Summary
Summary financial management
- Course
- Institution
financial management notes introduction to financial management
[Show more]
Seller
Follow
stephenodhiambo
Content preview
SUMMARY NOTESBY DR.STEPHEN
INTRODUCTION TO FINANCIAL MANAGEMENT
WHAT IS FINANCE
Finance is a branch of economics concerned with resource allocation as well as resource
management, acquisition and investment. Simply, finance deals with matters related to money
and the markets. It is the science of the management of money and other assets.
The scope of financial management can be described by the functions of the finance manager.
These functions can be summarized into two broad categories, namely:-
Managerial functions
Routine functions
1. Managerial Functions
These are the most important functions of the finance manager since they affect the value of the
firm. These functions require the technical expertise of the finance manager. They include the
following:-
1. The investment function
This refers to the allocation of the company’s resources amongst the competing projects
available. Investment in fixed assets is known as capital budgeting while investment in current
assets is known as working capital management.
2. The financing Function
The financing decision involves determining the sources of finance available to the
company. Capital may be obtained from a variety of sources as follows:
(a) Long-term sources which include equity ( ordinary share capital plus reserves) ,debt
(debentures plus long term loans) and preference share capital.
(b) Short term sources which include all current liability items in the balance sheet.
(c) Asset-based finance which include mortgage, hire purchase,leasing.
The sources of finance available to the company can be categorized into two. These are:-
1|Page
, 3. The dividend policy function
This function is also known as the profit allocation function. Dividends are profits which are
distributed to the ordinary shareholders as a reward for investing in the company.
The dividend policy decision affects the investment function because retained earnings are an
internal source of finance. Therefore a high dividend pay out ratio will lead to low retained
earnings and hence more external borrowing for investment purposes and vice versa.
2. Routine functions
These are the day to day functions of a finance office. They involve the setting up of a system of
internal controls by the finance manager to ensure that the operations of a firm run smoothly and
that the assets of the company are safeguarded and only used for the benefit of the company.
Once designed such roles are delegated to junior staff in the finance department and they include
the following
i) Receipt and payment of cash.
ii) Issue of cash receipts.
iii) Safeguarding the important financial documents etc.
iv) Ensure authorization to access and use of assets of a company.
GOALS OF THE FIRM
Firms just like individuals operate with specific goals. Without goals the firm will not be able to
achieve much. These goals include;
(a) Financial goals
(b) Non-financial goals
1. FINANCIAL GOALS
a) Profit maximization goal
Profit can generally be defined as the difference between sales and expenses. In order for a firm
to increase its profitability it might either:-
2|Page
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller stephenodhiambo. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R126,54. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
64438 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy summaries for 14 years now