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Financial Management

The document outlines the significance of financial management in business, emphasizing its role in resource allocation, profitability, and long-term sustainability. It details the core functions of financial managers, including planning, risk management, and value creation, while also introducing financial markets and institutions. Additionally, it discusses various sources of finance and their strategic implications for businesses.

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17 views8 pages

Financial Management

The document outlines the significance of financial management in business, emphasizing its role in resource allocation, profitability, and long-term sustainability. It details the core functions of financial managers, including planning, risk management, and value creation, while also introducing financial markets and institutions. Additionally, it discusses various sources of finance and their strategic implications for businesses.

Uploaded by

bonganimdunge02
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Learning Unit 9

The Role and Goals


of Financial
Management
Introduction
Objective: To establish the importance of financial
management.

• Definition of Financial Management: Strategic


planning, organising, directing, and controlling
financial activities.

• Importance in Business: Vital for resource


allocation, profitability, and organisational longevity.
The Role of Financial Management
Objective: Describe the core functions and responsibilities of
financial managers.

• Profit Maximisation vs. Wealth Maximisation: Balancing short-term


gains with long-term shareholder wealth.

• Key Functions:
• Planning and Budgeting: Setting financial goals and creating budgets.
• Risk Management: Identifying and mitigating financial risks.
• Resource Allocation: Efficient allocation of financial resources to optimise returns.

• Value Creation: Ensuring that financial decisions add value to the


organisation and its stakeholders.
Financial Markets
Objective: Introduce financial markets and their significance.

• Definition of Financial Markets: Platforms where financial instruments


are bought and sold.

• Types of Markets:
• Capital Markets: Long-term funds (stocks, bonds).
• Money Markets: Short-term funds (treasury bills, commercial papers).

• Role in the Economy: Facilitating investment, liquidity, and economic


stability.

• Key Players: Investors, institutions, brokers, and regulators.


Major Areas of Financial Management
Objective: Provide an overview of the areas under financial
management.

Investment Decisions:
• Capital Budgeting: Evaluating long-term investments and assets.
• Portfolio Management: Balancing risk and return in asset allocation.

Financing Decisions:
• Debt vs. Equity: Choosing the optimal financing structure.
• Cost of Capital: Understanding and minimising the cost of financing.

Dividend Decisions:
• Dividend Policies: Determining payout ratio and reinvestment.
• Impact on Shareholders: How dividend policies affect shareholder value.

Working Capital Management: Managing short-term assets and


liabilities to ensure liquidity.
Financial Institutions
Objective: Explain the role of financial institutions in financial
management.

• Types of Financial Institutions:


• Banks: Providing loans, credit, and deposit services.
• Insurance Companies: Offering risk mitigation and financial security.
• Investment Firms: Assisting with asset management and wealth creation.

• Role in the Financial System: Facilitating transactions, offering


credit, and supporting investment.

• Regulatory Oversight: How regulatory bodies ensure financial


stability and protect consumers.
Sources of Finance
Objective: Identify and evaluate the various sources of finance for business.

• Internal Sources:

• Retained Earnings: Using past profits for current investments.


• Asset Sales: Monetising non-core assets to generate funds.

• External Sources:

• Debt Financing: Loans, bonds, and other debt instruments.


• Equity Financing: Issuing shares and ownership stakes.
• Alternative Sources: Venture capital, crowdfunding, grants.

• Comparison of Sources: Advantages, disadvantages, cost, and risk levels.


Conclusion
Key Takeaways:

- Financial management’s role in planning, risk management,


and value creation.

- Understanding financial markets, their functions, and major


institutions.

- Awareness of the diverse sources of finance and their


strategic applications.

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