Back to: Financial Management
Hello, class!
I trust you’re having an exciting learning journey and are ready to embark on our journey into the world of finance.
Today marks the beginning of your study in Financial Management—a course that will help shape how you understand, analyse, and make financial decisions within an organisation.
Please bring out your notebooks and be ready to jot down important points. Let’s begin.
Introduction to Financial Management
Lesson Objectives:
By the end of this lesson, students should be able to:
Define financial management.
Explain the nature and scope of financial management.
Identify the key areas financial management covers.
Understand the relevance of financial management in modern business.
Definition of Financial Management
Financial Management refers to the strategic planning, organising, directing, and controlling of financial undertakings in an organisation. It involves applying management principles to the financial assets of an organisation, while also playing a vital part in fiscal management.
Put simply, financial management is about managing an organisation’s money in a way that ensures financial health, supports growth, and maximises shareholder value.
Nature of Financial Management
Financial Management is both an art and a science. It is scientific in the sense that it uses quantitative data and financial theories for decision-making. At the same time, it is an art because it requires intuition, judgement, and experience in making sound financial decisions.
It is multidisciplinary, drawing knowledge from economics, accounting, and management. It operates within an ever-changing business environment and responds to both internal and external financial challenges.
Scope of Financial Management
The scope of financial management can be divided into the following key areas:
Investment Decisions – Determining where to invest the organisation’s funds. This includes capital budgeting (long-term investment decisions) and working capital management (short-term investments).
Financing Decisions – Deciding how to raise funds to finance investments. This may include sourcing capital through equity, debt, or a combination of both.
Dividend Decisions – Determining how much profit should be distributed to shareholders and how much should be retained in the business.
Liquidity Management – Ensuring that the organisation has enough cash to meet its short-term obligations.
Risk Management – Identifying and managing financial risks, such as interest rate fluctuations or currency exchange variations.
Importance of Financial Management
Effective financial management helps organisations to:
Optimise their financial resources.
Maintain profitability and sustainability.
Plan for growth and expansion.
Make informed business decisions.
Build investor confidence.
In essence, whether you’re running a multinational corporation or a small business, financial management is crucial for survival and success.
Summary:
In today’s class, we have learned that financial management is the lifeblood of any business.
It is concerned with how a business obtains and uses funds efficiently. The scope includes investment, financing, dividend, liquidity, and risk decisions. Understanding this foundation will enable us to delve deeper into the financial workings of organisations in subsequent lessons.
Evaluation
Why do you think financial management is important for small businesses in Nigeria?
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