Introduction to Financial Management

This set of flashcards covers the fundamental definitions, organizational roles, and key decision-making functions within financial management as presented in the lecture notes.

Finance

The science and art of managing money.

Financial Management

Deals with the decisions aimed at maximizing the value of shareholders’ wealth.

Goal of Financial Management

To maximize the value of shares of stocks.

Shareholders

The individuals who elect the Board of Directors (BOD), where each share held is equal to one voting right.

Board of Directors

The highest policy-making body in a corporation whose primary responsibility is to ensure the corporation serves the best interest of the stockholders.

President (Chief Executive Officer)

Oversees company operations, implements board-approved strategies, performs all areas of management, and represents the company in professional and civic activities.

VP for Marketing

Responsible for formulating marketing strategies, directing sales, performing competitor analysis, and promoting relationships with customers and distributors.

VP for Production

Responsible for ensuring production meets customer demands, identifying cost-competitive technology, and maximizing the utilization of production facilities.

VP for Administration

Coordinates administration, finance, and marketing functions; assists in hiring, payroll, and determining office space needs.

VP for Finance / Financial Manager

The individual responsible for determining the appropriate capital structure of the company and managing financial resources.

Capital Structure

Refers to how much of the total assets are financed by debt and how much is financed by equity.

Financing Decisions

Decisions regarding how to finance long-term investments and working capital for day-to-day operations.

Working Capital

The aspect of financing that deals with the day-to-day operations of the company.

Investing Decisions

Long-term investment choices supported by a capital budgeting analysis to minimize the probability of failure.

Operating Decisions

Deals with daily operations, specifically managing working capital accounts such as accounts receivable and inventories.

Dividend Policies

The decisions made by the Finance manager on whether to distribute all profits, retain them, or distribute a portion and retain the balance.

Dividend

A part of profits that are available for distribution to equity shareholders.