Financial Management, as a discipline, is not to be restricted to the concept and pursuit of raising of funds but must extend also to the efficient use of the resources.
The main theme of financial management is primarily to address on following three inter-related financial areas :
- investment on long-term as well as on current assets;
- financing for activities; and
- policy evolution and its implementation as regards dividends - or returns to shareholders, i.e. the real owners of the firm.
Long-term investment decision goes also by the name of capital budgeting. Financial decisions eancompass : operating and financial leverage, and capital structure decisions. These bear on the cost of capital for the firm and on what is called the value of the firm. Dividend policy, in a way, is also considered severally as related to the value of the firm. Management of current assets is also often known otherwise as working capital management.
Objectives
After studying this unit, you should be able to
- understand freely, as one dealing with funds and financing should do, the underlying concepts and the implications as regards the three fundamental thematic applications, which have become essential as business activities have been increasing and becoming more complex and also spread across several regions and lines of business,
- deal, after some preliminary detailing on these themes, with Financial Statement Analysis - i.e. what can be inferred by a discerning scrutiniser from the financial statements of a firm,
- describe the various aspects of Statement of Changes in Financial Position (SCFP) and its usefulness,
- see wherefrom funds have been obtained and how well have the funds been used - such scrutiny is based on deducing certain ratios between the several features readable from the financial statements, and
- reconstruct salient items of the business and also the Balance Sheet (BS) from data and values of ratios given.
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