CHAPTER ONE:

INTRODUCTION TO
FINANCIAL MANAGEMENT
Learning Objective
Identify the basic goals, objective and
functions of finance management.
Understand the concept of financial
environment and Malaysians Financial
Market.

Overview of Finance
This

chapter will enable nonfinance student to understand

the basics of financial
management and its importance
to the business environment.
Financial management deals with
managing financing activities,
investing activities and operating
activities of a company.

Overview of Finance
What is Finance?
Interrelated

with Economic and

Accounting
Economic overview factors
affecting the environment
Accounting Balance sheet and
Profit and loss account

Overview of Finance

Overview of Finance

Why Study Finance?

Manage

our money
Well provided for our future

The Managerial Finance

Function
Financial

management is a
managerial activity concerned
with planning and controlling
of the firm's financial resources to
generate returns on its invested
funds.
The managerial functions require
greater planning, control and
execution of financial
activities.

The Managerial Finance

Function
The Functions of a Financial Manager
Plan for the acquisition and use of funds
in relation to the firms objectives.
1.

Analyze and plan

Assess the financial strength and weakness
of the firm
Make alternative courses of actions.
Collect data for proper planning.

The Managerial Finance

Function
2.

Coordination and Control

Interact with others to lay plans
Control resources used

3.

Forecasting/anticipating
Planning process
Monitoring developments in the
economy
Keeping track of what happening in
the financial market

The Managerial Finance

Function
4.

Making Financial Decisions

Investment decisions (capital
budgeting decision)
Financing decisions (capital structure
decision) E.g.: Equity funds, and
Borrowed funds.
Cash flow decisions (working capital
decisions)

Goal of the Financial

Managers
There are two well known of the criteria
goal which are:
Profit Maximization
Short term targets that the firm needs
to achieve in order to maximize
shareholders wealth, example:

1.

Dividend
Use up profit for future growth
Can raise the share price of the firm

Goal of the Financial

Managers
2.

Wealth Maximization
Maximizing the market value of the firm's
ordinary share (common stock)
Raise the market price at which the shares
trade in the market place.

The Financial
Environment
Financial Market
An organization that is responsible
for the distribution of funds to end
users. E.g. :
Banks
Secondary market / money market

Malaysians
Financial Market

Legal forms of Business Organization

Forms of business organization can

be either:
1.

Sole Proprietorship

Business is registered to only one

person.
Unlimited liability
Responsible for all activities and
decision making
Tax paid individually

Legal forms of Business

Organization
2.

Partnership

More than one person enter the business wether

Bound by a document called partnership
agreement
Tax paid individually
3.

Corporation

Owner of a corporation will be its shareholders

Decision making will be done by the board of
directors / major shareholders
The liability of the owners will be limited to the
amount shares own
Tax paid from dividend received

QUESTIONS/EXERCISES
1.

2.

3.

4.

Write in brief about Financial

Management and discuss the scope
and functions of Financial Management.
Distinguish between Profit
Maximisation and Wealth Maximisation
objectives of the firm?
What are the important decisions of
finance functions? Explain their
importance and relevance in Financial
Management.
What is an agency relationship?