Financial Management - Lecture - 1

Sinai University
FINANCIAL
MANAGEMENT
Financial Management – Meaning,
Objectives and Functions
Lecture_1
11-2-2024
Financial Management
LEARNING OUTCOMES
You should be able to:
Understand the role and importance of financial

management in organizations.
Analyze financial statements and assess a company's

financial health.
Apply financial tools and techniques to evaluate investment

opportunities.
Make informed decisions regarding capital budgeting,

financing, and working capital management.
Understand the ethical considerations involved in financial

management.
Chapter 1 Introduction to financial management
▪ Financial management is an important aspect of any

organization's operations. It involves making decisions
about how to acquire, use, and allocate financial resources
to achieve the organization's goals and objectives.
▪ In this lecture, we will explore the following points:
I. The definition and scope of financial management;
II. The role and functions of a financial manager in a firm;
III. financial objectives, and goals; and
IV. The financial environment and institutions, including financial
markets and instruments.
❑ what is finance?
Finance can be defined as the art and science of managing money.
Art is like singing, and drawing, something which is based on
feeling.
Science is more about facts and figures, you have to do
experiments, and come out with theories to explain what you
believe.
So, finance is basically a mix of the art and science
of managing money.
The key word here is managing money. That's what we call
financial management.
❑ Financial management is becoming increasingly

important in the current corporate environment.
❑ Given the ever-changing economic landscape,

managers are constantly seeking ways to create value
and ensure the financial stability of their
organizations.
❑ This involves a strategic focus on the efficient

allocation of resources, risk management, and
maximizing a firm's wealth.
▪ Financial management is an important aspect of any

organization's operations, Why?
▪ It involves making decisions about how to
acquire, use, and allocate financial resources
to achieve the organization's goals and
objectives.
Because:
▪ Financial management is about the
maintenance and creation of economic value
or wealth.
What is wealth? ………. Let's take an example:

▪ The market value of Sinai company is $100 billion.
▪ Investors of Sinai company altogether invested $30 billion.
▪ So, taking $100 billion minus $30 billion, you will get $70 billion.
▪ This amount of money ($70 billion) is what we call wealth created
for investors.
▪ Shareholders only paid $30 billion to buy the shares, but the
company created an extra $70 billion for the shareholders.
▪ This increase in value is a positive sign for investors, as it indicates
that their investment has generated additional wealth.
Finance Scope
For finance, it has two broad topics:
Personal finance and corporate finance.
▪ Personal finance is about managing your own money.
▪ The process of planning and managing your personal financial

resources to achieve your short-term and long-term financial goals.
▪ Personal finance involves creating a budget, saving for emergencies

and future expenses, paying off debt, and investing for your future.
▪ It would answer questions such as how much you spend?, how much
you save?, and how you invest your savings?.
Finance Scope
Personal finance and corporate finance.
Corporate finance, it is more on how to manage a
company's money?
▪ Corporate financial management is the process of making strategic decisions
about how to allocate a company's financial resources to achieve its goals and
objectives.
▪ It is like a game of chess, where each move you make with your financial
resources, like cash, investments, and credit, is a strategic decision that can lead
to a win or a loss.
▪ It would answer questions such as how firms raise money from investors?, how
firms invest money to earn a profit?, and whether to reinvest profits in the
business or distribute them back to investors.
Definition and Scope of Financial Management
▪ Financial management can be defined as:

“The process of planning, organizing, controlling, and
monitoring the financial resources of a firm”.
▪ It includes activities such as budgeting, financial
analysis, cash flow management, and investment
decision-making.
▪ The primary goal of financial management is to
maximize the value of the firm by ensuring that financial
resources are utilized effectively and efficiently.
Definition and Scope of Financial Management
▪ The scope of financial management covers a wide range of

areas within an organization.
▪ It involves managing financial functions such as

accounting, budgeting, and financial reporting.
▪ Additionally, financial management also includes

analyzing financial statements, assessing financial risks,
and making financial decisions that impact on the overall
financial health of the firm.
The main Functions of financial management
▪ The core concept of financial management revolves

around investment, financing, and dividend decisions.
The main Functions of financial management
1. Investment Decisions:
• These involve determining where to allocate financial
resources for the purpose of generating returns?
• Investment decisions revolve around selecting assets or
projects that are expected to yield profitable outcomes.
• This process includes assessing potential risks,
returns, and the overall feasibility of various investment
opportunities.
2. Financing Decisions:
• Financing decisions pertain to how a company

obtains and manages its financial resources?
• This includes determining the optimal mix of debt
and equity to fund operations and projects.
• Financial managers need to consider factors such as
interest rates, debt obligations, and the company's
overall financial structure when making financing
decisions.
3. Dividend Decisions:
• Dividend decisions involve determining how profits are
distributed among shareholders.
• Financial managers must decide whether to:
I. Reinvest profits back into the company for future growth
OR
II. Distribute Profits to shareholders in the form of
dividends.
This decision is influenced by the company's financial health,
growth prospects, and the preferences of investors.
Next Lecture Questions
Is finance the same as accounting?
How to increase the value of a company?
Profit versus value, which one is more important to the

company?
What the firm aims to achieve financially ?

What are the Financial Environment and Institutions?
Task.1
"Develop a presentation on venture
capital,
covering its fundamental concept, potential
opportunities, and associated risks."

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Sinai University

Understand the role and importance of financial

Analyze financial statements and assess a company's

Apply financial tools and techniques to evaluate investment

Make informed decisions regarding capital budgeting,

Understand the ethical considerations involved in financial

▪ Financial management is an important aspect of any

❑ Financial management is becoming increasingly

❑ Given the ever-changing economic landscape,

❑ This involves a strategic focus on the efficient

▪ Financial management is an important aspect of any

What is wealth? ………. Let's take an example:

▪ The process of planning and managing your personal financial

▪ Personal finance involves creating a budget, saving for emergencies

Definition and Scope of Financial Management

▪ Financial management can be defined as:

Definition and Scope of Financial Management

▪ The scope of financial management covers a wide range of

▪ It involves managing financial functions such as

▪ Additionally, financial management also includes

The main Functions of financial management

▪ The core concept of financial management revolves

The main Functions of financial management

• Financing decisions pertain to how a company

Profit versus value, which one is more important to the

What the firm aims to achieve financially ?

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