FINMA L1

planning, acquiring, utilizing, controlling

Financial Management is the process of _____ financial resources to achieve the firm’s desired goals.

financial management

__ is about making the best financial decisions using available resources.

Lawrence J. gitman and Chad J. zutter

“Financial Management can be described as

the art and science of managing money.”

James C. van horne and John M. wachowicz, jr.

“Financial management is concerned with the acquisition, financing, and management of assets with some overall goal in mind.”

Fred weston and Eugene brigham

“Financial management is an area of

financial decision-making, harmonizing

individual motives and enterprise goals.”

Harry G. guthmann and Herbert E. dougall

“Financial management is the activity concerned with the planning, raising, controlling, and administering of funds used in the business.”

Joseph L. massie

Financial management is the operational activity of a business

that is responsible for obtaining and effectively utilizing the funds

necessary for efficient operations.”

Profit maximization

refers to the objective of earning the highest

possible profit from the business.

wealth maximization

Modern Financial Management recognizes that the primary objective is __, also known as shareholder wealth or firm value maximization.

Wealth maximization

is the process of increasing the market value of the business by making sound financial decisions that balance profitability and risk over the long term.

Focuses on accounting profit

Short-term orientation

Ignores risk

Ignores timing of returns

Based mainly on earnings

Traditional objective

PROFIT MAXIMIZATION

Focuses on firm value

Long-term orientation

Considers risk

Considers the time value of money

Based on cash flows and value creation

Modern objective

WEALTH MAXIMIZATION

Procurement of Funds

Obtaining both short-term and long-term funds from financial institutions and other financing sources such as banks loans and trade credit.

Mobilization of Funds

Raising capital through different financial instruments such as ordinary shares, preferred shares, bonds, notes and other debt instruments.

Compliance with Legal and Regulatory Requirements

Ensuring that financial transactions comply with applicable laws, regulations, and corporate policies.

The modern scope includes:

Financial Planning

Investment Decisions

Financing Decisions

Dividend Decisions

Working Capital Management

Financial Control

Financial Management

plays a vital role in the success and sustainability of every organization. It ensures that financial resources are acquired, allocated, and utilized efficiently to achieve organizational goals while maximizing firm value.

Broad applicability

Financial Management is applicable not only to large corporations but also to various types of organizations and even personal financial decisions.

Reduction of Business Value

One of the major reasons businesses fail is poor financial management rather than lack of customers or products.

Wealth/Value Maximization

The ultimate goal of Financial Management is not merely to maximize profit but to maximize the long-term value of the business.

investment decision

• Refers to the process of determining where the company's financial resources should be invested to generate future benefits and maximize the value of the business.

• These decisions usually involve long-term assets, making them one of the most critical responsibilities of a financial manager

financing decision

• refers to the process of determining how the company will obtain the funds needed to finance its investments and operations.

• A business may obtain funds from: owners (Equity); creditors (Debt); or Retained Earnings. The objective is to acquire funds at the lowest possible cost while maintaining an acceptable level of financial risk

dividend decision

refers to the process of determining how much of the company's earnings should be distributed to shareholders and how much should be retained for future business growth.

Financial Management

is often regarded as the heart of every business organization because almost every business decision has financial implications

Accounting, economics, management

Among the disciplines most closely related to Financial Management are:

Accounting

is primarily concerned with:

• Recording financial transactions

• Classifying financial information

• Summarizing business activities

• Preparing financial statements

• Reporting financial information to users

• ■ It focuses on the past and present financial performance of the business.

Economics

provides the theoretical foundation that helps financial managers make rational decisions regarding the allocation of scarce resources. Simply stated, __ explains how resources should be allocated, while Financial Management applies these principles to business decisions

Microeconomics

studies the behavior of: consumers, firms, individual markets It helps financial managers understand: demand; supply; pricing; production costs; and market competition

Macroeconomics

examines the economy as a whole. Financial managers monitor factors such as: inflation; interest rates; exchange rates; economic growth; government policies; unemployment

planning, organizing, leading, and controlling

Management is the process of ___ organizational resources to achieve business objectives. Financial Management is one of the functional areas of Management. It supports management by providing financial information needed for planning and decision making

Planning

Preparing financial forecasts and budgets.

Organizing

Allocating financial resources to different departments.

Leading

Motivating employees to achieve financial goals.

Controlling

- Monitoring financial performance to ensure organizational objectives are achieved.

finance manager

is responsible for making sound financial decisions that maximize shareholder wealth.

Analysis and Planning

The finance manager analyzes the firm's financial condition and develops plans that support the organization's goals.

Acquisition of Funds

Once the financial requirements have been determined, the finance manager identifies the most appropriate sources of funds.

Utilization of Funds

After acquiring funds, the finance manager ensures that they are invested efficiently and productively.

finance function

is usually organized as part of the company's overall management structure.

Chief Financial Officer (CFO)

In many organizations, the __ serves as the head of the finance function.

TREASURER

• Responsible for obtaining and managing

the company's funds.

• Manages cash, investments, financing,

and banking relationships.

• Focuses on future financial planning and

liquidity management.

• Concerned primarily with cash flows and

financing activities.

__ = Manages the money

CONTROLLER

• Responsible for recording, reporting, and safeguarding financial information.

• Oversees accounting, budgeting, financial reporting, and internal controls.

• Focuses on historical financial records and financial reporting.

• Concerned primarily with accounting information and financial statements.

__ = Manages the records

MARKETING

The finance department evaluates:

Advertising budgets

Sales promotions

Product pricing

Marketing investments

PRODUCTIONS OR OPERATIONS

Financial Management helps

determine:

Equipment purchases

Production costs

Inventory management

Cost reduction strategies

HUMAN RESOURCE MANAGEMENT

Finance works with HR in planning:

Employee salaries

Compensation packages

Training budgets

Employee benefits

Finance evaluates whether

research projects are financially

feasible and whether expected

benefits justify the investment.

INFORMATION TECHNOLOGY

Finance assists in evaluating

investments in:

Computer systems

Software

Cybersecurity

Digital transformation projects

sole proprietorship

Is a business owned and managed by one individual.

The owner and the business are legally considered one entity.

The owner enjoys all profits but also bears all losses and liabilities

partnership

is a business owned by two or more persons who agree to contribute resources and share profits and losses

Partners may contribute: capital; property; skills; and services

corporation

is an artificial juridical person created by operation of law, having a personality separate and distinct from its owners.

Ownership is represented by shares of stock. Management is exercised by a Board of Directors.

Globalization

refers to the increasing integration of economies, markets, businesses, and cultures across different countries.

Information Technology

has transformed the way financial information is collected, processed, analyzed, and communicated.

Corporate governance

refers to the system of rules, policies, and practices that direct and control a business organization.

Outsourcing

is the practice of hiring external service providers to perform business activities that were previously handled internally.