WISCONSIN INTERNATIONAL

UNIVERSITY COLLEGE - MBA

FINANCIAL MANAGEMENT

INTRODUCTION

MARCH 2026
 Financial Management
• What is Financial Management?

• Financial Management is the process of planning, organizing, controlling,

and monitoring financial resources in order to achieve the goals of an
individual, business, or organization.

• It ensures that money is raised, allocated, and used efficiently. In simple

terms, it is about making smart decisions regarding how to get funds
(financing), where to put them (investing), and how to use profits
(dividends/retained earnings) — all while keeping enough cash to run day-
to-day operations (liquidity).

• Basic objectives of Financial Management

i. Ensure a business has enough money to operate.
ii. Use financial resources effectively and efficiently.
iii. Maximize shareholders’ wealth and firm value.
iv. Maintain liquidity for smooth operations.
v. Plan for growth and sustainability.
 Financial Management
• Financial Management is about making wise decisions concerning
money — whether it’s an individual planning family expenses or a
multinational corporation deciding how to raise billions for expansion.

• It covers budgeting, investing, financing, liquidity, and dividend

distribution, all with the goal of ensuring financial stability and growth.

• Financial management is broadly concerned with the acquisition and use of

funds by a business firm. The scope of financial management has grown in
recent years, but traditionally it is concerned with the following:

a. • How large should a firm be and how fast should it grow?

b. • What should be the composition of the firm’s assets?
c. • What should be the mix of the firm’s financing?
d. • How should the firm analyse, plan and control its financial affairs?
 Importance of Financial Management
• The importance of financial management is underscored by its role in
guiding strategic decision-making and ensuring the overall financial health
of an organization.

i. Financial management provides a strategic framework for decision-

making, guiding choices related to investments, financing, and risk
management.

ii. Effective financial management is paramount for maintaining the

financial stability of an organization.

iii. It ensures that the company can meet its short-term and long-term
obligations, thereby safeguarding its operational continuity.
 Importance of Financial Management

iv. Financial management involves efficient utilization of resources, balancing

the need for liquidity with the desire for profitability.

v. This optimization ensures that funds are used judiciously and in alignment
with organizational objectives.

vi. Financial management in ensuring compliance with regulatory

requirements and ethical standards.

vii. Accurate financial reporting is crucial for transparency and maintaining the
trust of stakeholders.
 What is the focus and concern of financial management?

• i. The primary focus of financial management is to maximize shareholder

wealth. This involves making decisions that increase the overall value of
the organization.

• ii. Financial management is concerned with enhancing the profitability of

the organization.

• iii. This includes optimizing revenue generation, controlling costs, and

managing the overall financial structure to achieve sustainable and growing
profits.

• iv. Identifying, assessing, and managing financial risks is a critical concern

in financial management.
 What is the focus and concern of financial management?

• v. Financial management focuses on capital budgeting decisions, which

involve evaluating and selecting long-term investment projects.

• vi. Efficient management of working capital is a key concern. This involves

maintaining an optimal balance between current assets and liabilities to
ensure smooth day-to-day operations without tying up excessive capital.

• vii. Financial management is concerned with developing comprehensive

financial plans that align with the organization's strategic objectives.

• viii. This includes creating budgets, forecasting financial needs, and

planning for the allocation of resources.

• ix.. Financial managers are tasked with determining the optimal capital
structure for the organization.
 Financial Management

Financial managers also have the responsibility for

i. Deciding the credit terms under which customers may buy

ii. How much inventory the firm should carry

iii. How much cash to keep on hand

iv. Whether to acquire other firms (merger analysis), and

v. How much of the firm’s earnings to plow back into the business

vi. How much must be paid out as dividends.

 1.2 EVOLUTION OF FINANCIAL MANAGEMENT

• The evolution of financial management may be divided into

three broad approaches:

• i) The traditional approach

• ii) The transitional approach

• iii) The modern approach.

 Traditional Approach

• According to this approach, the scope of financial

management is confined to the raising of funds.

• Hence, the scope of finance was treated by the traditional

approach in the narrow sense of procurement of funds by
corporate enterprise to meet their financial needs.
 Transitional Approach

• During the transitional approach the nature of financial

management was the same but more emphasis was laid on
problems faced by finance managers in the areas of fund
analysis, planning and control.
 Modern Approach

• The modern approach is characterised by the application of

economic theories and the application of quantitative methods of
analysis. The distinctive features of the modern approach are:

• Changes in macro economic situation that has broadened the scope of

financial management. The core focus is on how the rational
matching of funds to their uses in the light of the decision criteria.

• The advances in mathematics and statistics have been applied to

financial management specially in the areas of financial modelling,
demand forecasting and risk analysis.
 1.3 SIGNIFICANCE OF FINANCIAL MANAGEMENT

Financial management helps in ascertaining and managing not only

current requirements but also future needs of an organization.

• a. It ensures that funds are available at the right time and

procurement of funds does not interfere with the right of
management / exercising control over the affairs of the company.

• b. It influences the profitability / return on investment of a firm.

• c. It influences cost of capital. Efficient fund managers endeavour to

locate less cost source so as to enhance profitability of organization.
 1.3 SIGNIFICANCE OF FINANCIAL MANAGEMENT

• d. It affects the liquidity position of firms.

• e. It enhances market value of the firm through efficient and

effective financial management.

• f. Financial management is very much required for the survival,

growth, expansion and diversification of business.

• g. It is required to ensure purposeful resource allocation.

 1.4 PRINCIPLES OF FINANCIAL MANAGEMENT

• The broad principles are:

• 1) Investment Decision

• 2) Financing Decision

• 3) Dividend Decision

• 4) Liquidity Decision
 Financial Management Decisions

• What long-term investments should the firm take on?

- Capital budgeting decisions

• How should we pay for our assets? Should we use debt or

equity? - Capital structure decisions

• How much of the profits should be distributed to

shareholders? - Dividend policy decision

• How will we manage the everyday financial activities of the

firm? - Working capital management
 1.5 Objectives of financial management
• Financial management of an organisation may seek to achieve the
following objectives:

a. ensure adequate and regular supply of funds to the business,

b. provide a fair rate of return to the suppliers of capital,

c. ensure efficient utilisation of capital according to the principles of

profitability, liquidity and safety,

d. devise a definite system for internal investment and financing,

e. minimise cost of capital by developing a sound and economical

combination of corporate securities,

f. co-ordinate the activities of the finance department with the activities of

other departments of the organisation.
 Goal Of Financial Management

i. The goal of financial management is to make money or add value for the
owner.

ii. Avoid financial distress and bankruptcy

iii. Beat the competition

iv. Maximise sales or market share

v. Minimise costs

vi. Maximise profits

vii. Maintain steady earning growth

 Primary Goal of Financial Management

• Three equivalent goals of financial management:

– Maximize shareholder wealth

– Maximize share price

– Maximize firm value

 Functions of a finance manager
• 1) Forecasting of Cash Flow

a. Forecasting is necessary for the successful day to day operations of the

business so that it can discharge its obligations as and when they rise.
b. It involves matching of cash inflows against outflows
c. The manager must forecast the sources and timing of inflows

• 2) Raising Funds:
• The Financial Manager has to plan for mobilising funds from different
sources so that the requisite amount of funds are made available to the
business enterprise to meet its requirements for short term, medium term
and long term.

• 3) Managing the Flow of Internal Funds: Here the Manager has to keep a
track of the surplus in various bank accounts of the organisation and ensure
that they are properly utilised to meet the requirements of the business.
 Functions of a finance manager

• 4) To Facilitate Cost Control:

• Recognise when the costs for the supplies or production processes are
exceeding the standard costs/budgeted figures.
• Consequently, make recommendations to the top management for
controlling the costs.

• 5) To Facilitate Pricing of Product, Product Lines and Services:

• The Financial Manager can supply important information about cost
changes and cost at varying levels of production and the profit margins
needed to carry on the business successfully.

• In fact, financial manager provides tools of analysis of information in

pricing decisions and contribute to the formulation of pricing policies
jointly with the marketing manager.
 Functions of a finance manager

• 6) Forecasting Profits: The Financial manager is usually responsible for

collecting the relevant data to make forecasts of profit levels in future.

• 7) Measuring Required Return: The acceptance or rejection of an

investment proposal depends on whether the expected return from the
proposed investment is equal to or more than the required return.

• 8) Managing Assets: The function of asset management focuses on the

decision-making role of the financial manager. Finance personnel meet
with other officers of the firm and participate in making decisions affecting
the current and future utilization of the firm's resources.
 Management and shareholder interests

• The Agency Problem

• The relationship between stockholders and management is called an

agency relationship. Such a relationship exists whenever someone (the
principal) hires another (the agent) to represent his or her interest.

• For example, you might hire someone (an agent) to sell a house or manage
your business that you own while you are away.

• In all such relationships, there is a possibility of conflict of interest between

the principal and the agent. Such a conflict is called an agency problem.

• Agency problem - The possibility of conflict of interest between the owners

and management of a firm.
 Management Goals

• Agency costs –

• Two types: direct and indirect.

• Direct costs come about in compensation and perquisites for

management. Indirect costs are the result of monitoring
managers.
 Do Managers Act in the Stockholders' Interests?

• SHAREHOLDERS VERSUS MANAGERS

• Managers can be encouraged to act in shareholders’ best interests through

incentives that reward them for good performance but punish them for poor
performance. Some specific mechanisms used to motivate managers to act
in shareholders’ best interests include:

• (1) managerial compensation,

• (2) direct intervention by shareholders,
• (3) the threat of firing, and
• (4) the threat of takeover.
 Do Managers Act in the Stockholders' Interests?

• 1. Managerial compensation - Managers obviously must be compensated,

and the structure of the compensation package can and should be designed
to meet two primary objectives:
• (a) to attract and retain able managers and
• (b) to align managers’ actions as closely as possible with the interests of
stockholders, who are primarily interested in stock price maximization.

• Different companies follow different compensation practices, but a typical

senior executive’s compensation is structured in three parts:

• (a) a specified annual salary, which is necessary to meet living expenses;

(b) a bonus paid at the end of the year, which depends on the company’s
profitability during the year; and
• (c) options to buy stock, or actual shares of stock, which reward the
executive for long-term performance.
 Do Managers Act in the Stockholders' Interests?

• 2. Direct intervention by shareholders - Years ago most stock was owned

by individuals, but today the majority is owned by institutional investors
such as insurance companies, pension funds, and mutual funds.

• 3. The threat of firing - Until recently, the probability of a large firm’s

management being ousted by its stockholders was so remote that it posed
little threat.

• 4. The threat of takeovers - Hostile takeovers (when management does not

want the firm to be taken over) are most likely to occur when a firm’s stock
is undervalued relative to its potential because of poor management.

• In a hostile takeover, the managers of the acquired firm are generally fired,
and any who manage to stay on lose status and authority. Thus, managers
have a strong incentive to take actions designed to maximize stock prices.
 Financial institutions

• Financial institutions act as intermediaries between suppliers and

users of funds

• Institutions earn income on services provided:

– Indirect finance – Earn interest on the spread between loans and

deposits

– Direct finance – Service fees (i.e. bankers acceptance and

stamping fees)
 The Financial Environment

• An important part of the environment within which financial

managers functions is the financial sector of the economy,
which consist of:

• Financial markets
• Financial institutions
• Financial instruments
 Financial Markets

• Financial markets are markets where funds are transferred

from people who have an excess of available funds to those
with shortage.

• It performs the essential economic function of channeling

funds from households, firms and government that have saved
surplus funds by spending less than their income to those that
have shortage of funds because they wish to spend more than
their income.
 Structure of Financial Market

• Financial market consist of:

a. Bond Market (a market for debt)

b. Stock Market (a market for stock/shares)

c. The foreign exchange market (a market for foreign exchange)

d. Mortgage market (a market for collateralised loans)

e. Money market (a market for short-term, low risk and highly liquid
securities.
 Financial Markets
• Capital Markets which consist of:

– Stock Market - which provide financing through the issuance of

shares or common stock and enable the subsequent trading thereof.
– Bond Market - which provide financing through the issuance of
bonds, and enable the subsequent trading thereof.

• Commodity markets - which facilitate the trading of commodities.

• Money market - which provide short term debt financing and investment.
• Derivative market - which provide instruments for the management of
financial risk.
• Future market which provide standardized forward contracts for trading
products at some future date; see also forward markets.
• Insurance markets which facilitate the redistribution of various risks.
• Foreign exchange market - which facilitate the trading of foreign
exchange.
 Financial Markets

• Primary Market and Secondary Market

• A primary market is a financial market in which new issues of a

security such as bonds or stocks/shares are sold to initial buyers by
the firm or government agency borrowing the funds.

• A secondary market is a financial market in which securities that

have been previously issued can be resold.
 Financial Markets

• Money Market and Capital Market

• Money market is a financial market in which only short-term

debt instruments are sold. e.g. Treasury bills.

• Capital market on the other hand is a financial market in

which long-term debt and equity instruments are traded e. g.
The Stock Exchange
 Financial Institutions

• The Structure of the Banking System in Ghana

a. CENTRAL BANK - Bank of Ghana

b. OLD BANKING STRUCTURE

• Commercial Banks
• Merchant Banks
• Development Banks
• Community Bank
• Rural Banks
 Financial Institutions

• The Structure of the Banking System in Ghana

a. NEW BANKING STRUCTURE

i. Universal Banking (Commercial Banking, Merchant Banking, Development
Banking)
ii. Community Bank
iii. Rural Banks

b. NON- BANK FINANCIAL INSTITUTIONS

• i. Savings and Loans
• ii. Microfinance Institutions
• iii. Finance Houses
• iv. Leasing Companies
• v. Mortgage Finance
 Forms of Business Organization

• Three major forms in Ghana

a. Sole proprietorship

b. Partnership
• General
• Limited

c. Corporation (limited liability companies)

 Sole proprietorship

• Is a business owned and operated by one individual, it’s the most common
form of business organization.

• Common examples include restaurants, hair dressing salons, and grocery

shops. Many sole proprietors focus on services – small retail stores,
financial counseling, appliance repair, etc.

• Sole proprietorship are typically small businesses employing fewer than 25

employees
 Advantages of Sole Proprietorships

i. Ease and cost of formation:

ii. Secrecy

iii. Distribution or use of profits

iv. Flexibility and control of the business

v. Government regulations

vi. Taxation

vii. Closing the business

 Disadvantages of Sole proprietorships

i. Unlimited liability

ii. Limited sources of funds

iii. Limited skills

iv. Lack of continuity

v. Lack of qualified employees

 Partnership

• A partnership is an association of two or more persons who carry on as co-

owners of a business for profit.

• General partnership - All partners share in gains or losses, all have

unlimited liability for all partnership debts.

• Limited partnership - One or more general partners will run the business
and have unlimited liability. The limited partner's liability is limited to their
contribution to the partnership.
 Articles of Partnership

• Articles of partnership are legal documents that set for the basic agreement
between partners.

• Articles of partnership usually list the money or assets that each partner
has contributed (called partnership capital),

- state each partner’s individual management role or duty,

- specify how the profits and losses of the partnership will be divided among
the partners,

- and describe how a partner may leave the partnership as well as any other
restrictions that might apply to the agreement.
 Advantages of Partnership

i. Easy of organization

ii. Liability of Capital and Credit

iii. Combined Knowledge and skills

iv. Decision Making

v. Regulatory Controls
 Disadvantages of Partnerships

i. Unlimited liability

ii. Business Responsibility

iii. Life of the partnership

iv. Distribution of profits

 Corporation (Limited Liability Companies)

A company is a legal entity, whose assets and liabilities are separated from
its owners.

As a legal entity, a company has many of the rights, duties and powers of a
person, such as the right to receive, own, and transfer property.

• Companies can enter into contracts with individuals or with other legal
entities, and they can sue and be sued in court.

• Companies are typically owned by individuals and organizations who own

shares of the business
 Creating a Company
• A company (corporation) is created or incorporated, under the laws of the
country in which it incorporates.

• In Ghana companies are incorporated under the company law Act 179
(1963).

• The individuals creating the company are called incorporators.

• In creating a company, the incorporators must file legal documents

generally referred to as articles of incorporations. The article of
incorporation contains basic information about the business.
 Elements of a company

• The Board of Directors

• A board of directors, elected by stakeholders to oversee the general

operation of the corporation, sets the large range objectives of the
corporation.

• It is the board’s responsibility to ensure that the objectives are

achieved on schedule. Board members are legally liable for the
mismanagement of the firm or for any misuse of funds.

• Any important duty of the board of directors is to hire corporate

officers, such as the president, the chief executive officer or the
managing director, who are responsible to the directors for the
management and daily operations of the firm.
 Stockholders

• Preferred Shares

• Owners of preferred share are special class of owners, although they

generally do not have any say in running the company, they have a claim to
profits before any other shareholders do.

• Other shareholders do not receive any dividends unless the preferred

shareholders have already been paid. Dividend payments on preferred
stock are usually a fixed percentage of the initial issuing price (set by the
board of directors).

• Most preferred shares carry a cumulative claim to dividends. This means

that if the company does not pay preferred share dividend in one year
because of losses, the dividends accumulate to next year.
 Common Shares

• Their ownership gives them the right to vote for members of the board of
directors and on other important issues.

• Common shareholders are the voting owners of the corporation. They are
usually entitled to one vote per share of common share.

• During an annual general meeting, shareholders elect a board of directors.

• Common shareholders may vote by proxy, which is written authorization

by which shareholders assign their voting privilege to someone else, who
then votes for his or her choice at the shareholders general meetings.
 Advantages of companies

i. Limited liability

ii. Ease of transfer of Ownership

iii. Perpetual life

iv. External Sources of Funds

v. Expansion potential
 Disadvantages of Corporations

i. Double taxation

ii. Forming a company

iii. Disclosure of Information

iv. Employee-Owner Separation

 Objectives of Not- For - Profit Organisations

• Organizations such as charities and trade unions are not run to make profits
but to benefit prescribed groups of people. Since the services provided are
limited primarily by the funds available, the key objective is to raise the
maximum possible sum each year and to spend them as effectively as
possible on the target group.

• They normally set targets for particular aspects of each accounting period’s
finances, such as the following:

• Total to be raised in grants and voluntary income

• Maximum percentage that fund raising expenses represents of this total
• Amount to be spent on specific projects
• Maximum permitted administration costs
 Objectives of Not- For - Profit Organisations
• This category of organisation includes such bodies as nationalized
industries and local government organisation.

• They represent a significant part of an economy and sound financial

management is essential if their affairs are to be conducted efficiently.

• The major problem here lies in obtaining a measurable objective.

• There are two questions to be answered.

• a) In whose interest do they run?

• b) what are the objectives of the interested parties?
 Objectives of Not- For - Profit Organisations

• Presumably such organizations are run in the interest of society as a whole

and therefore we should seek to attain the position where the gap between
the benefits they provide to society and the costs of their operation is the
widest (in positive terms).

• The cost is relatively easily measured in accounting terms, however, the

benefits are intangible, eg. services of National health services or local
educations authorities are not easily quantify.
 Objectives of Not- For - Profit Organisations

• Most public bodies operate under objectives determined by the

government. These includes.

• a) Obtaining a given accounting rate of return

• b) Cash limits
• c) Meeting budget
• d) Break even in the long-run.
 Objectives of Not- For - Profit Organisations

• In recent years, governments have been concerned with measuring service

provision.

• They have employed a value for Money (VFM) audit that aims to get the
best possible combination of services from the least possible resources.
This is done by pursuing the three E’s

• (a) Effectiveness
• (b) Efficiency
• (c) Economy
 Objectives of Not- For - Profit Organisations

• 1) Effectiveness

• It is a measure of output. Effectiveness is achieved if the outputs produced

matched the predetermine objectives. Here we match the service provision
to the need.

• 2) Efficiency

• It can be seen as a ratio of output to inputs. If we achieve a high level of

output in relation to the amount of resources employed, we have been
efficient. Once again, there is no guarantee that the output achieved are
sufficient to meet the organisation’s objectives. Here, we maximise the
output of services for a given level of input.
FINANCIAL OBJECTIVES IN PUBLIC CORPORATIONS

• 3) Economy

• It is achieved by minimizing the cost of inputs required to achieve a

defined level of output. Here we source the resources input at the lowest
cost.

• The three E’s are the fundamental prerequisites of achieving Value For
Money (VFM). Their importance cannot be overemphasized.
•
• Performance indicators are useful particularly when making comparisons
between departments etc. however, no two areas are identical and
allowances must be made for this.