FINANCIAL

MANAGEMENT

MODULE 1
CONCEPTS

 FINANCE
IT IS THE ART AND SCIENCE OF MANAGING MONEY
 FINANCIAL MANAGEMENT
IT IS CONCERNED WITH THE DUTIES OF THE FINANCIAL
MANAGERS IN THE BUSINESS FIRM
 FINANCIAL MANAGERS
ACTIVELY MANAGE THE FINANCIAL
AFFAIRS OF ANY TYPE OF
BUSINESS, NAMELY, FINANCIAL AND
NON-FINANCIAL, PRIVATE AND
PUBLIC, LARGE AND SMALL, PROFIT-
SEEKING AND NOT-FOR-PROFIT.
FINANCIAL MANAGEMENT & OTHER
DISCIPLINES

 FINANCIAL MANAGEMENT IS AN INTEGRAL PART OF

OVERALL MANAGEMENT, IS NOT A TOTALLY
INDEPENDENT AREA. IT DRAWS HEAVILY ON
RELATED DISCIPLINES AND FIELDS OF STUDY,
SUCH AS ECONOMICS, ACCOUNTING, MARKETING,
PRODUCTION AND QUANTATIVE METHODS
FINANCE AND ECONOMICS

 THE RELEVANCE OF ECONOMICS TO

FINANCIAL MANAGEMENT CAN BE
DESCRIBED IN THE LIGHT OF THE
TWO BROAD AREAS OF ECONOMICS:
 MACRO ECONOMICA
 MICROECONOMICS
FINANCE AND
ACCOUNTING
 THE RELATIONSHIP BETWEEN FINANCE AND
ACCOUNTING CONCEPTUALLY SPEAKING HAS TWO
DIMENSIONS:
 THEY ARE CLOSELY RELATED TO THE EXTENT
THAT ACCOUNTING IS AN IMPORTANT INPUT IN
FINANCIAL DECISION MAKING
 THERE ARE KEY DIFFERENCES IN VIEWPOINTS
BETWEEN THEM
 FINANCE AND ACCOUNTING ALSO DIFFER IN RESPECT
OF THEIR PURPOSES. THE ACCOUNTING IS COLLECTION
AND PRESENTATION OF FINANCIAL DATA. IT PROVIDES
CONSISTENTLY DEVELOPED AND EASILY INTERPRETED
DATA ON THE PAST, PRESENT AND FUTURE
OPERATIONS OF THE FIRM. THE FINANCIAL MANAGER
USES SUCH DATA FOR FINANCIAL DECISION MAKING. IT
DOESNOT MEAN THAT ACCOUNTANTS NEVER MAKE
DECISIONS OR FINANCIAL MANAGERS NEVER COLLECT
DATA. BUT THE PRIMARY FOCUS OF THE FUNCTIONS OF
ACCOUNTANTS IS ON COLLECTION AND PRESENTATION
OF DATA WHILE THE FINANCIAL MANAGER’S MAJOR
RESPONSIBILITY RELATES TO FINANCIAL PLANNING,
CONTROLLING AND DECISION MAKING. THUS, IN A
SENSE, FINANCE BEGINS WHERE ACCOUNTING ENDS.
FINANCIAL DECISION PRIMARY
AREAS DISCIPLINES

• INVESTMENT ANALYSIS SUPPORT • ACCOUNTING

•WORKING CAPITAL •MACROECONOMICS
MANAGEMENT
•MICROECONOMICS
•SOURCES & COST OF
FUNDS OTHER RELATED
•DETERMINATION OF DISCIPLINES
CAPITAL STRUCTURE
•DIVIDEND POLICY SUPPORT • MARKETING
•ANALYSIS OF RISKS & • PRODUCTION
RETURNS • QUANTATIVE METHODS

RESULTING
IN
SHAREHOLDERS WEALTH
MAXIMISATION

IMPACT OF OTHER RELATED DISCIPLINES ON FINANCIAL MANAGEMENT

FUNCTIONS OF FINANCE

 INVESTMENT DECISION
 FINANCE DECISION
 DIVIDEND POLICY DECISION
SCOPE OF FINANCIAL
MANAGEMENT
 TRADITIONAL APPROACH
 MODERN APPROACH
ROLE OF FINANCE
MANAGER