Financial-Management_ivo.pptx

4. PARTICIPATE, PARTICIPATE,
PARTICIPATE

10%
what
we read
20% of what we hear
30% of what we see
50% of what
we see and hear
70% of what we say
90% of what we say and do

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What is Financial Management?
Financial management deals with
how a firm obtains funds and how
it use them

-
What is Financial
Management?
 It refers to the management activities of
efforts devoted to the proper
management of finance that includes
financial planning, financial
administration and financial control

-
What is Financial
Management?
 Financial management is the area of
business management that is devoted
to the judicious use of capital and a
careful selection of sources of capital
in order to geared toward attainment of
goals

-
Importance of Financial
Management
 Economic growth and development
 Allows better financial decision
 Improved standard of living
 Promotes healthy environment
 Creates jobs
 Alleviation of poverty
 Improved health

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Objectives of Financial
Management
1. To MAXIMIXE PROFIT
 Increase sales
 Reduce the cost of production
through efficient use of resources
 Make judicious choice and use of
funds
 Minimize risk and avoid potential
waste and loss of resources

-
Management
2. To MAXIMIXE WEALTH
 Increase market value of shares of the
company over a period of time
 Build up adequate reserves to ensure
financing for growth and expansion
 Ensures operational stability and
positive cash flows

-
Management
3. To forecast the total
financial cash requirement
 Its important to know how much finance
cash will be required to start and run the
business
 Consider many factors, such as the type
of technology used by company, number
of employees employed, scale of
operations, legal requirements,
competition, external environment,
economy etc

-
Management
4. To decide proper fund
sourcing
 Sourcing / collection of finance
 Proper balance between owned
finance and borrowed finance.
 Borrow money at a low rate of
interest as possible.

-
Management
5. To properly utilize
finances
 Plan the optimum use of finance
 Use the finance profitably delivering
best value for money.
 Do not waste the money of the
organization
 Maintain a good supply of short credit
 Forecast efficient cash flow to enable
smooth stock control

-
Management
6. To maintain proper cash
flow
 Proper cash flow is needed to pay the
day-to-day expenses such as
purchasing of raw materials, the
payment of wages and salaries, rent,
electricity bills.
 It can take advantage of many
opportunities such as taking cash
discounts on purchases, large-scale
purchasing, giving credit to customers..

-
Management
7. To ensure survival of the
business
 The company must survive in this
ever competitive business world.
The finance manager must be
very careful while making
financial decisions.

-
Management
8. To create reserves
 The company should not distribute the
full profits as a dividend to the
shareholders. It should keep a part of its
profit in reserves.
 Reserves can be used for future growth
and expansion. It can also be used to
face contingencies in the future if any
emergencies should arise, or give
strength for a possible merger or
acquisition.

-
Management
9. To create goodwill
 Improve the image and reputation of
the company.
 Goodwill helps the company to survive
in the short-term and succeed in the
long-term. It also helps the company
during bad times.
 It also adds value to company’s net
worth in an event of a takeover or buy
out.

-
Management
10. To increase efficiency
 Proper distribution of finance to
all the departments will increase
the efficiency of the entire
company.

-
Management
11. To reduce the cost of
capital
 Borrow money at a low rate of
interest.
 Plan the capital structure in such
a way that the cost of capital it
minimized, either through debt,
or equity finance.

-
Management
12. To reduce operating
risks
 Avoid high-risk projects unless
it is the policy of the company
 Take proper and adequate
insurance

1.Business Goals
Some Important Aspects of Financial
Management
Financial Plan
Forecast Sales/Profit
Return on Investments

2. Start-up Capital
 Requirement (How much)
 Source (Equity and/or loan)
 Loan term (Interest rate,
payment period)
Management

3. Cash Flows
When to collect receivables
When to pay dues, and other
payables
When to buy goods, supplies and
materials
Amount of petty cash maintained
Management

4. Control of Finances
Management
Authorize keeper of finances
Depository Bank
Check/ Voucher Signatories
Accounting procedures
Frequency of audit

5. Credit Policy
Management
Maximum allowable volume of
goods that can be loaned out
 Eligibility criteria of borrowers
 Eligibility criteria of borrowers
 Credit (Loan) Evaluation and Approval Process

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COMPONENTS OF FINANCIAL
STATEMENTS
Statement of Financial Position
 Statement of Income
 Statement of Changes in Equity
 Statement of Cash Flows
 Notes to Financial Statement

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HOW DOES THE FINANCIAL
STATEMENTS PREPARED?

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TYPES OF MAJOR ACCOUNTS
Real Accounts /
Permanent Accounts /
Statement of Financial
Position Accounts
Nominal Accounts /
Temporary Accounts /
Income Statement
Accounts
Assets
Liabilities
Capital
Income
Expense

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KINDS OF ASSETS
CURRENT ASSETS
• Cash and Cash Equivalents
• Financial Assets
• Trade and Other Receivables
• Inventories
• Prepaid Expenses
NONCURRENT ASSETS
• Property, Plant and Equipment
• Long Term Investment
• Intangible Assets
• Other Noncurrent Accounts

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KINDS OF LIABILITIES
CURRENT LIABILITIES
• Trade and other payables
• Short-term borrowing
• Current portion of long-term
debt
• Current tax liability
NONCURRENT LIABILITIES
• Noncurrent portion of long-
term debt

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OWNER’S EQUITY/CAPITAL
• Owner’s Equity in a sole proprietorship
• Partner’s Equity in a partnership
• Stockholder’s Equity or Shareholder’s
• Equity in a corporation

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SINGLE
PROPRIETORSHIP
PARTNERSHIP AND
CORPORATION
BALANCE SHEET

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SOURCES OF INCOME
• Sale of merchandise to customers
• Rendering of services
• Use of entity resources
• Disposal of resources other than
products

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COMPONENTS OF EXPENSE
• Cost of sales
• Distribution costs or selling expenses
• Administrative expenses
• Other expenses (not directly related to
selling and administrative)
• Income tax expense

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INCOME
STATEMENT PARTNERSHIP and
CORPORATION
SINGLE PROPRIETORSHIP

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PARTNERSHIP and
CORPORATION
STATEMENT OF
CASH FLOW

-
PARTNERSHIP and
CORPORATION

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ANALYSIS OF FINANCIAL
STATEMENTS
WHY ANALYSE AND
INTERPRET THE FINANCIAL
STATEMENTS?

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QUESTIONS:
• Does the business organization meet its
obligations as they fall due?
• How is the performance of business
organization compared to other entities of
the same industry?
• How stable and solvent is the business
organization?
• Is there any room for expansion?

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MANAGEMENT
To determine the
activities of the
enterprise for planning,
organizing, leading and
controlling

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EMPLOYEES
To determine the stability
and profitability of
employers.
To determine the ability of
the employer to pay salaries
and fringe benefits.

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LENDERS
To determine the ability
of the borrowers to pay
the loan.

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SUPPLIERS
To determine the ability of the
customers to pay debt as they
fall due.
customer to remain as a
continuing customer.

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CUSTOMER
enterprise to be a continuing
source of supply.
To assess the ability of the
company to exist over a long
period of time.

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PUBLIC
To determine the activities of the
enterprise.
To know the contribution of the
enterprise to the economy in the form
of: number of employees; ownership
of assets; prices of their products;
patronage of local suppliers; and
patronage by customers, among
others.

Financial-Management_ivo.pptx

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