FMAN272

INTRODUCTION
TO FINANCIAL
WELCOME
MANAGEMENT
Resources:

o Textbook – Financial Management

10th Edition by Carlos Correia

o Financial Calculator – Sharp EL

738
Class schedule:

Day Time
Monday (13H00-14H15) (A14-
G23)
Tuesday (08H00-09H15) (A14-
Consultation times:
G23)
Tuesday – (11H00-13H00)
Wednesday – (10H00-13H00)
Thursday – (Per appointment only)
 Topics to be covered
Refer to the
work
programme on
No Topic Efundi
1 Overview of financial management
2 Time value of money
3 Sources of finance Semester
1
4 Cost of capital
5 Financial statements analysis

6 Capital structure
7 Capital investment decisions
8 Working capital
Semester
9 Risk and return 2
10 Risk management
11 Dividend Decision
 PARTICIPATION:

Type: Contribution
Class attendance*** 5%
Principle tests/Assignments 10%
Formal tests (3 of the best 4 tests) 55%
June assessments 30%
Need a minimum of 40% for exam entry

50% x Participation
Mark + 50% x Exam Mark = Final Mark
 Communication:

E-fundi/Email
&
WhatsApp ( refer to Efundi for

)
link
 About the course

SCOPE
EVERYTHING THAT WE ARE GOING TO DO THIS YEAR
Any Rules?
Expectation
s?
Contact details:

Rorisang Kole CA(SA)

Office : ADC Building (A3), Block A, Office 208
Tel : 018 389 2071 or WhatsApp
Email : [email protected]
 Study Unit 1
“Overview of Financial Management”

After completing this study unit, you should be able to:

 Reflect on the purpose and functioning of organisations by reflecting on:
• Structure of and divisions within organisations;
• Different industries;
• Basic economic principles;
• Prevailing social and economic conditions;
 Reflect on the underlying concepts and theories of financial management;
 Define financial management;
 Argue what the fundamental objective of financial management is;
 Explain the underlying fundamental concepts of financial management; and
 Prepare a preliminary analysis of the appropriate forms of organisation for
fulfilling the objectives of the entity
 Demonstrate an awareness of the role of Corporate/Enterprise strategy, the
strategic management process and how this applies to financial
Financial Management

What is financial
management
&
How does it fit into the
picture?
 About the course
Link to other modules:

Tax – Tax
specialists
 About the course
Link to other modules:

Accounting - Accountants
 About the course
Link to other modules:

Audit -
Auditors
 Financial Management

Then we have us
(financial managers):

The important guys in the

business
We use some of the info. from the above
mentioned professionals to make decisions
 Financial Management

All the study units link

together therefore it is
important to always
see the bigger picture
 Financial Management

What is our role as Financial Managers?

To make the following decisions:

 Investment decisions
What type of assets/projects should we invest in? (STUDY UNIT 7)

 Financing decisions
Where do we get the money to invest is such assets/projects?
(STUDY UNIT 3)

 Dividend decisions
How should we use the profits? (STUDY UNIT 11)
 Financial Management
It should not only be
about money
“ETHICS”-see later

Objective of the financial manager

(financial management) is to
increase shareholder value (NOT
ONLY PROFITS)

In doing so, all stakeholders need

to be considered
 Financial Management

Which stakeholders are we

referring to?
 Shareholders
 Employees
 Community
 Customers
 etc.
Any party that has a direct/indirect relationship with
the entity
 Financial Management

The financial manager of NWU Ltd (a manufacturing & and

retail company) , to increase profitability, decided on the
following:
 Cut on advertising, research, and development costs
 Cut the capital expenditure, particularly on machinery
 Lay off 30% of the workers from the production
department

As a result, the Net Profit of the company increased by 41% in

the current year.

Discuss the above measures in line with the objectives

of financial management.
 Financial Management

As an Investor are you happy, in terms of value creation?

Answer:
 The measures taken are not in line with the objectives of financial
management. The financial manager did not consider all
stakeholders in his decision, and he focused only on profits instead
of stakeholder value.
 Short-term it is good that profits increased by 41%, which is good
 However, this will destroy the value of the company in the long-
term:
 Cutting Advertising/Research costs will lead to us no longer being
innovative therefore being uncompetitive.

 Cutting CAPEX will impact production negatively, ultimately

impacting profits/sustainability of the business.

 Laying off workers will also affect future production problems which
could affect our sales and also possible labour unrest.
 Financial Management

Why is profit maximisation not the right

objective?
 Manipulation of accounting profits
 Timing
 Cash flows
 Risk
 Cost of capital
 Corporate Strategy

What do we mean by strategy?

action plans to assist in achieving organisational goals/objectives

 Whatever decisions FMs make must be in line with the

company’s strategy
 At all times FMs also need to be aware of the current economic,
social, political, legal as well as market conditions that can
affect the entity’s ability to achieve its objectives. The
company strategy needs to be realistic around these factors.
 The strategy must also be lined up with the objectives of
financial management
 You are a financial manager of North Ltd, a company selling
cakes. Each cake costs R20 to bake and it is being sold for
R60 to the customer.

 Across the street there is West Ltd (your competitor) selling

the same type of cakes for R55.

Recently sales have dropped drastically for North, what could

you do in this case to increase the revenue?
 Answer:

 Lower the selling price

 Consider introducing a new range of cakes
 Focusing on the best quality cakes
 Tapping in to new markets
 Revise the marketing strategies
 Etc

All of the above are strategies (Action Plans to take to succeed)

 Financial Management

Scenario 1:
Paul Ethica is a successful entrepreneur in the
Manufacturing industry, he has a philosophy that the if
you hire youth, you will realise maximum results and
profitability. Therefore the average age of his staff
members is 14-15 years. On average each employee works
for 14 hours a day. Paul always preaches that hard-work
allowed him to get to where he is today as he started
working at the age of 9.
 Financial Management

Scenario 2:
You have recently joined Cons Costruction Limited. During
a tender negotiation process an amount of R100 000 cash
was given to the tender officer by your superior after
which he clearly stipulated the following to you:

“In this business, the only way to succeed is to always

give cold drink allowance. That is the reason we are the
biggest construction company in our region, you better
join in”
 Financial Management

Scenario 3:
Tom Careless has been a director of Fiska Limited for the
past five years. The company collects medical wastes
from various hospitals for disposal. The disposal costs
have been rising over the past years there Tom has
suggested that the waste be disposed at the local river
situated at a village that is 5km away from the
company’s main premises
 Financial Management

Ethics
What is an ethical
person?
• A person with good moral sense (Honest/Fair/Truthful)

Are you ethical?

Yes, YOU MUST BE AT ALL TIMES.
 Financial Management

Ethics
Fundamental principles :

 Integrity
 Objectivity
 Professional competence and due care
 Confidentiality
 Professional behaviour

As professionals we are bound by these principles in everything we do

Know these principles as you will have to quote

then when arguing an ethical issue in a question
 Financial Management

Ethics
vs
Value maximisation
• Financial Managers should not compromise ethical
values just to add value to a company. (e.g child
labour for the sake of profits)

• Whatever the situation, we should always remain

ethical.
 Any recent unethical
behaviour we have seen in
various companies/entities?

What do you think about

our Government? Do we
have any ethical issues?
 Homework

Read up chapter 1 of the textbook (ONLY

the following paragraphs):
 Par 1-2
 Par 3 (Excluding EVA)
 Par 4-7
 Par 9 (Just understand the principles of
strategy)
 What to expect this year???

 Work Load is going to increase “Significantly” But “Doable”

 Practice/Study is the “only” way / You start NOW!!!
 You cannot cram any of the modules / you cannot study last minute (IT
WILL NOT WORK!!!)(Questions you will not see; List, True or False,
Name, Multiple choice. It’s about application)
 Do not listen to negative people (They are not you and you are not
them)
 Do not fall in the YEAR-MODULE Trap
 You don’t just wake up and realize you have failed, you can see the
signs way earlier – SEEK HELP IMMEDIATELY

If you put in the required time ,you will definitely make

it
 NEXT CLASS

TIME VALUE
OF MONEY
SU:2