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Thursday, June 16,2011

Makerere University Business School 1

INTRODUCTION TOFINANCIAL MANAGEMENTPresented by:

Mr. Moses BazibuLecturer Faculty of Commerce

Makerere University Business SchoolKampala - Uganda


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Objectives of the module To define and understand the concept of financial management.

To appreciate the functions of a Financial

manager. To appreciate the major financialmanagement decisions.

To assess the tax environment. To appreciate the basic tools of financialanalysis and planning.


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FINANCIAL MANAGEMENT

DEFINED

This is the business management

function that is concerned withmanaging a business finances. It refers to the application of

financial management tools andtechniques to coordinate all thefinancial functions in the business.


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Functions of a FinancialManager

Spearheading the process of capitalbudgeting

Managing the liquidity of the firm.

Sourcing and utilization of funds Financial analysis and planning. Taking custody of companys valuabledocuments

Paying suppliers Monitoring the banking operations Budgeting and forecasting Proper earnings management


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Importance of Proper FinancialManagement

FINANCIAL

MANAGEMENT

Make sound businessdecisions

M a x

i m u m u s e

o f r e s o u r c e s

M e a s u r e

b u s i n e s s

p e r f o r m a n c e

Evaluate new business

opportunities


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Importance of FM Contd

Maximize use of financialresourcesFM allows you to identify and planfor the use of your financialresources.

It provides information for financial decision making.


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Evaluate new business opportunitiesFM provides the key information and

answer questions of whether to exploit suchopportunities or not.

That is, entrepreneurs can effectively

analyze a business opportunity anddetermine whether it is worthwhile or not.


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Measuring business performance

FM helps the investor to monitor the progress of their businesstowards achieving business goalsand to take corrective actionwhere necessary.


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Making sound businessdecisions

The financial information systemsprovides a wide range of information that can be used to

make better decisions.This is done using financial ratios,break even analysis etc.


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MAJOR FINANCIAL MANAGEMNETDECISIONS

Investment decisionWorking capital decisionFinancing decisionEarnings management decision


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1. Investment decision

This is also known as the Capital budgeting,and it refers to the decision to invest in longterm assets.

The assets are expected to be used over along period of time e.g. when a firmacquires plant and equipment or replacesan old equipment or when you invest inresearch and development.


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Importance of Capital Budgeting:

It determines the asset mix and hencethe business risk.

It involves heavy initial outlays of thebusiness resources.

Benefits accrue in future which future

is associated with risk and uncertainty.


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Practical Financial

Management Problem.Investment appraisal usingNPV, IRR, Pay back period.

Cost of capital


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2. Working capital decisionThis is the decision concerned with the shortterm assets/resources an organization uses to

meet its day to day obligations.Such assets include:

Cash reserves of the organisation Funds collected from debtors of theorganization. Inventories


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3 . Financing decision This is the decision concerned with thesourcing of funds that are utilized under theinvestment decision.

Much management time and effort isdevoted to trying to ensure the adequacy of the company's profit flow.

However, it is just as important that acompany has an adequate flow of funds if it

is to remain in business and very much lessmanagement time and effort is devoted tothis need.


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Financing decision Contd

As companies expand, they require growingamounts of cash to finance acquisitions of fixed assets. They also require growingamounts of cash to finance their growingworking capital (net current assets)

requirements.Some of this funding requirement will come

from INTERNAL sources, whilst some willneed to come from EXTERNAL sources.


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4 . Earnings managementdecision

The Financial Manager has to decide onwhat to do with the earnings once they

have been realised. There are threeoptions, To declare and pay all dividends toshareholders

To retain all the earnings and hencedeclare and pay no dividends

To decide on what proportion to be paidand what to be retained.


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Considerations in dividends

payment Internal restrictions that do not favour dividend

payment Legal considerations.

Level of the firms leverage position. Ease of raising additional capital. Will payment of dividends disadvantage the

shareholders or investors?

The preferences of the majority shareholders. Existence of profitable investment portfolio. The levels of control desired by theshareholders


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THANK YOU FOR YOURATTENTION


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Fm Presentation Paper[1]