INTRODUCTION OF FINANCIAL MANAGEMENT

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FINANCIAL MANAGEMENT OVERVIEW
FINANCIAL MANAGEMENT: WHAT IS IT?
“Corporate Financial Management” is a broad topic that addresses how businesses manage their financial resources in order to maximize value for shareholders and accomplish corporate objectives. A summary of what it usually entails is as follows:

Fundamentals of Business Financial Management

Capital Budgeting (Decisions About Investments)

Objective: Choose where and how to allocate business cash for sustained expansion.
The following tools are available:
o Payback Period
o Profitability Index
o Net Present Value (NPV)
o Internal Rate of Return (IRR)
A factory expansion, the introduction of a new product line, or the purchase of another company are a few examples.

Capital Structure (Decisions Regarding Financing)

Objective: Choose the ideal ratio of debt to equity funding.
Essential Ideas:
o Modigliani-Miller Theorem
o Leverage (debt/equity ratio)
o Cost of Capital (WACC)
Trade-offs include financial flexibility, control versus dilution, and risk versus return.

Working Capital Management
• Objective: Assure the business can function effectively and fulfill its immediate responsibilities.

Elements:
o Inventory Control
o Cash Management
o Payables and Receivables
Measures: Cash Conversion Cycle, Quick Ratio, and Current Ratio.

Dividend Policy
• Objective: Determine the proportion of profits that should be distributed to shareholders as opposed to reinvested.

Types:
Share buybacks, special dividends, and regular dividends
Aspects to take into account include reinvestment prospects, tax ramifications, and investor expectations.

Forecasting and Financial Planning

Objective: Forecast financial results by using smart choices.
Contains:
Making a budget and using financial models
Analysis of Scenarios and Stress Testing