INTRODUCTION TO

FINANCIAL MANAGEMENT
DR. NDALAHWA MASANJA
 INTRODUCTION TO FINANCIAL
MANAGEMENT

 Financial management is one of the most important aspects in business.

 In order to start up or even run a successful business, you will need excellent
knowledge in financial management.
 So what exactly is this form of management and why is it important? Read on
to find out more.
 We will study the definition of financial management, importance, scope,
elements and other basic concepts in financial management in the
organization.
DEFINITION OF FINANCIAL MAMAGEMENT
 Financial management refers to the strategic planning, organising,
directing, and controlling of financial undertakings in an organisation or an
institute.
 Financial management means planning, organizing, directing and
controlling the financial activities such as procurement and utilization of
funds of the enterprise.
 It means applying general management principles to financial resources of
the enterprises.
 It also includes applying management principles to the financial assets of
an organisation, while also playing an important part in fiscal management.
 WHY STUDY FINANCIAL
MANAGEMENT
 Marketing
 Budgets, marketing research, marketing financial products
 Accounting
 Dual accounting and finance function, preparation of financial statements
 Management
 Strategic thinking, job performance, profitability
 Personal finance
 Budgeting, retirement planning, college planning, day-to-day cash flow
issues
 THE GOALS OF FINANCIAL
MANAGEMENT

 Maintaining enough supply of funds for the organisation;

 Maximize Profits: Ensuring shareholders of the
organisation to get good returns on their investment;
 Minimize Costs: Optimum and efficient utilization of
funds;
 THE GOALS OF FINANCIAL
MANAGEMENT

 Maximize market share

 Maximize the current value of the company
stock
 Creating real and safe investment
opportunities to invest in.
 OBJECTIVES OF FINANCIAL
MANAGEMENT
financial management is generally concerned with procurement, allocation and
control of financial resources of a concern. The objectives can be-
1. To ensure regular and adequate supply of funds to the concern.
2. To ensure adequate returns to the shareholders which will depend upon the
earning capacity, market price of the share, expectations of the shareholders.
3. To ensure optimum funds utilization. Once the funds are procured, they should
be utilized in maximum possible way at least cost.
4. To ensure safety on investment, i.e, funds should be invested in safe ventures so
that adequate rate of return can be achieved.
5. To plan a sound capital structure-There should be sound and fair composition of
capital so that a balance is maintained between debt and equity capital.
 FUNCTIONS OF FINANCIAL
MANAGEMENT
1. Estimation of capital requirements: A finance manager has to make estimation
with regards to capital requirements of the company. This will depend upon
expected costs and profits and future programmes and policies of a concern.
Estimations have to be made in an adequate manner which increases earning
capacity of enterprise.
2. Determination of capital composition: Once the estimation have been made, the
capital structure have to be decided. This involves short- term and long- term debt
equity analysis. This will depend upon the proportion of equity capital a company
is possessing and additional funds which have to be raised from outside parties.
3. Choice of sources of funds: For additional funds to be procured, a company has
many choices like-
 Issue of shares and debentures
 Loans to be taken from banks and financial institutions
 Public deposits to be drawn like in form of bonds.
 FUNCTIONS OF FINANCIAL
MANAGEMENT

4. Investment of funds: The finance manager has to decide to allocate

funds into profitable ventures so that there is safety on investment and
regular returns is possible.
5. Disposal of surplus: The net profits decision have to be made by the
finance manager. This can be done in two ways:
 Dividend declaration - It includes identifying the rate of dividends and
other benefits like bonus.
 Retained profits - The volume has to be decided which will depend
upon expansional, innovational, diversification plans of the company.
 FUNCTIONS OF FINANCIAL
MANAGEMENT

6. Management of cash: Finance manager has to make decisions with regards to

cash management. Cash is required for many purposes like payment of wages
and salaries, payment of electricity and water bills, payment to creditors, meeting
current liabilities, maintainance of enough stock, purchase of raw materials, etc.
7. Financial controls: The finance manager has not only to plan, procure and
utilize the funds but he also has to exercise control over finances. This can be
done through many techniques like ratio analysis, financial forecasting, cost and
profit control, etc.
 SCOPE OF FINANCIAL MANAGEMENT
1. Investment decision includes investment in fixed assets (called as capital
budgeting). Investment in current assets are also a part of investment decisions
called as working capital decisions.
2. Financial decisions-they relate to the raising of finance from various resources
which will depend upon decision on type of source, period of financing, cost of
financing and the returns thereby.
3. Dividend decision-the finance manager has to take decision with regards to the
net profit distribution. Net profits are generally into
 1. Dividend for shareholders – dividend and the rate of it has to be decided.
 2. Retained Profits – amount retained profits has to be finalized which depend
upon expansion and diversification plan of the enterprise
 ELEMENTS OF FINANCIAL
MANAGEMENT

1. Financial planning: This is the process of calculating the amount of capital

that is required by an organisation and then determining its allocation. A financial
plan includes certain key objectives, which are:
a. Determining the amount of capital required;
b. Determining the capital organisation and structure;
c. Framing of the organisation’s financial policies and regulations.
d. Financial control: This is one of the key activities in financial management.
Its main role is to assess whether an organisation is meeting its objectives or
not. 
 ELEMENTS OF FINANCIAL
MANAGEMENT

Financial control answers the following questions:

 Are the organisation’s assets being used competently?
 Are the organisation’s assets secure?
 Is the management acting in the best financial interests of the organisation and
the key stakeholders?
 Financial decision-making: This involves investment and financing with
regards to the organisation. This department takes decisions about how the
organisation should raise finance, whether they should sell new shares, or how
the profit should be distributed.
 ELEMENTS OF FINANCIAL
MANAGEMENT

2. Calculating the capital required: The financial manager has to calculate the

amount of funds an organisation requires. This depends upon the policies of the
firm with regards to expected expenses and profits. The amount required has to
be estimated in such a way that the earning capability of the organisation
increases.
3. Formation of capital structure: Once the amount of capital the firm requires
has been estimated, a capital structure needs to be formed. This involves debt
equity analysis in the short-term and the long-term. This depends upon the
amount of the capital the firm owns, and the amount that needs to be raised via
external sources.
 ELEMENTS OF FINANCIAL
MANAGEMENT

4. Investing the capital: Every organisation or firm needs to invest

money in order to raise more capital and gain regular returns.
Hence, the financial manager needs to invest the organisation’s
funds in safe and profitable ventures.
5. Allocation of profits: Once the organisation has earned a good
amount of net profit, it is the financial manager’s duty to efficiently
allocate it. This could involve keeping a part of the net profit for
contingency, innovation, or expansion purposes, while another part
of the profit can be used to provide dividends to the shareholders.
 ELEMENTS OF FINANCIAL
MANAGEMENT

 Effective management of money: This department is also responsible for

effectively managing the firm’s money. Money is required for various
purposes in the firm such as payment of salaries and bills, maintaining stock,
meeting liabilities, and the purchase of any materials or equipment.
 Financial control: Not only does the financial manager have to plan,
organise, and obtain funds, but he also has to control and analyse the firm’s
finances in the short-term and the long-term. This can be done using financial
tools such as financial forecasting, ratio analysis, risk management, and profit
and cost control.
 CAREERS IN FINANCIAL
MANAGEMENT

these diverse career options for financial management

 Corporate manager;
 Investment banker;
 Financial advisor;
 Financial analyst;
 Financial examiners;
 Financial managers;
 Personal financial planners;
 Budget analysts;
 Investor relations associate or executive;
 Credit analyst.
FINANCIAL MANAGER

 Financial managers try to answer some, or all, of these

questions
 The top financial manager within a firm is usually the
Chief Financial Officer (CFO)
 Treasurer – oversees cash management, credit management,
capital expenditures, and financial planning
 Controller – oversees taxes, cost accounting, financial
accounting, and data processing
FINANCIAL MANAGEMENT
DECISIONS

1. Capital Budgeting
 What long-term investments or projects should the
business take on
2. Capital structure
 How should we pay for our assets?
3. Working capital management
 How do we manage the day to day finance of the firm
 IMPORTANT ISSUES IN FINANCIAL
MANAGEMENT

The Agency Problem

 The potential conflicts which occur between the shareholders and the other
parties in the company, because of the personal goals, are referred to as the
agency problem.
 The above situation leads to agency relationships among stakeholders and are
described by the agency theory.
 The agency problem arises whenever a manager owns less than the total
common stock of the firm.
 IMPORTANT ISSUES IN FINANCIAL
MANAGEMENT
Agency Costs
 To deal with the agency problem, additional monitoring expenditures are
required. These are known as agency costs and they include:
 Auditing systems to check on the behavior of the management.
 Compensation plans for managers tied to profits and stock options, which give
managers incentives to increase the value of the firm’s common stock.
 Changes in organization systems to limit the ability of managers to engage in
the undesirable practices (e.g. establishment of audit committees, appointment
of none executive directors etc)
CONCLUSION

 Financial management is the lifeline of every business and organization.

 Mismanagement of financial management will lead to financial run which
might threaten the sustainability or existence of any organization.
 For this reason, it is imperative to explore the important components of
financial management
 This course explore those basic and key concept of financial management.
END OF THE PRESENTATION
Thank You