3.

FINANCIAL MANAGEMENT
Introduction
The concept of Financial Management has being created by the influence of time and It is concerned with the efficient use of an important resource (capital funds). Financial
changing environment. Financial Management deals with management of money matters. management is the area of business management devoted to a judicious use of capital and
It is a combination of finance and management. a careful selection of sources of capital, in order to enable a business firm to move in the
direction of reaching its goal.
• Finance is the lifeblood of any business Enterprise. Business needs money to make
more money. Money begets money when it is properly managed.
• Management in business and organizations means to coordinate the effort of 4. OBJECTIVES
people to accomplish goals and objectives using available resources efficiently
and effectively. Management comprises planning, organizing, staffing, leading Commenté [AC1]: The personnel Some objectives of financial management include:
or directing and controlling an organization to accomplish a goal.
Commenté [AC2]: I am the master • Profit maximization
• Financial Management is that specialized function of general management
• Wealth maximization for the shareholders (dividend)
related to the providing of finance and its effective utilization for the achievement
• Proper estimation of total financial requirements
of common goal of the organization.
• Proper mobilization: the financial manager must consider the type of technology,
number of employees, scale of operations and legal requirement
• Proper utilization of finance (when you use the money, it is useful/necessary)
• Manipulating proper cash flow to pay the day-to-day expenses (money that comes
1. DEFINITION in and out) : salary (monthly), wages (daily [
per diem], hourly, weekly), buying
something, pay bills/invoice
Making Financial Management means collecting finance for the company at a low cost
and to using this collected finance for earning maximum profits. • Survival of the company : the finance manager lust be careful while making financial
decisions
Making Financial Management means to plan and control the finance of the company in • Creating reserves : to anticipate problems
order to achieve the objectives of the company. It is concerned with raising financial • Creating goodwill: to improve the image and reputation of the company. Goodwill
resources and their effective utilization towards achieving the organizational goals. helps the company to survive in the short time and succeed in the long term.
Financial Management is the process of putting the available funds to the best • Increasing efficiency of all departments
advantage from the longer term point of view of business objectives. o Financial discipline
o Productive areas
Finance is then the art and science of managing money. • Avoid wastage an misuse of finance
• Reduce cost of capital (low rate when we borrow…)
• Reduce operating risks and uncertainties
2. SCOPE OF FINANCIAL MANAGEMENT • Prepare capital structure: decide the ratio between owned finance and borrowed
finance
• Anticipation: Financial management estimates the financial needs of the company
(how much does the company needs?).
• Acquisition: Financial management collects finance from different sources. 5. FUNCTIONS OF FINANCIAL MANAGEMENT
• Allocation: The collected finance is to purchase fixed and current assets for the
company. They can be divided into 2 groups:
• Appropriation: Financial management divides the company profits among the Commenté [AC3]: shares
shareholders debts. It keeps part of the profit as reserves. • Executive functions
• Assessment: It controls all the financial activities of the company. • Routine functions
Commenté [AC4]: To assess = to evaluate

Production, marketing, personnel... depend on financial management. So financial

management is required for survival growth and success of the company.
5.1 EXECUTIVE FUNCTIONS
• Forecasting financial requirements Commenté [JSD5]: « Fore + something » e.g :
• Determining capital structure -Foresee = prévoir
-Foretell = prédire
• Estimating cash-flow -Forearm = avant-bras
• Investment decisions -Forehead = front
• Allocation of surplus (profit) : paying bills, giving bonuses, creating reserves
• Checking the financial performance
5.2 ROUTINE OR INCIDENTAL FUNCTIONS is equal to the difference between gross present worth of some decisions or course of Commenté [JSD15]: = valeur actuelle brute
They are clerical functions: Commenté [JSD6]: From « clerk » = employees
action, and the investment required to achieve the expected benefits.

• Supervision of each receipts and payments

• Safe-guarding of cash balance 8. FINANCIAL MANAGEMENT CYCLE
• Taking proper care of mechanical details of finance (you must take care of
accountancy) It is made up of a number of distinct processes that happens in a cyclical way:
• Record-keeping and reporting • Planning and budgeting: setting targets for monitoring and evaluation
• Credit management • Resources allocation : allocating resources across distinct services
• Operating, monitoring and safeguarding
• Evaluation: reviewing and reporting
6. THE MAIN FINANCIAL DECISION OF BUSINESS Commenté [JSD16]: Rapport = report
Minute = compte-rendu

According to the modern approach of financial management, it means that the finance
functions cover both acquisition of funds as well as their allocation. The modern approach Planning and
budgeting
can be divided into 4 major decisions:

1. Investment decision : allocation of capital in assets which would yield / produce Commenté [JSD7]: Biens immobiliers et mobiliers
benefit in the future, but this decision is based on risk and uncertainties
2. Financial decision
3. Dividend policy decision
Evaluation Ressource
4. Current assets management : the finance manager should manage the current
Reporting allocation
assets to have liquidity in the business

7. APPROACH OF FINANCIAL MANAGEMENT

The scope and functions of financial management are divided into 2 broad categories: Commenté [JSD8]: =wide Operating
Monitoring
7.1 TRADITIONAL APPROACH Safeguarding
It was all about maximization of profit. The role of the financial manager was limited to
raising and administering of funds needed by corporate enterprises to meet their financial Commenté [JSD9]: To statisfy
needs. It covers the following 3 aspects:
9. CAPITAL INVESTMENT
• Arrangement of funds from financial institutions,
• Arrangement of funds through instruments like shares and bonds, Commenté [JSD10]: actions
• The legal and accounting relationships between a firm and its sources of funds. It 9.1 DEFINITION
Commenté [JSD11]: Money from which you can get
has many limitations : interest It is a fund invested in a firm or enterprise for the purpose of furthering its business
o It did not take into a count so many of business other than profit maximization objectives. It may also refer to a firm’s acquisition of capital assets or fixed assets such as
o It ignored important points on profit maximization (ex: shot-term/mid- Commenté [JSD12]: To ignore = you know it but you
manufacturing plants and machinery that is expected to be productive over many years. Commenté [JSD17]: Group of factories
term/long-term profit) seem to not know it
To be ignorant of something = you don’t know it A capital investment is an acquisition of a fixed asset that is anticipated to have a long life
o It did not consider social responsibility of use before it has to be replaced or repaired.
o It ignored the view point of suppliers of funds such as bankers or financial
institutions
o It ignored problems relating to short terms funds of working capital Commenté [JSD13]: They neglect 9.2 TYPES OF CAPITAL INVESTMENT
It can consist of physical property or the substantial influx of cash into another company
through the purchase of stocks or bonds.
7.2 THE MODERN APPROACH
It means the wealth maximization approach which is concerned with the amount of total a. Physical assets:
cash flow generated by a course of action rather than the profit. This involves increasing Such as buildings, lands and equipment. They are considered to be capital-
the earning per share of the shareholders and to maximize the net present worth. Wealth Commenté [JSD14]: = valeur actuelle nette VAN investment as they are used over a long period of time. Buildings, lands, vehicles,
 machinery are considered to be fixed as they are not typically resold within a short
time frame. Fixed assets might be used throughout the lifespan of the business until
11. FINANCIAL PLANNING
Commenté [JSD18]: Span : un empan (zehy en
they are no longer functional. malgache)
b. A business might also make a capital investment in another company through the Commenté [JSD19]: Must : certainty 11.1 FINANCING NEW INVESTMENT
purchase of equity or debts of an enterprise. May : +/-
Might : uncertainty
Financial planning involves calculating whether new projects would be profitable. We
c. By providing substantial funds in exchange for stocks or bonds. have to calculate the probable rate of return, the amount of income we would receive each
d. Bonds purchased in large quantities. A bond is simply a promise to return the Commenté [JSD20]: Debts
year from the investment expressed as a percentage of the total amount invested.
investor’s funds at a future date along with interest payment.
If we are going to finance a project with our own money, the rate of return must be at least
as high as we could get by depositing the money in a bank instead all by making another
risk-free investment like buying government bonds. If we need to borrow money to
10. CONNECTING AND SEQUENCING IDEAS finance a new investment, its protected rate of return has to be higher than the cost of
capital (that is to say the amount we have to pay to borrow the money). Commenté [J31]: Pay back = reimburse

10.1 SAMPLE SENTENCES

First I’d like to show you round the plant; after that you’ll have a chance to see the Commenté [J21]: To make you visit the plant
11.2 DISCOUNTED CASH FLOWS
workshops. In particular, I’d like you to spend some time with the apprentices, which We usually calculate the discounted cash flow value of an investment. This means
Commenté [J22]: ateliers
was not in the original program. Therefore, the demonstration of the RD 567 will take place discounting or reducing future cash flows to get their present values in other words, Commenté [J32]: diminishing
Commenté [J23]: calculate the present value of money to be received in the future. This is because the value
a little later than planned. Trainee : stagiaire
Apprentice : quelqu’un qui travaille manuellement of money decreases over time. Firstly there is nearly always inflation so cash will have Commenté [J33]: almost
lower purchasing power in the future. You’ll be able to buy less with the same amount of Commenté [J34]: to bounce : to become bigger and
10.2 FORM Métier (frs) : trade (eng) money. And secondly, if you had the money now, you could get income by using or bigger
Trade union (eng): syndicat (frs)
Relationships between ideas: sequence / consequence / summary Syndicate (eng) : group of enterprises working investing it. The return we could get by investing the money in other ways is the
together to defend their right especially against opportunity cost of capital so waiting for money is also a cost. This is the time value of Commenté [J35]: the more you wait, the more your
Connectors / sequence markers -> types of relationships between ideas competition -> consortium (frs) money will decrease in value
money: how much more it is worth to receive money now than in the future?
1. Time Commenté [J24]: Commenté [J36]:
Demonstration : when you are against something Two ways to invest the money :
2. Logic : cause / contrast / condition / comparison / … 11.3 COMPARING INVESTMENT RETURNS
Rally : when you are for an idea -We can invest in fixed assets so that the value will
3. Text : addition, summary If we have to choose among possible investment in new projects we work out the net increase
Demonstrators : the persons who make the -We can buy shares or bonds
demonstration present value (NPV) of each project by adding up all the expected cash flows discounted We should take into account the higher profit
10.3 USES to their present value minus the initial investment. To do this, we have to select a discount
Commenté [J25]: A résumé, a CV
- Time relationships To sum up rate or capitalization rate, this is usually the interest rate we pay for borrowing the capital
- Logical relationships but we could increase it if there is a lot of uncertainty or risk.
Commenté [J26]: In accordance with the way of
- Textual relationships thinking of human beings When we are comparing alternative investments, we also calculate the internal rate of Commenté [J37]: Choose between 2
Commenté [J27]: Because, since, as return (IRR). That is the interest rate of discount that gives a net present value of zero in
Because : parce que (when the reason is not known
today’s money values. In other words, the present value of the cash that we are going to
10.4 EXERCISE [EXAM] by everybody)
Since : puisque (quand la raison est connue de tout le receive from an investment is the same as the present value of borrowing that cash, so we
Time relationship Cause Contrast Comparison
monde) normally choose the investment with the higher internal rate of return.
Firstly that’s why yet in the same way
Concession Contradiction Alternation Addition Commenté [J28]: But, although, even if
anyway
Summary
Yet – actually
Conclusion
Instead
Equivalence
in addition
Inclusion
Commenté [J29]: Biefly, in brief, to sum up 12. EXERCISE
Commenté [J30]: You accept someone else’s idea
to sum up Lastly – finally – in other words for instance before you say yours
eventually 12.1 MATCH THE WORDS IN THE BOX WITH THE DEFINITION
Highlight Generalisation Condition Stating the obvious
notably on the whole in that case clearly
Discount rate - Purchasing power - Discounted cash flow - Rate of return - -Time value of
money
Firstly – that’s why – in the same way – in other words – to sum up – in that case – instead –
for instance – notably – actually – in addition – clearly – on the whole – anyway – lastly – Definitions
yet Discounted cash A series of future earnings converted to their value today
flow
 Rate of return The annual percentage amount of income received from an - To put money by for a rainy day : to see in advance what will happen
investment - To take a leaf out of another’s book : to imitate someone
Internal rate of The interest rate of investment earns when the present value of all - To buy a pig in a pooke : we can’t see whether the pig is in a good condition, we Commenté [J45]:
return costs equals the present value of all returns It is a sack (where we put the rice)
don’t know the value of certain things we invest in, we don’t know the result of that
Time value of The difference between the value of money held now, and its value Vendre la peau de l’ours avant de l’avoir tué
- To end in smoke : there is no good result from an investment, no interest A cheval vendu, il faut voir ses dents
money if it is received in the future, because it could be invested during
that period - To hit the nail on the head : to do the right thing precisely
Purchasing power The value of money, measured by the quantity (and quality) of - To kill two birds with one stone Commenté [J46]: Faire d’une pierre deux coups
products and services it can buy - To live from hand to mouth : vivre au jour le jour
Discount rate The interest rate used to calculate the present value of future cash - Better late than never : mieux vaut tard que jamais
flows - All his geese are swans : he has got the better thing rather another person’s Commenté [J47]: Cygne
= It’s (the grass is) always greener on the other side [of the fence] Ianao mihira vorondolo, izy mihira voromanga

Are these statements true or false? - Let sleeping dogs lie : ne réveillez pas un chat qui dort
- What is good for a goose is good for a gander Commenté [J48]:
If a company uses its own money for a new FALSE  Quand il y en a pour deux, y en aura pour trois féminin
project there is no opportunity cost of capital Commenté [J49]: masculin
A project financed by borrowed money TRUE Commenté [J38]: As it is TRUE, it goes without
requires a rate of return higher than the cost saying : cela va sans dire (pas besoin d’explication
of capital EXAM
Because of inflation, money will usually be FALSE
- Connectors
worth more in the future than at present
The longer you have to wait for investment TRUE - Expressions about money
returns, the less their present value is - Calculation

Sayings with money, phrases … 13. GLOSSARIES

- Ready money: the cash available for use
• To run = to manage = to handle = to treat = to deal
- To earn money: to get money from working or from an investment Commenté [J39]: • Handle = tool. Ex: thimble = outil pour le pouce =
- To make money : to conduct business as to make profit To earn: connotation with money
To get : in general • Begets = to engender
- To save money : to put money by, to economize to win: in games • Goal = aim = target = purpose
- To raise money : to get together money for present use • Gaol = Jail (jailor) = prison (guard)
- To forget a cheque • Profit = money
- To throw away money : to spend it foolishly • Benefit = advantage
- Bad debts : debts irrecoverable, not likely to be paid Commenté [J40]: probably • Friends in need friends indeed.
- To dishonor a cheque : not to pay the cheque • Fixed assets =
- To forge a cheque : to change the figure of the money Commenté [J41]: name, amount • Current assets
- To be in the red: not to have money in the bank • Put money by = metre de l’argent de cote
- To be in the black : to have money in the bank
- To deposit money in a bank : to put money in a bank
- To invest money in shares or stocks : Commenté [J42]: british
- To draw money out of a bank : to get money from a bank (retirer de l’argent) Commenté [J43]: american
- The apple of one’s eye : the most important things of someone Stockholders
- A Jack of all trades, master of nothing : someone who does everything can’t do Commenté [J44]:
anything Drawee : le tiré
Drawer : le tireur
- Nothing venture, nothing gain : qui ne risque rien n’a rien
- Teach one’s grandmother to suck eggs : don’t teach someone something he knows
very well
- Teach an old dog new tricks : it is very difficult an old person to learn new things,
they will always stick on their old habit