INTRODUCTION TO FINANCIAL 2. Describe the typical organization
MANAGEMENT of the Finance Department and
its relationship with other key
What is Finance? functional Managers.
- Finance is a process that 3. Explain briefly the major types of
includes raising money or decisions that the Finance
resources and allocating them Manager makes.
effectively and efficiently to
achieve the firm’s goals or
objectives. It includes financial
management, the study of
investment, and the study of
institutions and markets.
What is Financial Management?
- FINANCIAL MANAGEMENT is a
decision-making process
concerned with planning,
acquiring and utilizing funds in a
manner that achieves the firm ' s THE FINANCE ORGANIZATION
desired goals. ● In a small business, the head of
the firm (President or General
OBJECTIVE OF FINANCIAL Manager) often assumes direct
MANAGEMENT: The goal of financial responsibility for marketing,
management is to maximize the production, finance and still other
wealth of the shareholders. functions such as human
resources management, security,
SIGNIFICANCE OF FINANCIAL etc
MANAGEMENT ● In medium-size business
concerns, a separate department
❖ APPLICABILITY headed by an officer with the title
❖ SIGNIFICANCE OF FINANCIAL as Finance Manager may be
MANAGEMENT assigned primary responsibility
❖ RETURN ON INVESTMENT for the narrower funds supply
aspects of the finance function.
Role of Finance Manager ● Still, in some business firms,
1. Explain the role of the Finance responsibilities in the broad
Manager in achieving the primary financial area are divided
goal of the business firm. between a treasurer and a
controller.
, ● In very large concerns, both the maximize the value of
treasurer and the controller report investments made.
to a Chief Financial Officer who - Financing decisions call for good
often has the title, knowledge of costs of raising
Vice-President - Finance. funds, procedures in hedging
risk, different financial
Chief Finance Officer instruments and obligations
- The chief finance officer usually is attached to them.
one of the senior officers of the
firm reporting directly to the OPERATING DECISIONS
President or Executive Vice - This third responsibility area of
President or Chief Operating the finance manager concerns
Officer and is an important working capital management.
member of the “top - The term working capital refers
management team” to a firm short-term assets and
short-term liabilities
TYPES OF FINANCIAL DECISIONS
1. Investment Decision RETURN OF CAPITAL DECISIONS
2. Financing Decision - The return of capital decision is
3. Operating Decision concerned with the determination
4. Return of Capital Decisions of the quantum of profits to be
distributed to the owners, the
INVESTMENT DECISIONS frequency of such payments and
- The investment decisions are the amounts to be retained by the
those which determine how firm.
scarce or limited resources in - The return of capital policies
terms of funds of the business and retention of profits will have
firms are committed to projects. ultimate effect on the firm’s
- The investment decisions should wealth.
aim at investments in assets only
when they are expected to earn a OBJECTIVE OF THE TYPES OF
return greater than a minimum FINANCIAL DECISIONS: The basic
acceptable return which is also objective of the investment, financing,
called hurdle rate. operating and return of capital
maximize the firm ’ s wealth.
FINANCING DECISIONS
- Financing decisions assert that
the mix of debt and equity chosen
to finance investments should
MANAGEMENT of the Finance Department and
its relationship with other key
What is Finance? functional Managers.
- Finance is a process that 3. Explain briefly the major types of
includes raising money or decisions that the Finance
resources and allocating them Manager makes.
effectively and efficiently to
achieve the firm’s goals or
objectives. It includes financial
management, the study of
investment, and the study of
institutions and markets.
What is Financial Management?
- FINANCIAL MANAGEMENT is a
decision-making process
concerned with planning,
acquiring and utilizing funds in a
manner that achieves the firm ' s THE FINANCE ORGANIZATION
desired goals. ● In a small business, the head of
the firm (President or General
OBJECTIVE OF FINANCIAL Manager) often assumes direct
MANAGEMENT: The goal of financial responsibility for marketing,
management is to maximize the production, finance and still other
wealth of the shareholders. functions such as human
resources management, security,
SIGNIFICANCE OF FINANCIAL etc
MANAGEMENT ● In medium-size business
concerns, a separate department
❖ APPLICABILITY headed by an officer with the title
❖ SIGNIFICANCE OF FINANCIAL as Finance Manager may be
MANAGEMENT assigned primary responsibility
❖ RETURN ON INVESTMENT for the narrower funds supply
aspects of the finance function.
Role of Finance Manager ● Still, in some business firms,
1. Explain the role of the Finance responsibilities in the broad
Manager in achieving the primary financial area are divided
goal of the business firm. between a treasurer and a
controller.
, ● In very large concerns, both the maximize the value of
treasurer and the controller report investments made.
to a Chief Financial Officer who - Financing decisions call for good
often has the title, knowledge of costs of raising
Vice-President - Finance. funds, procedures in hedging
risk, different financial
Chief Finance Officer instruments and obligations
- The chief finance officer usually is attached to them.
one of the senior officers of the
firm reporting directly to the OPERATING DECISIONS
President or Executive Vice - This third responsibility area of
President or Chief Operating the finance manager concerns
Officer and is an important working capital management.
member of the “top - The term working capital refers
management team” to a firm short-term assets and
short-term liabilities
TYPES OF FINANCIAL DECISIONS
1. Investment Decision RETURN OF CAPITAL DECISIONS
2. Financing Decision - The return of capital decision is
3. Operating Decision concerned with the determination
4. Return of Capital Decisions of the quantum of profits to be
distributed to the owners, the
INVESTMENT DECISIONS frequency of such payments and
- The investment decisions are the amounts to be retained by the
those which determine how firm.
scarce or limited resources in - The return of capital policies
terms of funds of the business and retention of profits will have
firms are committed to projects. ultimate effect on the firm’s
- The investment decisions should wealth.
aim at investments in assets only
when they are expected to earn a OBJECTIVE OF THE TYPES OF
return greater than a minimum FINANCIAL DECISIONS: The basic
acceptable return which is also objective of the investment, financing,
called hurdle rate. operating and return of capital
maximize the firm ’ s wealth.
FINANCING DECISIONS
- Financing decisions assert that
the mix of debt and equity chosen
to finance investments should
