CHAPTER 3

INTRODUCTION TO MANAGERIAL FINANCE

Introduction
Managers are entrusted with running companies to reach the companies' goals. Running
companies need finance to fund operations. All organizations, be they for profit or non-profit, need
financing. Finance is needed to buy assets, pay employees, pay rent, pay creditors, and pay taxes. These
functions of managing finance for a company is managerial finance, commonly called financial
management. This chapter discusses the different areas of finance and the meaning of management and
its importance in business. The 8Ms of business are elaborated to show how important they are in
business. How finance and management are related as they operate in the business world, giving rise to
the need for financial management will be discussed. The students will be introduced to the goals and
tools of the financial manager as he performs his task. This will enlighten them on the careers open to
them as finance majors.

INTENDED LEARNING OUTCOMES

At the end of the chapter the students should be able to:
1. explain the different areas of finance as it relates to careers open for finance graduates
2. discuss what management is and its importance in business
3. relate finance and management as they operate in the business world
4. discuss fully the 8 M’s of management and their role in managing a business
5. illustrate the role of financial management in business
6. give examples of specific goals of financial managers and how they can attain be attained
7. illustrate examples of the different tools financial managers use in actual business situations
8. explain the different career opportunities open to graduates of finance

DISCUSSION

FINANCE
• management of money or the money resource itself
• discipline concerned with identifying, evaluating, and managing sources and uses of cash in order to
increase the value of the business enterprise to its present owners

MANAGEMENT
• utilization of the organization's scarce resources to maximize the attainment of its goals and objectives
• social process of working with and through others to achieve organizational objectives in a changing
environment
• manager - leads, directs, supervises, communicates, innovates, plans, controls, and represents the
company to outsiders.

IMPORTANCE OF MANAGEMENT

• Through management, organizational goals and objectives are attained. The success of an
organization depends on how well its people manages the business. Business owners gauge
management by how well they attain the objectives of the firm.

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COMPONENTS OF MANAGEMENT
1. Achievement of goals and objectives
2. Working with and through people
3. Maximization of limited resources by achieving productivity through efficiency and effectiveness
4. Coping with a changing environment

THE 8 M’s OF MANAGEMENT

1. Men - the human resource and the most important of all the resources.
2. Money - funds needed for business operations to achieve profit maximization.
3. Materials - resources needed by manufacturing firms in producing goods for sale; raw materials that
are converted into finished products.
4. Methods — processes used in manufacturing goods and services.
5. Machine - equipment used for production, for the store, for the office and other aspects of business
operation.
6. Market - place, people, and firms where and to whom the products are sold.
7. Moment - time that needs to be efficiently managed; deadlines are set, reports are to be submitted on
time, etc.
8. Media - radio, TV, newspapers, magazines, the web/ Internet.

FINANCIAL MANAGEMENT
• concerned with the management of funds; otherwise called Managerial Finance
• the efficient and effective allocation, acquisition, and utilization of funds; acquisition of funds should
always be at the least cost and such funds need to be channeled (utilized) to fund projects or investments
that will maximize benefits, including profit (although not always), to the organization; utilization of
funds obtained should be able to maximize: wealth, the value of the company, and the value of
stakeholders.

GOALS OF THE FINANCIAL MANAGER

1. Acquisition of funds with the least cost from the right sources at the right time
2. Effective cash management
3. Effective working capital management
4. Effective inventory management
5. Effective investment decisions
6. Proper asset selection
7. Proper risk management

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TOOLS OF FINANCIAL MANAGERS
1. Financial Policy-making - selecting financial goals, developing financial policies, and designing the
finance organization to carry out the finance function.
2. Financial Planning - setting the course of actions (plans) to attain goals; involves budgeting and
forecasting, that is, projecting revenues and expenditures, projecting cash flows, projecting capital
expenditures, etc.
3. Financial Analysis - process of evaluating business performance, projects, investment options, and
other finance related activities to determine feasibility and profitability.

CAREER IN FINANCE
• Managerial Finance – broadest of the areas and has the greatest number of career opportunities;
concerned with management of funds - efficient and effective allocation, acquisition, and utilization of
fund.
• Investment - brokerage firms, financial institution, insurance companies, mortgage companies; deals
with investments where savers with idle cash can make such idle cash earn- generally in the next area
of money and capital markets.
• Money and Capital Market – short-term placements of cash are in the money market; long term
placements are in the capital market

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