Lesson 1:

INTRODUCTION TO FINANCIAL
MANAGEMENT

FPPT.com
Definition of Finance

• Finance is the art and science of managing money.

• Finance is concerned with decision about money from the

perspective of a finance manager, finance decisions deal with
how money is raised or acquired to spending money in a form
of various investments.
Definition of Financial Management

Financial management, as an integration of management

principles in finance involves planning, organizing, leading and
controlling, and as such, utilizes company’s funds effectively and
effeciently.

Financial Managers - are responsible for financial health of an

organization. They produce fianancial reports, direct investment
activities, and develop strategies and plans for the long-term
financial goals of their organization.
Primary Activities of Financial Manager
1. Financial Planning
Preparing the financial plan, which projects revenues, expenditures, and
financing needs over given period.

2. Investment (spending money)

Investing the firm’s funds in projects and securities that provide high returns in
relation to their risks.

3. Financing (raising money)

Obtaining funding for the firm’s operations and investments and seeking the best
balance between debt (borrowed funds) and equity (funds raised through the sale of
ownership in the business).
Goals of 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 selections; and
7. Proper risk management
Financial Institutions

Financial Institutions are places those who experience

financial surplus bring in their funds, either as a deposit or
savings, and where persons who lack finances acquire funds
particularly in form of loans.
Financial institutions like banks and lending companies are
also called as financial intermediaries. These institutions bridge
the gap between investors (surplus) and borrowers (deficit) and
act as intermediaries between capital market and debt market.
Types of Financial Institutions
1. Commercial Bank
A financial institution that provides a wide variety of banking services,
including mortgage lending , providing business and auto loans, and of course
accepting deposits. Commercial banks deal with basic investment products
such as savings account and certificates of deposit.

2. Credit Unions
A member-owned, non-for-profit financial cooperative. Unlike other
financial istitutions, credit unions are established and operated by the
members. In a credit union, profits are being shared among the members.
Types of Financial Institutions
3. Stock Brokerage Firms
This type of institution is responsible for the purchasing and selling of
financial securities between a buyer and a seller. Additionally, such firms
serve a clientele of investors and employ a number of stockbrokers whom
they trade public stocks and other securities with.

4. Asset Management Firms

This type of institution is highly beneficial for it provides investors with
more investment options than they would have on theri own since such
institution would have much bigger pool of resources.
Types of Financial Institutions
5. Insurance Companies
This type of institution provides its client with contract, also known as
policy. Insurance firms also offer clients with the protection of their finances
or reimbursement should ther be any occurence of loss.

6. Finance Companies
As a finacial institution, this type type of firm provides its clients the
funds they need for both business and personal sonsumption. Comparable to
bank, finance companies act as lending entities by extending credit, however
they do not have provision of accepting deposits from their client.
Types of Financial Institutions
7. Buiding Societies
An institution that is able to offer banking and other fianancial services to
its members. Members in fact own these firms and as such, it is also called a
mutual organization. They provide service like mortgages and demand-
deposit accounts.

8. Retailers Institution
To earn profit through direct selling of goods through various channels of
distribution is what retailer institution conducts as its means of business.
Offer the provision of consumer credit at a retailer’s point of sale.