INTRODUCTION TO FINANCIAL MANAGEMENT

Question 1

__________ is a body of facts, principles, and theories relating to raising and using money by individual, business, and governments.

Answer 1

FINANCE

Question 2

The Subfields of Finance include the following:

Answer 2

1. Study of corporate finance or financial management
2. Study of Investments
3. Study of financial institutions and markets

Question 3

Also referred to as managerial finance, corporate finance, and business finance, is a decision-making process concerned with planning, acquiring and utilizing funds in a manner that achieves the firm’s desired goals.

Answer 3

FINANCIAL MANAGEMENT

Question 4

Specifically, __________ involves decisions, among others, about:

• How to organize the firm in a manner that will attract capital
• How should capital be raised (i.e. debt or equity)
• Which projects to fund
• How should the resources (long-term and short-term be allocated and managed
• How much capital to retain for ongoing operations and new projects

Answer 4

FINANCIAL MANAGEMENT

Question 5

FINANCIAL MANAGEMENT Three major functions:

Answer 5

a. Financial analysis and planning

b. Utilization of funds, and

c. Acquisition of funds from investors

Question 6

What is the OBJECTIVE OF FINANCIAL MANAGEMENT?

Answer 6

“Maximize the current value of ownership in a business firm.”

Question 7

SIGNIFICANCE OF FINANCIAL MANAGEMENT: Financial management is equally applicable to all forms of business like sole traders, partnerships, and corporations. It is also applicable to nonprofit organizations like trust, societies, government organizations, public sectors, and so forth.

Answer 7

Applicability

Question 8

SIGNIFICANCE OF FINANCIAL MANAGEMENT: The strength of business lies in its financial discipline. Therefore, finance function is treated as primordial which enables the other functions like production, marketing, purchasing, and personnel to be effective in the achievement of organizational goal and objectives.

Answer 8

Chances of failure

Question 9

SIGNIFICANCE OF FINANCIAL MANAGEMENT: Financial management studies the risk-return perception of the owners and the time value of money.

Answer 9

Returns on investment

Question 10

What is the SCOPE OF FINANCIAL MANAGEMENT? (3)

Answer 10

1. Procurement of short-term as well as long-term funds from financial institutions.
2. Mobilization of funds through financial instruments such as equity shares, preference shares, debentures, bonds, notes, and so forth.
3. Compliance with legal and regulatory provisions relating to funds procurement, use and distribution as well as coordination of the finance function with the accounting function.

Question 11

This involves methods and techniques for making appropriate decisions about what kind of securities to own (e.g. bonds or equity), which firms’ securities to buy or how to pay that investor back in the form that the investor wishes (e.g. the amount, timing and certainty
of the promised cash flows)

Answer 11

STUDY OF INVESTMENTS

Question 12

These institutions help facilitate the capital flows between investors and companies. It involves study of the functions of financial institutions like banks, insurance companies, investment houses, rates of interest; etc.

Answer 12

FINANCIAL INSTITUTIONS AND MARKETS