The document discusses the necessity and functions of financial management within business, emphasizing that finance is a scarce resource essential for effective business operations. It argues that wealth maximization is preferable to profit maximization as it focuses on increasing shareholder value and ensures optimal resource allocation. Additionally, it details the structure and key functions of a finance department and the roles of a finance manager.

1. GOLIS TECH UNIVERSITY BURAO
COURSE: FINANCIAL MANAGEMENT
CHAPTER TWO: FINANCIAL MANAGEMENT
SEMESTER SIX: ACCOUNTING
LECTURER: MOHAMED M.BAROUD

4. NEED OF FINANCIAL MANAGEMENT
You are aware that no business can be started without
finance. Finance is a scarce resource which is not available
freely and it has cost.
All the resources that are useful to any business
organization like men, material, machines and money or
finance are in nature. Since, they are limited, we cannot
waste them. These resources are to be used optimally for
productive purposes.
Finance is one of the resources vital for any business
organization. It is scarce, has cost and also alternative uses.

5. Financial viability is perhaps the central theme of any
business proposition. That’s why, it has been rightly said that
business needs money to make more money.
However, it is also true that money begets more money only
when it is properly managed. Hence, efficient management of
every business enterprise is closely linked with efficient
management of its finances.
Financial management involves the management of finance
function. It is concerned with the planning, organizing,
directing and controlling the financial activities of an
enterprise.

28. Favourable Arguments for Wealth
Maximization
I. Wealth maximization is superior to the profit
maximization because the main aim of the
business concern under this concept is to improve
the value or wealth of the shareholders.
II. Wealth maximization considers both time and risk
of the business concern.
III. Wealth maximization provides efficient allocation
of resources.
IV. It ensures the economic interest of the society.

29. ORGANIZATION OF FINANCE
DEPARTMENT
A well-organized finance department is absolutely
essential for the efficient financial management of an
enterprise. If finance department does not operate well,
the whole organizational activity will be ruined.
Hence, it is essential that the finance department should
be well organized with nucleus staff from the time of
project stage, so that expert guidance and advise
regarding the various proposals are available to the
management in planning and managing the project.

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31. FUNCTIONS OF FINANCE MANAGER
• Finance manager performs the following major
functions:
1. Forecasting Financial Requirements
2. Acquiring Necessary Capital
3. Investment Decision
4. Cash Management
5. Interrelation with Other Departments

32. MODEL EXAMINATION QUESTIONS
1. Why do you need financial management?
2. How do you define wealth maximization?
3. Narrate the importance of financial management.
4. Discuss the objectives of financial management.
5. Critically evaluate various approaches to the
financial management.
6. List out the functions of the financial manager