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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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Importance of FM Contd
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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Importance of FM Contd
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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Importance of FM Contd
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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Qu estion time
Comments/RemarksExperiences
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