FINANCIAL MANAGEMENT

MODULE 1- WEEK 1: INTRODUCTION TO FINANCIAL MANAGEMENT

Learning Objectives:
1. Define Finance
2. Define and discuss what financial management is
3. Understand the objectives of financial management

FINANCE – the system or study of creating, circulating, and managing money.

➢ is a term for matters regarding the management, creation, and study of money and
investments. It involves the use of credit and debt, securities, and investment to
finance current projects using future income flows.

➢ management of money and includes activities such as investing, borrowing,

lending, budgeting, saving, and forecasting.

KEY FINANCE TERMS

These are some key finance terms you should be familiar with.
Asset: An asset is something of value, such as cash, real estate, or property. A business
may have current assets or fixed assets.
Liability: A liability is a financial obligation, such as debt. Liabilities can be current or long-
term.
Balance sheet: A balance sheet is a document that shows a company's assets and its
liabilities. Subtract the liabilities from the assets to see the firm's net worth.
Cash flow: Cash flow is the movement of money into and out of a business or household.
Compound interest: Unlike simple interest, which is interest added to the principal one
time, compound interest is calculated and added periodically. This results in interest being
charged not only on the principal, but also on the interest already accrued.
Equity: Equity means ownership. Stocks are called equities, because each share
represents a portion of ownership.
Liquidity: Liquidity refers to how easily an asset can be converted to cash. For example,
real estate is not a very liquid investment, because it can take weeks or months to sell.
Profit: Profit is the money left over after expenses. A profit and loss statement shows how
much a business has earned or lost for a particular period.
FINANCIAL MANAGEMENT, Defined
➢ Financial Management is a functional unit of a business organization that sets
policies towards organizing, planning, controlling, and directing the proper use and
allocation of its financial resources.
➢ Is considered to be one of the most significant responsibilities within the business
entity.

Financial Resources - are the funds and assets that finance an organization’s activities
and investments.
➢ In simple terms, financial resources are the monies that keep a business operating.
Business activities related to operating, financing, and investing require considerable
amount of decision making that will affect company’s financial condition, structure,
performance, and profitability.

OBJECTIVES of Financial Management

Maximizing profits
➢ Provide insights on, for example, rising costs of raw materials that might trigger an
increase in the cost of goods sold.
Tracking liquidity and cash flow
➢ Ensure the company has enough money on hand to meet its obligations.
Ensuring compliance
➢ Keep up with state, federal and industry-specific regulations.
Developing financial scenarios
➢ These are based on the business’ current state and forecasts that assume a wide
range of outcomes based on possible market conditions.
Manage relationships
➢ Dealing effectively with investors and the boards of directors.
➢ Ultimately, it’s about applying effective management principles to the company’s
financial structure.