UNIVERSITY OF BOHOL

College of Business and Accountancy

Financial Management
Name: Jullie Carmelle H. Chatto
Date: October 27, 2021
Subject: Fin 8N Financial Management
Time: 1st Sem'21 C012-T24:30-5:30 M-Sat
Email: jchchatto@universityofbohol.edu.ph
Email Subject: Fin8N 1 Nature, Purpose and Scope of Financial Management

Research on the following:

1. Nature, goal and basic scope of financial management.

Nature of Financial Management

- also known as managerial finance, corporate finance and business finance,
- It is a decision making process concerned with the planning, acquiring and utilizing funds
in a manner that achieves the firm’s desired goals.
- it is also described as the process for and the analysis of making financial decisions in
the business context.

Goal of Financial Management

- To maximize the current value per share of the existing stock or ownership in a business
firm.
- For firms listed in the stock market, the goal is to increase its market value.
- For the owner of a business firm who is not listed in the stock market, the goal is to
increase the capital of the owner through profit generation his business.
- The stated goal considers the shareholders as residual owners, entitled only to what is
left after anyone with a legitimate claim are paid their due.
- The financial manager should best serve the owners by identifying goods and services
that add value to the firm because they are desired and valued in the free market place.

Scope of Financial Management

Traditional view of Financial Management looks into the following functions that a financial
manager of a business firm will perform:
1. Procurement of short-term as well long-term funds from financial institutions.
2. Mobilization of funds through financial instruments such as equity shares preference
shares, debentures, bonds, notes and so forth.
3. Compliance with legal and regulatory provisions relating to funds, procurement, use and
distribution as well as coordination of the finance functions with accounting.

In view of modern approach, the Finance manager is expected to analyze the business firm and
determine the following:
a. The total funds requirement of the firm
b. The assets or resources to be acquired
c. The best pattern of financing the assets

2. Major types of decisions that the Finance Manager makes

Types of Financial Decisions
1. Investment decision-are those which determine how scarce or limited resources in terms
of funds of the business firms are committed to projects.
2. Financing Decision-consider the cost of finance available in different forms and the risks
attached to it.
 UNIVERSITY OF BOHOL
College of Business and Accountancy
Financial Management
3. Dividend decision-is concerned with the determination of quantum of profits to be
distributed to the owners, the frequency of such payments and the amounts to be retained
by the firm.

3. Importance or significance of Financial Management

Significance of Financial Management
 Broad Applicability
o the principles of finance are applicable wherever there is cash flow. The concept of cash flow
is one of the central elements of financial analysis, planning, control and resource allocation
decisions.
o Cash flow is important because the financial health of the firm depends on its ability to
generate sufficient amounts of cash to pay its employees, suppliers, creditors and owners.

 Reduction of Chances of Failure

o a firm having latest technology, sophisticated machinery, high caliber marketing and
technical experts may still fail unless its finances are managed on sound principles of
financial management.
o The strength of the business lies in its financial discipline.
o Finance function is treated as primordial which enables other functions like production,
marketing, purchasing and personnel to be effective in the achievement of organizational
goal and objectives.

 Measurement of Return on Investment

o anybody who invests his money will expect to earn a reasonable return on his investment.
o Owners of business try to maximize their wealth.
o Financial management studies the risk-return perception of the owners and the time value of
money.
o Considers the amount of cash flow to be generated including the risk associated with it.

4. Relationship between Financial Management and Accounting

 Financial management is more than the art of accounting and bookkeeping.
 Accounting function discharges the systematic recording of transactions relating to the firm’s
activities in the books of accounts and summarizing the same for presentation in the financial
statements.
 Finance manager uses the accounting information provided to him in the analysis and review
of the firm’s business position in decision making.
 He uses capital budgeting techniques, statistical and mathematical models and computer
applications in decision making to meet his goal of maximizing the value of the firm.

5. Relationship between Financial Management and Economics

 Financial managers can make better decisions if they apply basic economic theories like
best allocation of resources.
 He tries to find the mix of available resources that will achieve the highest return at the least
risk within the confines of an expected change in the economic climate.
 Financial managers should understand how to respond effectively to changes in supply,
demand, and prices (firm related micro factors) and to overall economic factors (macro
factors).
 The finance manager must be familiar with the microeconomic and macroeconomic
environment aspects of business.