Back to: Financial Management
Good day, class! I hope you are all doing well and ready to begin this exciting journey into the world of financial management.
Whether you’re new to the subject or have heard about finance in your everyday life, this course will help you understand how money works in the world of business. Don’t worry—this isn’t all about big words and complicated maths. We will take it step by step, and I will be with you all the way.
Introduction to Financial Management II
Let us begin by asking a simple question: What is financial management? At its core, financial management is about making smart decisions with money. It involves planning, organising, directing, and controlling the financial activities of a business. These activities include raising funds, investing money wisely, managing daily cash needs, and making sure the business can grow and survive in the long run.
Every business, whether small or large, needs money to operate. But having money is not enough. What matters most is how that money is used. This is where financial management becomes very important. If a company spends its money carelessly or invests in the wrong things, it may fail. But with good financial management, a company can use its resources wisely and achieve its goals.
Now, let’s talk a bit more about the nature of financial management. Financial management is not only about keeping records or doing accounting. It is about looking ahead, making plans, and deciding the best ways to use funds. While accounting helps to track what has already happened, financial management helps in making decisions about the future. For example, should a company buy a new machine? Should it borrow money or raise funds by selling shares? These are the types of decisions that financial managers make.
The main objectives of financial management can be grouped into two simple ideas:
First, to ensure that a business has enough money to operate; and second, to use that money in ways that increase the value of the business. Let us say a business earns a profit—should it spend that profit, save it, or invest it? The aim of financial management is to answer such questions in a way that helps the business grow and remain financially healthy.
We can also look at financial management from three main angles:
Investment decisions –
These are decisions about how money should be spent. Should the business buy a building, new equipment, or invest in research?
Financing decisions –
These are about where the money will come from. Should the business borrow from a bank, sell shares, or use its own savings?
Dividend decisions –
These involve how profits are shared. Should the company pay out dividends to shareholders or keep the money to reinvest in the business?
As a student, you might wonder why you need to study this. The truth is, whether you work in finance or not, these principles affect almost every part of a business. For example, a marketing manager needs to know the budget before running a campaign.
A production manager must understand the costs of materials and equipment. So, financial management helps everyone in an organisation work towards the same goal—making the best use of the company’s money.
It’s also worth noting that financial management is not just for companies. Even individuals use financial management in daily life. When you plan how to spend your allowance, save money, or decide whether to buy a phone or pay for data, you are making financial decisions. Learning the principles of this course will help you personally as well as professionally.
To sum up today’s lecture, financial management is about planning and managing money in a way that helps an organisation reach its goals. It involves making wise choices on how to raise money, where to invest it, and how to manage profits. It plays a central role in any successful business and is useful even in our personal lives.
In our next class, we’ll take a closer look at the role of the financial manager and how financial decisions are made in real organisations. Before then, try to observe how money is being used around you—both at home and in businesses you come across.
Think about what decisions are being made and why. This will help you relate better to the subject.
See you next class!