This document provides an introduction to financial management. It outlines the nature, purpose and scope of financial management, including maximizing shareholder value. It discusses the relationship between financial objectives and organizational strategy/objectives. Key responsibilities of a financial manager include investment, financing, and working capital decisions to achieve the firm's financial goals. The document also introduces forms of business organization and their advantages/disadvantages.

2. MODULE 1 – Introduction to Financial
Management
CONTENTS
LESSON 1: Nature, Purpose and
Scope of Financial Management
LESSON 2: Relationship of
Financial Objectives to
Organizational Strategy and Other
Organizational Objectives
LESSON 3: Functions of Financial
Management
LESSON 4: Forms of Business
Organization
INTENDED LEARNING
OUTCOMES
a. Explain the nature, goal and basic
scope of financial management
b. Discuss the significance of financial
management
c. Discuss the importance of objective
setting in a business enterprise
d. Describe the role of Financial
Manager in achieving the primary goal
of the firm
e. Explain the basic legal forms of
business organizations
f. Identify the advantages and
disadvantages of adopting forms of
business organization

3. Lesson 1: Nature, Purpose and Scope
of Financial Management
NATURE OF FINANCIAL
MANAGEMENT
Financial Management also referred to
as managerial finance, corporate
finance, and business finance, is a
decision making process concerned
with planning, acquiring and utilizing
funds in a manner that achieves the
firm's desired goals. It is also
described as the process for and the
analysis of making financial decisions
in the business context.
THE GOAL OF FINANCIAL
MANAGEMENT
The goal of financial management
is to maximize the current value
per share of the existing stock or
ownership in a business firm.

4. SCOPE OF
FINANCIAL
MANAGEMENT
1. Procurement of short-term as well
as long-term funds from financial
institutions.
2. Mobilization of funds through
financial instruments such as equity
shares, preference shares,
debentures, bonds, notes, and so
forth.
3. Compliance with legal and
regulatory provisions relating to funds
procurement, use and distribution as
well as coordination of the finance
function with the accounting function.

5. TYPES OF FINANCIAL
DECISIONS
• INVSTMENT DECISIONS
Theinvestmentdecisionsarethosewhichdeterminehowscarceorlimited
resourcesintermsoffundsofthebusinessfirmsarecommittedtoprojects.
• FINANCING DECISIONS
Financingdecisionsassertthatthemixofdebtandequitychosentofinance
investmentsshouldmaximizethevalueofinvestmentsmade.
• DIVIDEND DECISIONS
The dividend decision is concerned with the determination of quantum of
profits to be distributed to the owners, the frequency of such payments and the
amountstoberetainedbythefirm.

6. SIGNIFICANCE OF FINANCIAL
MANAGEMENT
The importance of financial management is known for
the following aspects:
• BROAD APPLICABILITY
• REDUCTION OF CHANCES OF FAILURE
• MEASUREMENT OF RETURN ON INVESTMENT

7. LESSON 2
Relationship of Financial Objectives to
organizational Strategy and Other
Organizational Objectives

8. STRATEGIC FINANCIAL
MANAGEMENT
Strategic planning is long-
range in scope and has its
focus on the organization as a
whole. The concept is based
on an objective and
comprehensive assessment of
the present situation of the
organization and the setting up
of targets to be achieved in the
context of an intelligent and
knowledgeable anticipation of
changes in the environment.
The responsibility of a finance
manager is to provide a basis
and information for strategic
positioning of the firm in the
industry. The firm's strategic
financial planning should be
able to meet the challenges
and competition, and it would
lead to firm's failure or
success.

9. SHORT-TERM AND LONG-TERM FINANCIAL
OBJECTIVES OF A BUSINESS ORGANIZATION
SHORT AND MEDIUM-TERM
• Maximization of return on capital
employed or return on investment
• Growth in earnings per share
and price/earnings ratio through
maximization of net income or
profit and adoption of optimum
level of leverage
• Minimization of finance charges
• Efficient procurement and
utilization of short-term, medium-
term, and long-term funds
LONG – TERM
• Growth in the market value of the
equity shares through maximization of
the firm's market share and sustained
growth in dividend to shareholders
• Survival and sustained growth of the
firm
• The owner's perspective which hold
that the only appropriate goal is to
maximize shareholder or owner's
wealth, and;
• The stakeholders' perspective which
emphasizes social responsibility over
profitability (stakeholders include not
only the owners and shareholders, but
also include the business's
customers, employees and local
commitments).

10. The wealth maximization goal is advocated
on the following grounds:
• It considers the risk and time value of money
• It considers all future cash flow, dividends and earnings per
share
• It suggests the regular and consistent dividend payments to the
shareholders
• The financial decisions are taken with a view to improve the
capital appreciation of the share price. Maximization of firm's
value is reflected in the market price of share since it depends on
shareholder's expectations regarding profitability, long-run
prospects, timing difference of returns, risk distribution of
returns of the firm

11. RESPONSIBILITIES TO ACHIEVE THE
FINANCIAL OBJECTIVES
INVESTING
The investment decisions
should aim at investments in
assets only when they are
expected to earn a return
greater than a minimum
acceptable return which is also
called as hurdle rate.
The following areas are examples of
investing decisions of a finance
manager:
a. Evaluation and selection of capital investment
proposal
b. Determination of the total amount of funds that
a firm can commit for investment
c. Prioritization of investment alternatives
d. Funds allocation and its rationing
e. Determination of the levels of investments in
working capital (i.e. inventory, receivables, cash,
marketable securities and its management)
f. Determination of fixed assets to be acquired
g. Asset replacement decisions
h. Purchase or lease decisions
i. Restructuring reorganization mergers and
acquisition
j. Securities, analysis and portfolio management

12. FINANCING
The finance manager will be
involved in the following
finance decisions:
a. Determination of the financing pattern of
short-term, medium-term and long-term funds
requirements
b. Determination of the best capital structure or
mixture of debt and equity financing
c. Procurement of funds through the issuance of
financial instruments such as equity shares,
preference shares, bonds, long-term notes, and
so forth
d. Arrangement with bankers, suppliers, and
creditors for its working capital, medium-term
and other long-term funds requirement
e. Evaluation of alternative sources of funds
The finance manager is
concerned with the ways
in which the firm obtains
and manages the
financing it needs to
support its investments.
The financing objective
asserts that the mix of
debt and equity chosen
to finance investments
should maximize the
value of investments
made.

13. OPERATING
Some issues that may have to be
resolved in relation to managing a
firm's working capital are:
a. The level of cash, securities and
inventory that should be kept on hand
b. The credit policy (i.e., should the firm
sell on credit? If so, what terms should be
extended?)
c. Source of short-term financing (i.e., if the
firm would borrow in the short-term, how
and where should it borrow?)
d. Financing purchases of goods (i.e.,
should the firm purchase its raw materials
or merchandise on credit or should it
borrow in the short-term and pay cash?)
This third responsibility area
of the finance manager
concerns working capital
management. The term
working capital refers to a
firm short-term asset (i.e.,
inventory, receivables, cash,
and short-term investments)
and its short-term liabilities
(i.e., accounts payable, short-
termloans).

14. REVIEW QUESTIONS
• Whatisthepurposeoffinancial management?
• What goal should always motivate the action of a
firm’sfinancialmanager?
• Whataresomeactionsthatstockholderscantaketo
ensure that management’s and stockholders’
interestsarealigned?