FINANCIAL MANAGEMENT FUNCTIONS
Objective of the topic: To understand the nature of financial management and appreciate the
various organisational stakeholders and their respective objectives.
1.1 Nature and Purpose
Meaning: obtaining suitable sources of finance and using finance effectively to achieve key
objectives.
The management of activities associated with acquiring and using short- and long-term financial
resources.
3 key financial management decisions:
Investing
Financing
Dividend policy
These decisions are inter-related:
An increase in dividends will reduce the level of retained cash and increase the need for external
finance to fund capital investment projects
An increase in asset would also increase the need for finance source of finance is internal, by
reducing dividends
Key financial objective
Profit
Shareholder’s wealth maximization
Reasons
Profits are historical and not future oriented
Does not measure liquidity or risk
Can be manipulated
Earnings per share
Distributable profits will be after interest, tax, and preference dividend
The wealth of shareholders in a company from
Dividend
Market value of the shares
The market value of shares will depend on the forecast future cash flows and the perceived risk of
these cash flows
2.1 Strategy
A strategy is a course of action to achieve an objective
Objective of the topic: To understand the nature of financial management and appreciate the
various organisational stakeholders and their respective objectives.
1.1 Nature and Purpose
Meaning: obtaining suitable sources of finance and using finance effectively to achieve key
objectives.
The management of activities associated with acquiring and using short- and long-term financial
resources.
3 key financial management decisions:
Investing
Financing
Dividend policy
These decisions are inter-related:
An increase in dividends will reduce the level of retained cash and increase the need for external
finance to fund capital investment projects
An increase in asset would also increase the need for finance source of finance is internal, by
reducing dividends
Key financial objective
Profit
Shareholder’s wealth maximization
Reasons
Profits are historical and not future oriented
Does not measure liquidity or risk
Can be manipulated
Earnings per share
Distributable profits will be after interest, tax, and preference dividend
The wealth of shareholders in a company from
Dividend
Market value of the shares
The market value of shares will depend on the forecast future cash flows and the perceived risk of
these cash flows
2.1 Strategy
A strategy is a course of action to achieve an objective
