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Financial Management

This document discusses the goals and functions of financial management. It notes that a firm operates within a social context and is influenced by stakeholders like stockholders. It also discusses potential conflicts between stockholder and management goals, and references theories about individual behavior and work motivation. The goals of a firm are outlined as maximizing profits, shareholder wealth, or playing an active role in society. The main functions of financial management are described as financial policy and strategy, financial planning, and financial control.

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Mariel Advento
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© © All Rights Reserved
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Download as PPTX, PDF, TXT or read online on Scribd
50 views

Financial Management

This document discusses the goals and functions of financial management. It notes that a firm operates within a social context and is influenced by stakeholders like stockholders. It also discusses potential conflicts between stockholder and management goals, and references theories about individual behavior and work motivation. The goals of a firm are outlined as maximizing profits, shareholder wealth, or playing an active role in society. The main functions of financial management are described as financial policy and strategy, financial planning, and financial control.

Uploaded by

Mariel Advento
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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FINANCIAL

MANAGEMENT
Goals and Functions of
Financial Management
3

Several Influences which are immediately recognizable that


the firm cannot be separated from various sectors of society:
▫ The preference of stockholders and the goals they set for the firm will
partly depend on alternative uses and returns for the capital invested
in the firm.
▫ The firm exists within a legal or political and economic framework.
▫ Management could not act as if it is accountable only to its
stockholders and not to society.
▫ The firm’s choice of operating plans.
4

The Potential Conflict in Owner and Management Goals


▫ Managers may overspend on salaries and perquisites because these
also have the effect or increased personal consumption.
▫ Managers may engage in shirking behavior, preferring leisure over
any further exertion to achieve or even exceed the stockholders’ goals.
▫ Managers may supplant the stated goals of stockholders with some of
their own.
▫ Managers may engage in outright manipulation and misrepresentation
of corporate performance in order to show attainment of the owners’
goals.
5

The Potential Conflict in Owner and Management Goals


Two Crucial Theories of the Firm and Managerial Behavior:
 Theory X – version of individual behavior is valid that man prefers
less work to more and is driven by economic reasons or self-interest
alone.
 Theory Y – individual behavior holds and there will be no conflict
between the owner who likes returns and the work-oriented,
cooperative and impeccably responsible manager.
6

The Potential Conflict in Owner and Management Goals


Two Crucial Theories of the Firm and Managerial Behavior:
 Theory X – version of individual behavior is valid that man prefers
less work to more and is driven by economic reasons or self-interest
alone.
 Theory Y – individual behavior holds and there will be no conflict
between the owner who likes returns and the work-oriented,
cooperative and impeccably responsible manager.
 -Douglas McGregor
7

Goals of the Firm


▫ Maximize Corporate Profits
▫ Maximize Wealth of Stockholders
▫ Maximize Profits or Shareholder Wealth Subject to the Satisfaction of
such other Goals
▫ Maximize Profits or Shareholder Wealth while Playing an Active Role
as a Participant in Society’s Current Concerns.
▫ Maximize the Value of the Firm
FUNCTIONS OF
FINANCIAL MANAGEMENT

FINANCIAL POLICY FINANCIAL PLANNING FINANCIAL CONTROL


9

FUNCTIONS OF THE FINANCIAL MANAGEMENT


1. FINANCIAL POLICY AND STRATEGY
1.1 Investment Policy
1.2 Capital Structure Policy
1.3 Growth Strategy
1.4 Dividend Policy
10

FUNCTIONS OF THE FINANCIAL MANAGEMENT


2. FINANCIAL PLANNING
2.1 Financial Forecasting
2.1.1 Cash Budgeting
2.1.2 Profit Planning
2.1.3 Balance Sheet Forecasting
2.2 Financial Analysis
2.2.1 Capital Budgeting Techniques
2.2.2 Operating Leverage Analysis
2.2.3 Financial Leverage Analysis
2.3 Financial Performance Evaluation
2.3.1 Financial Ratios
2.3.2 Market-wide Financial Indicators
11

FUNCTIONS OF THE FINANCIAL MANAGEMENT


3. FINANCIAL MANAGEMENT AND CONTROL
3.1 Project Management
3.2 Working Capital Management
3.2.1 Cash Management
3.2.2 Accounts Receivable Management
3.2.3 Inventory Management
3.3 Management of Fund Sources
3.4 Dividend Policy Implementation
12

Keep safe everyone.

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