Financial Management

Module 13 - Basics of financial management 1

Financial Management
is the decision level
responsibility for funds
generation, funds allocation,
capital structuring and profit
supervision.
management of the investment
aspect of the organization ,
management of the capital
structure (equity + long term
debt) and its captal operations.

Module 13 - Basics of financial management 2

Finance activities
Keeping accounting records
Budgeting / administering budget
Preparing financial statements regularly
Interpreting / analyzing financial
information
Determining funding needs of the
company and the corresponding sources
of funds
Controlling the utilization (collection and
disbursement) of funds
Making decisions affecting the future
financial condition of the firm
Module 13 - Basics of financial management 3
Types of records

Cash records
Receipts and payment
records
 Accounts receivable record
 Accounts payable record

Depreciation records
Tax records
Payroll records
Special asset records

Module 13 - Basics of financial management 4

Types of budgets

Sales budget
Merchandising budget
Advertising budget
Cash budget
Capital budget
Income statement budget

Module 13 - Basics of financial management 5

Common financial
statements
Balance sheet – description of the organization in
terms of its assets, liabilities, and net worth
Income statement – summary of the organization’s
financial performance over a given interval of time
Statement of cash flow – summary of an
organization’s financial performance that shows where
cash or funds came from during the year and where
they were applied
Budget – formal quantitative statement of resources
allocated for planned activities over stipulated periods
of time

Module 13 - Basics of financial management 6

Financial Planning
Ascertaining the needs and
capabilities of the enterprise
through a projection of the
needs for and availability of
funds over the short-term
(cash flow, operating budgets)
and the long term (capital
budget).

Module 13 - Basics of financial management 7

Funding needs
Operating requirements –
funds needed for the day-to-
day activities of the business
(e.g. purchase of raw
materials)
Investment requirements –
funds needed to enhance the
long-term productivity of the
business (e.g. new equipment
and technology)

Module 13 - Basics of financial management 8

Types of business activities
Operating activities – activities done by the
business on a day-to-day basis
Investing activities – activities done to
increase the long-term productivity of the
business
Financing activities – activities meant to
ensure the availability of funds for the
operations of the business

Module 13 - Basics of financial management 9

Operating activities
Purchasing raw materials
Storing raw materials
Buying supplies needed for the business
Producing the product
Selling goods or services
Collecting from customers
Depositing and withdrawing money from the
bank
Module 13 - Basics of financial management 10
Investing activities
Buying land
Setting up a plant or shop
Purchasing machines or equipment
Upgrading equipment
Buying hardware and software

Module 13 - Basics of financial management 11

Financing activities
Buying raw materials on credit
Buying equipment on installment basis
Borrowing money from the bank or from
other financial institutions
Discounting notes or accounts receivables
Issuing shares of stock
Keeping the earnings of the business

Module 13 - Basics of financial management 12

Analysis of Financial
Performance
Done for internal purposes so that
management and stakeholders
would know the financial outcome
of operations and the financial
condition of the organization
Financial statement analysis –
examining the financial
statements of a company to
determine its financial condition

Module 13 - Basics of financial management 13