INTRODUCTION TO
FINANCIAL
MANAGEMENT
DEFINITION OF
FINANCIAL MANAGEMENT
FINANCIAL
FINANCE MANAGEMENT
MANAGEMENT
Finance is the study and The process of planning, Financial Management is the
management of money, organizing, leading, and strategic planning, organizing,
investments, and other controlling an organization’s directing, and controlling of
financial instruments. It resources (including human, financial activities like
deals with the ways financial, and physical) to achieve procurement and utilization of
individuals, businesses, and specific goals efficiently and funds in a way that helps
governments raise and use effectively. achieve the organization’s
money. objectives.
DIFFERENCE BETWEEN
FINANCE AND FINANCIAL
MANAGEMENT
FINANCE
Broader field dealing with money,
markets, and systems.
Includes public finance, personal FINANCIAL MANAGEMENT
finance, investment, etc.
A branch of finance that deals with
managing finances within a firm.
Focuses mainly on internal financial
operations of a company.
OBJECTIVES OF FINANCIAL
MANAGEMENT
OBJECTIVE DESCRIPTION
Achieve the highest possible
Profit Maximization
profit for the business.
Increase the value of the firm for
Wealth Maximization
shareholders (long-term goal).
Use available financial resources
Efficient Resource Utilization
wisely.
Ensure the company has enough
Liquidity Management cash to meet its day-to-day
expenses.
Manage financial risks like
Risk Management credit risk, market risk, and
operational risk.
IMPORTANCE OF FINANCIAL
MANAGEMENT
Helps in strategic financial Maintains financial discipline.
decision-making.
Ensures proper utilization of Enhances investor confidence
capital. and market reputation.
Supports long-term planning
and stability.
FINANCIAL MANAGEMENT
PROCESS
STEP DESCRIPTION KEY OUTCOME
Forecasting future financial
Financial Planning Budget/Plan
needs
Choosing between financial
Decision-Making Optimal decision
alternatives
Allocating resources to
Budgeting Cost control
departments/projects
Implementation Executing financial actions Operational flow
Tracking performance &
Monitoring & Control Efficiency
correcting errors
Communicating results &
Reporting & Analysis Transparency
insights
SCOPE OF
FINANCIAL MANAGEMENT
INVESTMENT DECISIONS FINANCING DECISIONS
Concerned with selecting the most Focuses on determining the best
profitable projects or assets in which financing mix: equity, debt, or a
to invest the firm's capital. (Where combination of both. (How to raise
to invest the firm’s funds?) funds?)
DIVIDEND DECISIONS WORKING CAPITAL
MANAGEMENT
Decisions about how much profit should Managing short-term assets and liabilities
be distributed to shareholders vs. how for day-to-day operations. (How much
much should be retained in the business. cash should be kept in reserve to pay
(Should the company pay a dividend or suppliers and employees?)
reinvest the profits in R&D?.)
RELATIONSHIP BETWEEN FINANCE,
ACCOUNTING AND ECONOMICS
ACCOUNTING
Accounting is the process of recording, classifying, summarizing, and reporting financial
transactions.
Helps a business understand what is going on. It helps answer questions like how much
money did we make last year.
FINANCE
Finance is the study and management of money, investments, and financial instruments.
Helps a business allocate all its money. It answers questions like: which products should
I invest in, how much should I borrow, etc.
ECONOMICS
Economics studies how individuals, businesses, and governments allocate limited
resources.
Helps a business understand it’s environment and helps it answer questions like: what
is the demand for my product, how many labor can we hire if we pay 2000, etc.
RELATIONSHIP BETWEEN
FINANCE, ACCOUNTING AND
ECONOMICS
FUNCTION CONTRIBUTION
Tells management how much the
Accounting company can afford to spend and
provides past performance data.
Analyzes whether the investment is
Finance
worth it and how to fund it wisely.
Assesses whether the market
Economics conditions support the success of the
expansion.
FINANCIAL
MANAGER
A Financial Manager is responsible for
making strategic decisions that align with the
firm's goals and ensure financial health.
A Financial Manager is a person who manages
the finances of a business entity both efficiently
and effectively.
TYPES OF
FINANCIAL MANAGER
CASH MANAGERS- Responsible for handling cash
receipts and disbursements.
BRANCH MANAGERS- Oversee financial operations at
specific branches or locations.
CREDIT MANAGERS- Evaluate creditworthiness and
manage credit policies.
TREASURY AND FINANCE OFFICERS- Handle
financial planning, investments, and liquidity management.
CONTROLLERS- Supervise accounting and financial
reporting. Overseas taxes, cost budgeting and data
processing
CHIEF FINANCIAL OFFICERS (CFOS)- Hold the
highest financial position, overseeing overall financial
strategy and decision-making
ROLES OF
FINANCIAL MANAGER
ROLES Description
Estimating short-term and long-term financial needs to
1. Financial Planning
ensure smooth operations and growth.
Choosing the best projects, assets, or ventures where the
2. Investment Decisions company should invest its funds (also called capital
budgeting).
Determining how to raise capital—through debt, equity, or
3. Financing Decisions
retained earnings—to fund operations or investments.
Deciding how much of the profits should be distributed to
4. Dividend Decisions shareholders and how much should be retained for
reinvestment.
5. Cash and Liquidity Managing cash inflows and outflows to maintain sufficient
Management liquidity for daily operations and emergencies.
Identifying and minimizing financial risks, such as
6. Risk Management currency fluctuations, interest rate changes, or credit
defaults.
Ensuring accurate financial reporting and maintaining
7. Financial Reporting and
internal controls to comply with laws and support decision-
Control
making.
MISCONCEPTIONS
ABOUT FINANCIAL MANAGEMENT
X Financial Management is Just About Keeping Records
Financial management is strategic, involving investment decisions, risk
management, capital structure, and long-term planning not just accounting.
X Profit Maximization is the Only Goal
The true goal is wealth maximization, which considers long-term value
creation, risk, and sustainability — not just short-term profits.
X Financial Management is Only for Large Companies
Small businesses and startups also need financial management to survive,
grow, and avoid cash flow problems.
X Finance is the Same as Accounting
Accounting records past transactions; finance is about making future-
focused decisions using financial data.
X Borrowing is Always Bad
Smart use of debt can help businesses grow, especially if the return on
investment is higher than the cost of borrowing.
SOCIAL
RESPONSIBILITITY
Social responsibility in financial management refers
to the obligation of businesses and financial
managers to make decisions that not only maximize
shareholder value but also contribute positively to
society, the environment, and ethical standards. It
means that financial decisions should consider not
only profit, but also the impact on people and the
planet.
EXAMPLE: A company’s financial manager decides
not to invest in a highly profitable factory project
because it would damage a nearby water source and
displace a local community. Instead, they choose a
sustainable alternative with slightly lower profit but
better long-term value and social impact.
LEGAL FORMS OF BUSINESS
ORGANIZATION
BUSINESS ORGANIZATION- is the legal structure that determines how a business
operates, pays taxes, and distributes profits.
TYPES OF LEGAL FORMS
SOLE
PROPRIETORSHIP CORPORATION
PARTNERSHIP COOPERATIVE
SOLE PROPRIETORSHIP
A business owned and operated by one individual.
ADVANTAGES
Ease of Entry and Exit
Few Government Regulation
Owners keeps all profits
Full Control of Business Decisions
X DISADVANTAGES
Unlimited Personal Liability
Harder to raise Capital
Business ends when owner dies
or retires
Limited growth potentials
PARTNERSHIP
A business owned by two or more individuals who
share profits and responsibilities.
ADVANTAGES
Ease of Formation
Additional Sources of Capital
Shared workload and risks
Single Taxation
X DISADVANTAGES
Unlimited Liability
Difficulty of transferring ownership
Limited Life
Difficulty in raising capital
CORPORATION
A corporation is a legal entity that is separate and
distinct from its owners (called shareholders).
ADVANTAGES
Limited Liability
Unlimited Life
Ease of obtaining additional capital
Ease in transferring ownership
X DISADVANTAGES
Time and cost of formation
Double Taxation
Regulation
Ore involved decision- making process
COOPERATIVE
A business owned and operated by a group of
individuals for mutual benefit.
ADVANTAGES
Democratic control (one member, one vote)
Shared profits
Supports community and member interests
X DISADVANTAGES
Harder to raise funds
Requires active member participation
Slower decision-making
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& GOD BLESS!