2. Learning Objectives
O What are the main functions of financial
management?
O What is the main purpose of good financial
management?
O What is the role of a CFO?
O What are stakeholders’ interests?
O Is it different for Not-for-Profit organization?
3. Functions of FM
O 3 Main Functions
O Investment decision
O Select investments with highest return
O Financing decision
O Take financing options with lowest cost
O Dividend decision
O Retain sufficient resources for development and
satisfy the investors
4. Investmen
t
Decision
Financing
Decision
Dividend
Decision
• Net Present Value
• Internal Rate of Return
• Payback
• ROCE/ROE/ROI
• APV
• MIRR
• Probability Analysis
• Sensitivity Analysis
• Capital Rationing
• Sources of finance
• Cost of capital
• CAPM
• Dividend Growth Model
• Capital structure
• Risk management
• Hedging strategies
• Dividend policies
• Dividend capacity
• Residual Theory
• Signalling effect
• Clientele effect
• Special dividend
• Share repurchase
6. Purpose of FM (Cont’d)
O To achieve primary financial objective
O Maximize shareholders’ wealth
O Max. (Dividend + Share Price)
O Max. profitability
O How to get there?
O Earn highest return from investments
O Get lowest cost of financing
O Execute adequate planning & control
O Achieve maximum profits
7. Role of CFO
O To perform 3 basic FM functions
(Strategic)
O Investment/Financing/Dividend decision
O To monitor treasury operations (Routine)
O Working capital management
O Funding management
O Risk management
O To prepare management reporting
(Periodic)
O Cost measurement
O Performance measurement
8. Stakeholders’ Interests
O Who are the stakeholders?
Stakeholder Objectives
Shareholders Profit/personal wealth maximization
Creditors Capital repayment
Employees Salaries/work safety
General public Social responsibilities
Environment Emission/pollution control
9. Stakeholders’ Interests (Cont’d)
O Conflict of interests among stakeholders?
O Shareholders vs. Management
O Agency problem
O Share option scheme
O Shareholders vs. Creditors
O Risk attitude
O Loan covenants
O Shareholders vs. General public
O Non-financial objectives
O Social responsibility
10. Not-for-Profit Organization
O The concept of “Value for Money”
O Benchmarks for measurement (3E)
O Efficiency (inputs vs. outputs)
O Effectiveness (outputs vs. objectives)
O Economy (inputs at the lowest cost)
11. FAQs
O What are the main functions of financial
management?
O What is the primary financial objective?
O Please identify the interests of various
stakeholders and potential conflicts.
O How to evaluate the performance of a Not-for-
Profit organization?
