MAC3761 — Learning Unit 13
Introduction to Financial Management
Focused Textbook Study Summary
Scope: This guide covers the prescribed Learning Unit 13 material from Managerial
Finance, 10th edition, Chapter 1: sections 1.0–1.11.5. It includes financial management;
the goal of an entity; business/value-creation models; stakeholders, governance,
engagement and reporting; risk and return; capital markets; time value of money;
future value; present value; present value of shares; and present value of debt. It also
includes the prescribed Chapter 1 practice questions: Questions 1-1 to 1-9, as specified
in the Learning Unit guide, and the required MCQ activities 13.1 and 13.2.
Key exclusions: This Learning Unit introduces topics that are developed in later
chapters, but detailed work on strategy, risk-management frameworks, cost of
capital/WACC, investment appraisal, financing, reporting and performance analysis,
working capital management, advanced valuations, financial distress, dividends,
foreign exchange and interest-rate risk is outside the confirmed scope. Some time-
value-of-money content was covered in MAC2602; this guide covers only the Chapter 1
material prescribed for Learning Unit 13.
1. Big Picture
Learning Unit 13 introduces the purpose of financial management and the role of finance in
creating and preserving sustainable value for stakeholders. It establishes the conceptual base
for later Finance topics by linking financing, investment and control decisions to stakeholder
value, risk, capital markets and the time value of money.
2. Scope and Learning Outcomes
2.1 Exact prescribed material
Source Prescribed sections and focus
Chapter 1:
Section 1.0, including the SAICA Competency Framework
Introduction
Chapter 1: Financial Sections 1.1; 1.1.1 Finance function; 1.1.2 Finance decision; 1.1.3 Investment decision; 1.1.4 Role of
management financial manager. Prescribed exercise: Question 1-1
Chapter 1: Goal of an Sections 1.2; 1.2.1 Sustainable value creation; 1.2.2 Shareholder wealth maximisation; 1.2.3 Sustainable
entity development, inclusive capitalism and good corporate citizenship; 1.2.4 Other emerging perspectives
Chapter 1: Business
Section 1.3 Business model/value-creation model of an entity. Prescribed exercise: Question 1-4
model
, Source Prescribed sections and focus
Sections 1.4; 1.4.1 Definition; 1.4.2 Key stakeholder groups; 1.4.3 Stakeholder theory; 1.4.4 Governance
Chapter 1:
principles and practices; 1.4.5 Stakeholder engagement; 1.4.6 Reporting to stakeholders. Prescribed
Stakeholders
exercise: Question 1-2
Chapter 1: Risk and
Sections 1.5; 1.5.1 Business risk; 1.5.2 Financial risk
return
Chapter 1: Capital Sections 1.6; 1.6.1 Capital market defined; 1.6.2 Raising equity finance on the JSE; 1.6.3 Sustainability and
markets responsible investment in capital markets
Sections 1.7–1.9.4: TVM; future value; compound interest; solving for interest rate and periods; periods
Chapter 1: Time
shorter than a year; FV of annuity; PV; PV of annuity; periodic loan payment; perpetuity. Prescribed
value of money
exercises: Questions 1-5, 1-6, 1-7, 1-8 and 1-9
Chapter 1: Present Sections 1.10; 1.10.1 No growth; 1.10.2 Constant growth; 1.10.3 Non-constant growth. Prescribed
value of shares exercises: Questions 1-3 and 1-8
Chapter 1: Present Sections 1.11; 1.11.1 Definition; 1.11.2 Irredeemable debt; 1.11.3 Redeemable debt; 1.11.4 Preference
value of debt shares with non-constant growth; 1.11.5 Convertible debentures
LU13 required MCQ 13.1: Introduction to Financial Management; MCQ 13.2: Time Value of Money. The guide permits use
activities of a financial calculator or mathematical formulae for MCQ 13.2
2.2 Learning outcomes
You should be able to:
Explain financial management, and describe the goal of an entity and the role of the
financial manager.
Identify key stakeholders of an entity and describe their roles in both the private and
public sector.
Explain governance principles pertaining to stakeholder relations.
Describe stakeholder engagement and its benefits.
Define sustainable development, including inclusive capitalism/the six capitals and good
corporate citizenship.
Describe the relationship between investment risk and return.
Explain the overall function of the capital markets.
Calculate the value of an instrument by applying the time value of money.
3. Dual-Column Active-Recall Summary
Question / clue Key study fact
Effective, efficient and economic allocation of financial resources to derive sustainable returns
Financial management
and create/preserve value for stakeholders.
Three finance activities Financing activities; investing activities; controlling activities.
Deciding the sources of funds, such as debt and equity, and the appropriate proportion of each
Financing activity
source.
, Question / clue Key study fact
Deciding which feasible and viable investments the entity should undertake within available
Investing activity
funds.
Ensuring financial-capital decisions are implemented and executed ethically and to the required
Controlling activity
standard.
Choice of short- and long-term funding and the balance between equity and debt. It affects
Finance decision
investment calculations and entity value.
Equity finance Finance supplied by shareholders/owners through equity interests.
Finance supplied by lenders; lenders may require security, interest and capital repayment but do
Debt finance
not run the company.
Investment decision / Decision whether to invest in an asset that will generate future cash flows. Accept where cash
capital budgeting flows equal or exceed the required return.
Plans, organises, monitors and controls finance; contributes to strategy, performance
Financial manager
measurement, governance, risk, leadership, compliance and reporting.
Responsible management of resources entrusted to a financial manager’s care; it creates a
Stewardship
fiduciary duty of care.
Creation and preservation of long-term stakeholder value while avoiding or minimising harm to
Sustainable value creation
society and the natural environment.
Triple bottom line / 3Ps People, profit and planet.
Satisficing Pursuing several objectives sufficiently well instead of maximising only one objective.
Shareholder wealth Traditional goal of maximising shareholder returns. The text explains that a narrow short-term
maximisation focus can ignore externalities and erode long-term value.
Development that meets present needs without compromising future generations’ ability to meet
Sustainable development
their needs.
Six capitals Financial; manufactured; intellectual; human; social and relationship; natural.
Financial capital Funds available for production/services, including debt, equity and other funding.
Manufactured capital Buildings, equipment, infrastructure, plant, machinery and other tangible productive assets.
Knowledge-based intangibles such as systems, processes, software, patents, brands, licences and
Intellectual capital
organisational knowledge.
People’s competence, ability, experience, motivation and capacity to innovate, including
Human capital
alignment with culture and leadership.
Social and relationship Relationships, shared norms and networks with stakeholders and communities; supports social
capital licence to operate.
Renewable and non-renewable environmental resources and processes, including water, air, land,
Natural capital
minerals, biodiversity and ecosystem health.
Entity’s status as a citizen of society, giving it rights, responsibilities and obligations toward
Corporate citizenship
society and the natural environment.
Entity and stakeholders are interdependent; value creation requires regard for legitimate
Stakeholder inclusivity
stakeholder needs, interests and expectations.
, Question / clue Key study fact
Consideration of the connectivity and interdependencies between capitals and their effect on
Integrated thinking
value creation over time.
Business/value-creation System for transforming inputs through business activities into outputs and outcomes that fulfil
model strategy and create value over time.
Stakeholder Any individual or entity that can affect, or is affected by, the entity’s activities and actions.
Shareholders; lenders; employees; customers; suppliers; government; society; natural
Key stakeholder groups
environment.
Social licence to operate Ongoing broad societal/community approval that enables an entity to operate legitimately.
Approach requiring an entity to identify stakeholders and consider legitimate stakeholder
Stakeholder theory
requirements in strategy and objective setting.
Ethical and effective leadership should achieve ethical culture, good performance, effective
King IV governance
control and legitimacy.
Apply and Explain King IV approach: apply governance principles and explain the practices used.
ICRAFT Integrity, competence, responsibility, accountability, fairness and transparency.
Governing body should use a stakeholder-inclusive approach and balance material stakeholder
King IV Principle 16
needs, interests and expectations in the entity’s best interests over time.
Ongoing process of engaging relevant stakeholders for a clear purpose and agreed outcomes;
Stakeholder engagement
informs strategy and identifies risks/opportunities.
Clarifies expectations, improves understanding, identifies issues, supports innovation, identifies
Benefits of engagement
risks/opportunities and improves strategic choices.
Stakeholder relationship Arrangements for governing/managing stakeholder relations; key focus areas; actions to monitor
disclosures effectiveness; future focus areas.
Business risk Risk arising from business operations and investment activity.
Financial risk Risk of not meeting debt obligations, including interest and capital repayments.
Return to a shareholder May arise from capital growth, dividend yield, or both.
Capital markets Markets in which long-term finance is traded.
Primary market Company raises new finance from investors through a new issue/listing.
Existing investors trade securities with one another; the company does not receive proceeds from
Secondary market
the trade.
Investment approach incorporating ESG factors to manage risk and support sustainable long-
Responsible investment
term returns.
Money today is worth more than the same nominal sum later because it can be invested; future
Time value of money
cash flows must be discounted or compounded for comparison.
Interest-rate components Compensation for time/opportunity cost, risk and inflation.
Year 0 Today/the valuation date in time-value-of-money calculations.
Future value Today’s cash flow compounded to a future date.
Present value Future cash flow discounted back to its value at Year 0.
Introduction to Financial Management
Focused Textbook Study Summary
Scope: This guide covers the prescribed Learning Unit 13 material from Managerial
Finance, 10th edition, Chapter 1: sections 1.0–1.11.5. It includes financial management;
the goal of an entity; business/value-creation models; stakeholders, governance,
engagement and reporting; risk and return; capital markets; time value of money;
future value; present value; present value of shares; and present value of debt. It also
includes the prescribed Chapter 1 practice questions: Questions 1-1 to 1-9, as specified
in the Learning Unit guide, and the required MCQ activities 13.1 and 13.2.
Key exclusions: This Learning Unit introduces topics that are developed in later
chapters, but detailed work on strategy, risk-management frameworks, cost of
capital/WACC, investment appraisal, financing, reporting and performance analysis,
working capital management, advanced valuations, financial distress, dividends,
foreign exchange and interest-rate risk is outside the confirmed scope. Some time-
value-of-money content was covered in MAC2602; this guide covers only the Chapter 1
material prescribed for Learning Unit 13.
1. Big Picture
Learning Unit 13 introduces the purpose of financial management and the role of finance in
creating and preserving sustainable value for stakeholders. It establishes the conceptual base
for later Finance topics by linking financing, investment and control decisions to stakeholder
value, risk, capital markets and the time value of money.
2. Scope and Learning Outcomes
2.1 Exact prescribed material
Source Prescribed sections and focus
Chapter 1:
Section 1.0, including the SAICA Competency Framework
Introduction
Chapter 1: Financial Sections 1.1; 1.1.1 Finance function; 1.1.2 Finance decision; 1.1.3 Investment decision; 1.1.4 Role of
management financial manager. Prescribed exercise: Question 1-1
Chapter 1: Goal of an Sections 1.2; 1.2.1 Sustainable value creation; 1.2.2 Shareholder wealth maximisation; 1.2.3 Sustainable
entity development, inclusive capitalism and good corporate citizenship; 1.2.4 Other emerging perspectives
Chapter 1: Business
Section 1.3 Business model/value-creation model of an entity. Prescribed exercise: Question 1-4
model
, Source Prescribed sections and focus
Sections 1.4; 1.4.1 Definition; 1.4.2 Key stakeholder groups; 1.4.3 Stakeholder theory; 1.4.4 Governance
Chapter 1:
principles and practices; 1.4.5 Stakeholder engagement; 1.4.6 Reporting to stakeholders. Prescribed
Stakeholders
exercise: Question 1-2
Chapter 1: Risk and
Sections 1.5; 1.5.1 Business risk; 1.5.2 Financial risk
return
Chapter 1: Capital Sections 1.6; 1.6.1 Capital market defined; 1.6.2 Raising equity finance on the JSE; 1.6.3 Sustainability and
markets responsible investment in capital markets
Sections 1.7–1.9.4: TVM; future value; compound interest; solving for interest rate and periods; periods
Chapter 1: Time
shorter than a year; FV of annuity; PV; PV of annuity; periodic loan payment; perpetuity. Prescribed
value of money
exercises: Questions 1-5, 1-6, 1-7, 1-8 and 1-9
Chapter 1: Present Sections 1.10; 1.10.1 No growth; 1.10.2 Constant growth; 1.10.3 Non-constant growth. Prescribed
value of shares exercises: Questions 1-3 and 1-8
Chapter 1: Present Sections 1.11; 1.11.1 Definition; 1.11.2 Irredeemable debt; 1.11.3 Redeemable debt; 1.11.4 Preference
value of debt shares with non-constant growth; 1.11.5 Convertible debentures
LU13 required MCQ 13.1: Introduction to Financial Management; MCQ 13.2: Time Value of Money. The guide permits use
activities of a financial calculator or mathematical formulae for MCQ 13.2
2.2 Learning outcomes
You should be able to:
Explain financial management, and describe the goal of an entity and the role of the
financial manager.
Identify key stakeholders of an entity and describe their roles in both the private and
public sector.
Explain governance principles pertaining to stakeholder relations.
Describe stakeholder engagement and its benefits.
Define sustainable development, including inclusive capitalism/the six capitals and good
corporate citizenship.
Describe the relationship between investment risk and return.
Explain the overall function of the capital markets.
Calculate the value of an instrument by applying the time value of money.
3. Dual-Column Active-Recall Summary
Question / clue Key study fact
Effective, efficient and economic allocation of financial resources to derive sustainable returns
Financial management
and create/preserve value for stakeholders.
Three finance activities Financing activities; investing activities; controlling activities.
Deciding the sources of funds, such as debt and equity, and the appropriate proportion of each
Financing activity
source.
, Question / clue Key study fact
Deciding which feasible and viable investments the entity should undertake within available
Investing activity
funds.
Ensuring financial-capital decisions are implemented and executed ethically and to the required
Controlling activity
standard.
Choice of short- and long-term funding and the balance between equity and debt. It affects
Finance decision
investment calculations and entity value.
Equity finance Finance supplied by shareholders/owners through equity interests.
Finance supplied by lenders; lenders may require security, interest and capital repayment but do
Debt finance
not run the company.
Investment decision / Decision whether to invest in an asset that will generate future cash flows. Accept where cash
capital budgeting flows equal or exceed the required return.
Plans, organises, monitors and controls finance; contributes to strategy, performance
Financial manager
measurement, governance, risk, leadership, compliance and reporting.
Responsible management of resources entrusted to a financial manager’s care; it creates a
Stewardship
fiduciary duty of care.
Creation and preservation of long-term stakeholder value while avoiding or minimising harm to
Sustainable value creation
society and the natural environment.
Triple bottom line / 3Ps People, profit and planet.
Satisficing Pursuing several objectives sufficiently well instead of maximising only one objective.
Shareholder wealth Traditional goal of maximising shareholder returns. The text explains that a narrow short-term
maximisation focus can ignore externalities and erode long-term value.
Development that meets present needs without compromising future generations’ ability to meet
Sustainable development
their needs.
Six capitals Financial; manufactured; intellectual; human; social and relationship; natural.
Financial capital Funds available for production/services, including debt, equity and other funding.
Manufactured capital Buildings, equipment, infrastructure, plant, machinery and other tangible productive assets.
Knowledge-based intangibles such as systems, processes, software, patents, brands, licences and
Intellectual capital
organisational knowledge.
People’s competence, ability, experience, motivation and capacity to innovate, including
Human capital
alignment with culture and leadership.
Social and relationship Relationships, shared norms and networks with stakeholders and communities; supports social
capital licence to operate.
Renewable and non-renewable environmental resources and processes, including water, air, land,
Natural capital
minerals, biodiversity and ecosystem health.
Entity’s status as a citizen of society, giving it rights, responsibilities and obligations toward
Corporate citizenship
society and the natural environment.
Entity and stakeholders are interdependent; value creation requires regard for legitimate
Stakeholder inclusivity
stakeholder needs, interests and expectations.
, Question / clue Key study fact
Consideration of the connectivity and interdependencies between capitals and their effect on
Integrated thinking
value creation over time.
Business/value-creation System for transforming inputs through business activities into outputs and outcomes that fulfil
model strategy and create value over time.
Stakeholder Any individual or entity that can affect, or is affected by, the entity’s activities and actions.
Shareholders; lenders; employees; customers; suppliers; government; society; natural
Key stakeholder groups
environment.
Social licence to operate Ongoing broad societal/community approval that enables an entity to operate legitimately.
Approach requiring an entity to identify stakeholders and consider legitimate stakeholder
Stakeholder theory
requirements in strategy and objective setting.
Ethical and effective leadership should achieve ethical culture, good performance, effective
King IV governance
control and legitimacy.
Apply and Explain King IV approach: apply governance principles and explain the practices used.
ICRAFT Integrity, competence, responsibility, accountability, fairness and transparency.
Governing body should use a stakeholder-inclusive approach and balance material stakeholder
King IV Principle 16
needs, interests and expectations in the entity’s best interests over time.
Ongoing process of engaging relevant stakeholders for a clear purpose and agreed outcomes;
Stakeholder engagement
informs strategy and identifies risks/opportunities.
Clarifies expectations, improves understanding, identifies issues, supports innovation, identifies
Benefits of engagement
risks/opportunities and improves strategic choices.
Stakeholder relationship Arrangements for governing/managing stakeholder relations; key focus areas; actions to monitor
disclosures effectiveness; future focus areas.
Business risk Risk arising from business operations and investment activity.
Financial risk Risk of not meeting debt obligations, including interest and capital repayments.
Return to a shareholder May arise from capital growth, dividend yield, or both.
Capital markets Markets in which long-term finance is traded.
Primary market Company raises new finance from investors through a new issue/listing.
Existing investors trade securities with one another; the company does not receive proceeds from
Secondary market
the trade.
Investment approach incorporating ESG factors to manage risk and support sustainable long-
Responsible investment
term returns.
Money today is worth more than the same nominal sum later because it can be invested; future
Time value of money
cash flows must be discounted or compounded for comparison.
Interest-rate components Compensation for time/opportunity cost, risk and inflation.
Year 0 Today/the valuation date in time-value-of-money calculations.
Future value Today’s cash flow compounded to a future date.
Present value Future cash flow discounted back to its value at Year 0.
