Financial Managemnt

VECOD
presentation on
Financial Management
By
Degu D.
December /2023
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• Finance
• Financial
• Management
• Adminstration
OBJECTIVES OF THE SEMINAR
• To create awareness
• To stimulate to further learning
• To provides slight information about the finance and
financial management
• To manage & finance the current assets of your business

Basic Terminology
• Document?
• Record?
• Standard?
• Dividend?
• Retained earnings? {self finance, inter finance,}
• Management? Vs Commitment
• Competence?
• Compliance?
• Obsession?
• Fixed Asset Vs. Variable asset
Basic terminology (cont’d)
Income, Revenue, Profit, Gain
Expense, Cost, Expenditure, Loss
Quality?
Accounting vs Accountant?
Auditing vs Auditor?
Scope?
Financial
Opportunity cost?
Working Capital vs Fixed Capital
Income statement?
Basic terminology (cont’d)
 Efficiency?
 Effectiveness ?
 Financial analysis?
 Requirement ?
 Uncertainty ?
 Obsolescence?
 Grant vs. loan
 Intermediary ?
 Long term vs Short term
 Fixed interest rate
MEANING OF FINANCE
• It is the art and science of managing money;
• Finance implies ‘management of money’;
• The most essential requirement ;
• Finance also is referred as the provision of

money at the time when it is needed.
• Finance may be called as capital, investment,
fund etc.
Overview of Financial mgt
 FM means planning, organizing, directing, controlling the financial activities of the
enterprise.
 It dealing with and analyzing money and investment for business to help make
business decisions
 FM is at the heart of running a successful business
 procurement of funds and their effective utilization in the business”.
 Evaluate the performance of any business org
 The process of obtaining and careful use of resources with a view to maximize the
value of the firm
 is mainly concerned with the effective funds management in the business.
 Financial:- the art of managing (organizing) the monitory resources of an

organization
Overview of FM (Cont’d)
It focuses on decisions relating to

 how much and what types of assets to acquire,
 how to raise the capital needed to buy assets,
and
 how to run the firm so as to maximize its value
TYPES OF FINANCE
• Finance is one of the important and integral part
of business concerns, hence, it plays a major role
in every part of the business activities.
• It is used in all the area of the activities under the
different names. Finance can be classified
The objectives of financial management
1. Profit maximization:
• Main aim of any kind of economic activity is earning profit.
2.Wealth maximization: is also known as value maximization or
net present worth maximization.
• wealth : large amount of money, abundance of something,

economics value of assets
• profit: excess of income over expenditure, an advantage or
benefit derived from an activity
Wealth vs Profit
wealth : large amount of money, abundance of
something, economics value of assets
profit: excess of income over expenditure, an

advantage or benefit derived from an activity
IMPORTANCE OF FINANCIAL
MANAGEMENT
A.Proper Use of Funds:
B.Increase the Value of the Firm
C.Promoting Savings
D.Improve Profitability
E. Financial Decision:
F. Financial Planning
G.Acquisition of Funds
Functions of financial management
Finance controls: the finance manager has not
only to plan, procure & utilize the funds but he
also has exercise control over finances.
Choose of source of funds
Determination of capital composition
Investment of fund
Dealing with financial markets
Managing risks
Making financing and investment decisions
Functions (role) of financial manager:
 Investment decision: carefully select best

investment alternatives , Good Will
 Dividend decision
 Forecasting Financial Requirements:
 Interrelation with Other Departments (scope)
 Cash management decisions: effective utilization of
cash
 Performance evaluation
 Coordinating with other departments/divisions
The Investment Decision
• Investment decision process :–
• Project generation………………..project
Evaluation,……….project selection and
……………….project implementation.
• Developing Cash Flow Data. Using
Evaluation Techniques –
The financing Decision:
• Sources of finance – (Equity shares , Debentures ,
Commercial banks , Insurances, govt
• a brief survey of financial instruments.
• The capital structure decision in practice:
• The finance function is the process of acquiring

and utilizing funds of a business
FM Cycle
Features of a company
 Voluntary association
 Separate legal entity
 Free transfer of shares
 Limited liability
 Common seal
 Perpetual existence.
 Promotion
 Incorporation
 Commencement of business
Legal Forms of Business Organization
Business Owner Legal Liability Written Legal

form Personality Document
Sole 1 Natural Unlimited No

Proprietorship
Partnership >= 2 Natural Unlimited Yes/

agreement
PLC 2-50 Artificial Limited Yes
S.C >=50 Artificial Limited Yes
1
Sole Proprietorship
o an unincorporated business owned by one individual
o This form of business is widely used in service
industries.
o Simplicity is its greatest virtue.
• Advantages
– They are easily and inexpensively formed;
– Subject to less government regulations;
(no need of written legal document)
– They are subject to lower income taxes;
– Single person keeps all the profit generated;
Sole Proprietorship (cont’d)
Disadvantages
• Unlimited personal liability…… (legal personality-natural)
• limited to the life (Limited lifetime of business)
• may not be attractive to lenders as another form of orgn.
• Is the difficulty in raising capital. Or
• Difficult to raise capital
• Its principal shortcoming is that the owner is personally liable for all
business obligations.
Partnership
• Features of partnership
 an unincorporated business owned by two or more people
Is similar to a proprietorship pays no income taxes, except
there is more than 1 owner
•Limited life- admission of new partner, death, withdrawal……
leads to dissolution
•Unlimited liability-each(all) partner is individually liable
•Non-taxable entity-natural legal personality

Partnership (cont’d)
• Advantages
Relatively easy and inexpensive to organize – requiring an agreement
Bringing more capital, managerial skills and experience than would a
sole proprietorship
Tax paid by partners is lower than the income tax paid by
corporations
CORPORATION
• A corporation is an << artificial entity>> created by
law.
 legal entity created by a state
 It can own assets and incur liabilities.
 A corporation is an artificial being, invisible,
intangible, and existing only in contemplation of
the law.
 Is exists legally separate and apart from its owners.
• Unlimited life,
Corporation (cont’d)
 Can be sued and sue
 It may also in cur liabilities and enter into any types of contract in
its name
 separation of ownership and Management (BOD)
•Advantages
 Easy to raise capital
 Unlimited life
 Associated with limited liability
 Easy transfer of ownership through the sell of common stocks
 Ability to raise capital apart from its owners
 Transfer of ownership is easy
Disadvantages
– Double taxation (income taxed at the corporate rate and then
dividends taxed at personal rate)
– Cost of reporting
Time value of money:
• The time value of money means that worth of

a Ethiopian Birr received today is different
from the worth of a Ethiopian Birr to be
received in future
Case study
1. Explain the various sources of financing.
2. Explain the scope of financial management
3. Discuss the role of financial manager.
4. Explain the importance of financial
management
5. Discuss the objectives of financial
management
6. What is finance? Define business finance.

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VECOD

• To stimulate to further learning

• To provides slight information about the finance and

• To manage & finance the current assets of your business

• Finance implies ‘management of money’;

• The most essential requirement ;

• Finance also is referred as the provision of

 procurement of funds and their effective utilization in the business”.

 Evaluate the performance of any business org

 Financial:- the art of managing (organizing) the monitory resources of an

It focuses on decisions relating to

• wealth : large amount of money, abundance of something,

profit: excess of income over expenditure, an

 Investment decision: carefully select best

• The finance function is the process of acquiring

Business Owner Legal Liability Written Legal

Sole 1 Natural Unlimited No

Partnership >= 2 Natural Unlimited Yes/

PLC 2-50 Artificial Limited Yes

S.C >=50 Artificial Limited Yes

•Non-taxable entity-natural legal personality

• The time value of money means that worth of

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