overall goal in mind
• "Business finance is that activates which is concerned with the acquisition and conservation of capital funds in meeting the financial need and overall " objective of business enterprise."

  B.O. Wheeler
• "Business finance is concerned with the sources of funds available to enterprise of all sizes and the proper use of money or credit obtained room such sources. "

  Dr. R.E. Gloss and Dr. H. Baker
• A fund is a pool of money set aside for a specific purpose.
• Some common types of funds include pension funds, insurance funds, foundations, and endowments.
• FINANCIAL MANAGEMENT

  It is described as the process for and the analysis of making financial decisions in the business context.
• FINANCIAL MANAGEMENT

  This concerns both:

  Financial Management of profit-oriented business organizations particularly the corporate form of business as well as the concepts and techniques that are applicable to individuals and to governments.
• the goal of Financial Management is to:

  Simply to make money and add value for the owners
• FINANCIAL MANAGEMENT

  It is described as the process for and the analysis of making financial decisions in the business context.
• It is a larger discipline called FINANCE which is a body of: FACTS PRINCIPLES THEORIES
• According to small business.chron.com:

  The primary goals of FM is a process that enables a business to:

  PLAN

  DIRECT

  ORGANIZE

  MONITOR

  CONTROL
• The financial manager in a business enterprise must make decision for the owners of the firm.
• The financial manager must act in the owners or shareholders’ best interest by making decisions that increase the value of the firm or the value of the stock.
• The goal of the FINANCIAL MANAGEMENT is:

  To maximize the current value per share of the existing stock or ownership in a business firm.
• FM is primarily concerned with:

  ACQUISITION of assets of business concern

  FINANCING in order to maximize the wealth

  MANAGEMENT of the firm for its owners.
• BASIC RESPONSIBILITY OF FINANCE MANAGER

  1. to acquire funds needed by the firm and investing those funds in profitable ventures that will maximize the firm’s wealth

  2. generating returns to the business concern.
• FUNCTIONS OF FINANCIAL MANAGER (TRADITIONAL VIEW)

  1. Procurement of short-term as well as long – term funds from financial institution.

  2. Mobilization of funds through financial instruments such as equity shares, preference shares, debentures, bonds, notes and so forth.

  3. Compliance with legal and regulatory provisions relating to funds procurement, use and distribution as well as coordination of the finance function with the accounting function.
• In modern business firm, there are three (3) major types of decision that the Finance Manager will be involved in, are as follows:

  INVESTMENT DECISIONS

  FINANCING DECISIONS

  DIVIDEND DECISIONS
• • FUNCTIONS OF FINANCIAL MANAGER (MODERN APPROACH) To analyze the business firm and determine the following: a. The total funds requirements of the firm b. The assets or resources to be acquired and c. The best pattern of financing the assets.
• financial decisions aim to maximize the shareholders’ wealth through maximization of the firm’s wealth.
• INVESTMENT DECISIONS – are those which determine how scarce or limited resources in terms of funds of the business firms are committed to projects.
• Why should I care about Financial Management ? Prepare for the workplace of tomorrow.

  Broadening expectations of financial knowledge and skills.

  Use and understand financial terminology and concepts in team communication.

  Developing cross-functional capabilities.

  Critical thinking
• Concerns the acquisition, financing, and management of assets with some overall goal in mind
• • In general, the firm should select only those capital investment proposals whose net present value is positive and the rate of return exceeding the marginal cost of capital
• Investment Decisions is the Most important of the three decisions. What is the optimal firm size?

  What specific assets should be acquired?

  What assets (if any) should be reduced or eliminated?
• Financing Decisions: What is the best type of financing?

  What is the best financing mix?

  What is the best dividend policy (e.g., dividend-payout ratio)?

  How will the funds be physically acquired?
• Asset Management Decisions: How do we manage existing assets efficiently?

  Financial Manager has varying degrees of operating responsibility over assets.

  Greater emphasis on current asset management than fixed asset management.
• What is the Goal of the Firm? Maximization of Shareholder Wealth!

  Value creation occurs when we maximize the share price for current shareholders.
• Corporate Social Responsibility (CSR): A business outlook that acknowledges a firm’s responsibilities to its stakeholders and the natural environment.
• Sustainability: Meeting the needs of the present without compromising the ability of future generations to meet their own needs
• Profit Maximization

  Maximizing a firm’s earnings after taxes.
• Earnings per Share Maximization

  Maximizing earnings after taxes divided by shares outstanding.
• share price serves as a barometer for business performance
• Management acts as an agent for the owners (shareholders) of the firm
• An agent is an individual authorized by another person, called the principal, to act in the latter’s behalf
• Jensen and Meckling developed a theory of the firm based on agency theory
• Agency Theory is a branch of economics relating to the behavior of principals and their agents