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Introduction to financial management ITM3
1. INTRODUCTION TO FINANCIALINTRODUCTION TO FINANCIAL
MANAGEMENTMANAGEMENT
Lecturer: Aras A. MihoLecturer: Aras A. Miho
Email:Email: arassport@yahoo.comarassport@yahoo.com
Academic Year:Academic Year:
2017-20182017-2018Duhok
Polytechnic
University
Duhok Polytechnic University
Duhok Administrative Collage
ITM Department
2. What Is Finance?
Finance is the science and art of managing money and
other assets.
Thus the study of finance can be classified into following
ways:-
1- Public Finance.
2- Personal Finance.
3- Corporate Finance.
Finance activities include:
1- Preparing budgets.
2- Creating cash flow analyses.
3- Planning for expenditures.
3. BUSINESS ENTERPRISESBUSINESS ENTERPRISES
A business owned by one person is generally a
proprietorship (owner’s equity).
A business owned by two or more persons associated
as partners is a partnership (partners’ equity).
A business organized as a separate legal entity under
corporation law and having ownership divided into
transferable shares is called a corporation
(shareholders’ equity).
4. What is financial management?
Financial Management means planning,
organizing, directing and controlling the
financial activities such as procurement and
utilization of funds of the enterprise.
5. Need and Importance of Financial
Management
1. Estimating the Capital Requirements.
2. Determining the Capital Structure.
3. Acquisition of funds.
4. Proper Use of Funds.
5. Distribution of Surplus Wisely.
6. Efficient Management of Cash.
7. Increase the Value of the Firm.
8. Improve Profitability.
6. Scope of Financial manager
1. Making Financing decisions:
All organizations irrespective of type of business must raise funds to
buy the assets necessary to support operations. Thus financing
decisions involves addressing two questions:
1- How much capital should be raised to fund the firm's
operations (both existing & proposed)
2- What is the best mix of financing these investment proposals?
2. Making Investment decisions:
This decision in financial management is concerned with allocation
of funds raised from various sources into acquisition assets or
investment in a project. Further, Investment decision not only
involves allocating capital to long term assets but also involves
decisions of utilizing surplus funds in the business, any idle cash
earns no further interest and therefore not productive.
7. 3. Dividend Decision:
Share holders are the owners and require returns, and how much
money to be paid to them is a crucial decision. Thus payment of
dividend is decision involves deciding whether profits earned by
the business should be retained rather than distributed to
shareholders in the form of dividends.
4. Working Capital Decisions:
Working capital primarily deals with currents assets and current
liabilities, in fact it is calculated as the current assets minus the
current liabilities. One of the key objectives of working capital
management is to ensure liquidity position of a firm to avoid
insolvency.
9. 1. Financial objectives or goals
• Profit maximization (profit after tax):
Maximizing the Income of Firm.
Resources are efficiently utilized.
Appropriate measure of firm performance.
• Shareholders’ Wealth Maximization:
• Maximizes the net present value.
• Fundamental objective — maximize the
market value of the firm’s shares.
10. 2. Non financial Objectives
• General welfare of employees.
• General welfare of society.
• Fulfillment of responsibilities towards customers,
suppliers etc.
• Leadership in R&D.
• Effective utilization of funds.
11. Organization of the Finance Function
In the context of financial management organisation structure of
finance indicates established pattern of relationships among
individuals and positions in a finance department of a business
enterprise.
12. The Finance Managers Role, Functions
and Duties
1- Forecasting and Planning.
2- Executing financing and investment decisions.
3- Coordination and control.
4- Management of financial resources.
5- Maximize profits & Minimize cost.
6- Dealing with financial markets.
13. Financial planning
Financial planning involves analyzing short-term and
long-term money flows to and from the company.
Three key steps of financial planning:
1.Forecasting the firm’s short-term and long-term
financial needs.
2.Developing budgets to meet those needs.
3.Establishing financial controls to see if the company
is achieving its goals.
14. Financial Forecasting
1- Short-Term Forecast -- Predicts revenues, costs
and expenses for a period of one year or less.
2- Cash-Flow Forecast -- Predicts the cash inflows
and outflows in future periods, usually months or
quarters.
3- Long-Term Forecast -- Predicts revenues, costs,
and expenses for a period longer than one year and
sometimes as long as five or ten years.
15. BUDGETING in the FIRM
• Budget -- Sets forth management’s expectations for
revenues and allocates the use of specific
resources throughout the firm.
• Budgets depend heavily on the balance sheet,
income statement, statement of cash flows and short-
term and long-term financial forecasts.
• The budget is the guide for financial operations and
expected financial needs.
16. TYPES of BUDGETS
1- Capital Budget -- Highlights a firm’s spending
plans for major asset purchases that often require large
sums of money.
2- Cash Budget -- Estimates cash inflows and
outflows during a particular period like a month or
quarter.
3- Operating (Master) Budget -- Ties together all the
firm’s other budgets and summarizes its proposed
financial activities.