Introduction

Financial Management

Adam Kwerigira
1 Sunday, May 15, 2022
 INTRODUCTION
 Firms exist to provide goods or services
as their central activity but can not be
achieved effectively without proper
and good financial management
practices therefore this course is
designed to acquaint participants with
the nature and scope of financial
management in institutions.
2 Sunday, May 15, 2022
AIM

 To become competent managers

who can interface with Finance &
Accounting departments by
understanding how firms meet their
financial objectives inline with its
general objectives

3 Sunday, May 15, 2022

 OBJECTIVES

 You should be able to:

 Introduce participants to financial

management as a function of manager

 Highlight areas of importance in the

financial environment
 Time value of money

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MODULE OBJECTIVES

 Discuss sources of finances

 Explain the financial planning &

budgeting
 Describe managing working capital

efficiently
 Discuss capital budgeting

 Dividend policy &Capital structure.

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 6

UNIT ONE

INTRODUCTION TO
FINANCIAL
MANAGEMENT

Sunday, May 15,

2022
 Contents of this unit
7

 Introduction
 Objectives
 Nature and scope of financial management
 Basic terminologies in finance
 Roles of Financial managers
 Key Financial Decisions
 Organisational strategy
 Financial and Non Financial objectives
 Measuring the rate of return
 Agency theory-Managers vs shareholders
 Conclusion

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 Introduction
8

 This unit introduces the subject matter of financial

management.
 It focuses on the nature and scope of financial
management covering the some of the major
terminologies and why it is imperative for
Managers should be interested in finance
management

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 Objectives
9

 By the end of this unit, you should be able to:

 Outline the scope of financial management in
institutions;
 Define the some basic terminologies used
 Discuss why managers and administrators should
be interested in finance
 Organisational Objectives.

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 Wait a minute …..
10

A few Questions Answer

 1. How would you

describe finances ?
 2. What are the financial
activities ?
 3. How do these relate?
 Last one question…..
 How do these relate to
the firm’s other
activities????
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 Nature and Scope of Financial
11
Management
 Financial management
 It is defined as that management activity which is
concerned with decisions on how to raise, spend
and give accountability of institutional funds.
 It is concerned with decisions on how to obtain
funds, spend funds and account for the funds in the
implementation of organisational programmes.

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 Cont’d….
12

 Financial management covers all the functions

concerned in attempting to ensure that financial
resources are obtained and used in the most
effective way to secure the attainment of the
financial objectives of the organisation ( IM
Pandey)
 In a simple perspective, its refers to the routine
activities performed to ensure efficient use of fund
in a firm.

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 Cont’d….
13

 The scope of financial management refers to the

aspects of financial management in a business
 It therefore include;-
 Resource mobilisation (funds) for the firms.
 The allocation of financial resources to different
departments and functions
 The effective utilization of funds allocated to
departments and functional areas.

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 Cont’d…
14

 Safeguarding of the finances (presence of adequate

controls, authorised expenditures and ensuring that
all transactions are recorded accurately.
 Providing acceptable accountability for the funds
spent.

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 Basic terminologies in finance
15

 This subsection discusses important finance

terminologies;-
 Budget:
Budget This is a summary of the estimated income
and expenditure for a specific period of time
 Audit:
Audit It is a detailed examination and analysis of
financial records conducted by a professional expert
in order to report on the truth and fairness of the
financial situation of the firm.

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 Cont’d…
16

 Recurrent expenditure:
expenditure Recurrent expenditure is
incurred mainly on operations or consumption that
need to be funded year on year
 Capital expenditure is incurred to acquire fixed

assets like buildings, machinery, tools, furniture etc

Take an example when a school buys a school bus
give examples of Recurrent and capital expenditure

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 Cont’d…
17

 Others are financial statements,

 receipts,
 Retained profit
 shareholders wealth,
 gearing,
 capital structure
 Dividends
 etc

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 Stop for a Minute..
18

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 Financial management and the roles
19
of the financial manager
 It is concerned with:-
 The raising of finance, including identifying

the appropriate sources and forms of finance

taking in consideration (cost, availability, term
of finance and risk), dividend policy and
capital structure of the organisation.

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 Cont..d
20

 The efficient allocation of financial resources

using past, present and forecast data to
identify the most appropriate areas to receive
financial resources. The financial manager
will must advise on allocation of funds in
terms of total investment and split between
fixed and working capital, and the levels of
expected risk and return.

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 Cont..d
21

 Maintaining control over resources

including the efficiency of the investment
to ensure that the objectives are met

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 The need for financial management
22

 By virtue of the roles played by Managers, it is

important to have background knowledge on
financial management and in most cases all
Managers are the Accounting Officers.
 Financial Managers perform a lot of financial roles
such as:
 Raise funds
 Allocate funds to various activities in accordance
with the organisational objectives;

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 Cont’d…
23

 Authorise the disbursement of the funds;

 Administer the business’ funds both lawfully

and morally;
 Determine a the budget in consultation with

other stakeholders such as heads of

department, senior Management

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 Cont’d…
24

 Ensure there are funds and that those funds are

used effectively and efficiently.
 Ensure that their is maintenance of accurate
financial records
 These roles make financial management
indispensable to good and competent
administrators.

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 Key financial decisions
25

 Financing decision
 Working capital decision

 Investment decision

 Dividend decision

 For you own reading

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 Organisational strategy and
26
financial objectives
 Strategy is "a course of action including the
specification of resources required, achieving a
specific objective", which are at three levels that’s
corporate strategy, business strategy and functional
strategy.
 Before the organisational strategy can be agreed,
the financial and other corporate objectives must be
identified.

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 Cont..d
27

 Financial strategy is that area of the company's

overall strategy within the scope of financial
managers, including addressing such questions
as;
 From which sources should the funds be
raised?
 Should the proposed investments be
undertaken?

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 Cont..d
28

 How should working capital be controlled i.e.

should discounts be offered to debtors for prompt
payment?
 How large a dividend should be paid?

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 Financial objectives and non
29
financial objectives
 In practice often, the shareholder's wealth will be
maximised subject to satisfying other objectives
such as paying the workforce high wages,
respecting health and safety issues and minimising
environment damage.
 Financial objectives are subject to
 maximising shareholder's return
 the problem of multiple stakeholders (satisfying
other stakeholders)
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 Shareholders as stakeholders
30

 Equity investors who are usually ordinary

shareholders provide the finance to risk.
 For this reason, it's concluded that the

company's financial objective is generally

maximising the shareholders’ wealth however
to achieve this objective it requires to obtain
satisfactory return for other stakeholders, in
particular employee.

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 Cont..d
31

 In assessing, the Shareholders' return includes

the rate of return earned on the shares and risk
attached to earning.
 Measuring the rate of return

 It's important to master issues like Earnings

Per Share, dividend yield and capital growth

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 Example
32

 KASI Uganda ltd share price one year ago

was 2,200/=. A dividend of 400/= is has
just been paid and the price is now
2,420/=.
 What percentage return has been earned

over the past year?

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 solution
33

 Dividend yield = 400/2,200 =18%

 Capital growth= 2,420-2,200/2,200 =10%
 Total return =28%

 Therefore, total return earned by the investor

will comprise of income and capital growth

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 Non-financial or managerial
34
objectives
 Growth
 Diversification
 Survival
 Maintaining a contented workforce
 Becoming research and development leaders
 Providing top quality service to customers
 Maintaining respect for the environment

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 Financial objectives in public
35
corporations & Non-profit making
organisations
 The objectives of NGOs and Public Corporations
are not easy to quantify or define but in most cases,
targets in accounting terms will be set like Meeting
budgets, providing services(social need) vs. cash
limits and breaking even in the long term which
may at times be complex at times.

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 Other Stakeholders include
36

 the community
 employees

 managers and directors

 customers

 suppliers

 finance provider

 the government

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 Agency theory & Conflict of interest
37
between managers and shareholders

 These include;
 Takeovers

 Time horizon

 Risk

 gearing

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 Applications of financial
38
management
 This is about managing the business more so the
management of money in the business.
 Performance function; Helps management to assess
the business performance
 Decision making function; Managers will make
vital decisions basing on investments, break even,
cost & benefit analysis basing on Financial
Management concepts

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39

 Control functions; helps managers to business

control using techniques like cash flow, budgeting,
cost accounting e.tc.
 Comparison of business and their performances by
use of ratio analysis

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 Activity 1
40

 1.1How would you explain financial management

to a lay man
 1.2 Why do you think getting exposed to the
knowledge of finance management is important?

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41

 1.3 List any other financial terminologies that have

not been defined in this unit and you would like
them defined.

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 Conclusion
42

 In this unit, you have learned a number of

important issues about financial management in
organisations/ institutions however, these are just
the introductory aspects of the course which you
have by the finger tips

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