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Unit 1 - Overview of Financial Management

The document outlines the fundamentals of financial management, emphasizing its role in maximizing firm value through efficient resource acquisition and allocation. It details the primary responsibilities of financial managers, including investment, financing, and asset management decisions, as well as the importance of financial statements for various stakeholders. Additionally, it introduces key concepts such as present value, time value of money, and risk and return that underpin financial management practices.

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Kutlwano Monye
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5 views14 pages

Unit 1 - Overview of Financial Management

The document outlines the fundamentals of financial management, emphasizing its role in maximizing firm value through efficient resource acquisition and allocation. It details the primary responsibilities of financial managers, including investment, financing, and asset management decisions, as well as the importance of financial statements for various stakeholders. Additionally, it introduces key concepts such as present value, time value of money, and risk and return that underpin financial management practices.

Uploaded by

Kutlwano Monye
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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FINANCIAL FOR MARKETING

OVERVIEW
Outcomes
• Define Financial Management.
• Why is the objective of financial management to maximize the value
of the firm?
• What is the role of a financial manager?
• What is the relationship of corporate finance to accounting and
economics?
• What are the various forms of business organization?
• What are the various forms of business organization?
• What are some of the underlying concepts of financial management?
LINKS WITH OTHER SUBJECTS OF STUDY
INTRODUCTION
DEFINE FINANCIAL MANAGEMENT
• Financial management is concerned with the efficient acquisition and
deployment of both short and long-term financial resources, to
ensure the objectives of the company are achieved.
• In addition, financial management is concerned with all aspects of a
business’s financing decisions and these decisions will inevitably
directly affect the income statement and the balance sheet.
• It is more concerned with the long-term raising of finance and the
allocation and control of resources; it involves targets, or objectives,
that are generally long-term by nature.
KEY AREAS OF FOCUS AREAS
OF A FINANCIAL MANAGER
• Financial management is concerned with the acquisition, financing, and
management of assets with some overall goal in mind.
• The decision function of financial management can be broken down
into three major areas:
1. the investment
2. financing, and
3. asset management decisions (Van Horne and Wachowics, 2008:2).
• Controlling resources to ensure efficient and effective use.
OBJECTIVE OF FINANCIAL
MANAGEMENT
The objective of financial management to maximize the value of the firm.
The investment decision is the most important of the firm’s three major
decisions when it comes to value creation.
It begins with a determination of the total amount of assets needed to be
held by the firm. Picture the firm’s balance sheet in your mind for a
moment. The financial manager needs to determine the dollar amount of
assets – that is, the size of the firm. Managers decide the composition of
the assets. For example, how much of the firm’s total assets should be
devoted to cash or to inventory? Also, the flip side of investment –
disinvestment – must not be ignored. Assets that can no longer be
economically justified may need to be reduced, eliminated, or replaced.
THE PRIMARY ROLES OF
A FINANCIAL MANAGER
• To pursue wealth value creation
• Investment in operating assets
• Investment in financial assets
• Selecting the optimal mix among conflicting financing decisions
• Finance from capital/ debt/money markets and retained earnings (savings).
SET OF FINANCIAL
STATEMENTS
A full set of financial statements must be comprised of all of the
following:
1. Statement of Financial Position (Previously referred to as the
Balance Sheet)
2. Statement of Comprehensive Income (Previously referred to as the
Income Statement)
3. Statement of changes in Equity
4. Statement of Cash Flow
5. Notes to the Financial Statements
USERS OF FINANCIAL
STATEMENTS
Financial statements will be used by other financial statements users
such as listed below:
Shareholders
Credit grantors
Management
Customers
Suppliers
Auditors
Government
Employees
Acquisition and Merger analyst
FORMS OF BUSINESS OWNERSHIP
FORMS OF BUSINESS OWNERSHIP
WHAT ARE SOME OF THE
UNDERLYING CONCEPTS OF
FINANCIAL MANAGEMENT?
• Present value
• Time value of money
• Risk and return
• Arbitrage principle
• Efficient markets
• Portfolio theory
• Capital Assets Pricing Management
• Financial Statement Analysis

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