1. Financial Management Objectives

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Financial Management Objectives

Financial management objectives consist of the following:-

1. Financial management- Is the way the management deals with the nances of an organization in

order to achieve the nancial objectives of the organization- The primary objectives for the private sector company are maimization of

shareholders! wealth"2. Financial control- Is the planning to ens#re that eno#gh f#nding is available at the right time to

meet the need of the organization for short-term$ medi#m-term or long %term

capital"- &hort term e"g" wor'ing capital re(#irements$ and medi#m and long term e"g"

p#rchases of non-c#rrent assets3. Financial control- Financial manager compare data on act#al performance with forecast

performance$ to ens#re that they have nance project as forecasted and the

level of nance is #p to standard"

Decisions must be taken in three key areas:

) Investment % To operate$ all b#siness will need nance and part of the nancial

manager*s role is to ens#re this nance is #sed e+ciently and e,ectively to ens#re

the organization!s objectives are achieved"

) Finance % efore a b#siness can invest in anything$ it needs to have some nance"

. 'ey nancial management decision is the identication of the most appropriate

so#rces /be it long or short term0$ ta'ing into acco#nt the re(#irements of the

company$ the li'ely demands of the investors and the amo#nts li'ely to be made

available"

) Dividends % The decision on the level of dividends to be paid can a,ect the val#eof the b#siness as a whole as well the ability of the b#siness to raise f#rther nance

in the f#t#re"

Diference between nancial management, management accounting and nancial

accounting.

Financial management

- Is concerned with the long term raising of nance and the allocation and

control of reso#rces1- It involves targets$ or objectives$ that are generally long term by nat#re"

Management accounting

- Is concerned with providing information for the more day to day f#nctions of

control and decision ma'ing"- Involve b#dgeting$ cost acco#nting$ variance analysis$ and eval#ation of

alternative #ses of short term reso#rces"

Financial accounting


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- It is concerned with providing information abo#t the historical res#lts of past

plans and decisions"- Its p#rpose is to 'eep the owners /shareholders0 and other interested parties

informed of the overall nancial position of the b#siness"

Other responsibilities of the nancial manager:-

2ns#ring that debts are collected

Inventory level are 'ept at the minim#m level

3ash balance are invested appropriately

4ayables are paid on a timely basis

5edging foreign c#rrency transactions

5edging interest rate epos#re

Corporate strategy is concerned with the overall p#rpose and scope of theorganisation and how val#e will be added to the di,erent parts /b#siness #nits0 ofthe organisation"

3orporate objectives are those which are concerned with the rm as a whole"Objectives sho#ld be explicit$ quantifable and capable o being achieved" Thecorporate objectives o#tline the epectations of the rm and the strategic planningprocess is concerned with the means of achieving the objectives"

Objectives sho#ld relate to the key actors or business success$ which aretypically as follows"

4rotability /ret#rn on investment0 Mar'et share 6rowth 3ash 7ow 3#stomer satisfaction The (#ality of the rm*s prod#cts Ind#strial relations .dded val#e

Financial targets may incl#de targets for: earnings earnings per sharedividend per share gearing level proft retention operating proftability "

The #s#al ass#mption in nancial management for the private sector is that theprimary nancial objective of the company is to maximise shareholders! "ealth"

Financial ob#ectives


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. distinction m#st be made between maimising and satiscing:

Maimising % see'ing the maim#m level of ret#rns$ even tho#gh this might

involve epos#re to ris' and m#ch higher management wor'loads" &atiscing % nding a merely ade(#ate o#tcome$ holding ret#rns at a

satisfactory level$ avoiding ris'y vent#res and red#cing wor'loads"

$on%fnancial ob#ectives

. company may have important non%fnancial ob#ectives which m#st be satisedin order to ens#re the contin#ing participation of all sta'eholders" 2amples of non-nancial objectives are as follows"

/a0 The welfare of employees. company might try to provide good wages and salaries$ comfortable and safewor'ing conditions$ good training and career development$ and good pensions" Ifred#ndancies are necessary$ many companies will provide genero#s red#ndancypayments"

/b0 The welfare of management Managers will often ta'e decisions to improve their own circ#mstances$ even tho#gh

their decisions will inc#r ependit#re and so red#ce prots"

/c0 The provision of a service The major objectives of some companies will incl#de f#llment of a responsibility toprovide a service to the p#blic" 2amples are the privatised ritish Telecom andritish 6as"

/d0 The fullment of responsibilities towards customers8esponsibilities towards c#stomers incl#de providing in good time a prod#ct orservice of a (#ality that c#stomers epect$ and dealing honestly and fairly withc#stomers"

/e0 The fullment of responsibilities towards suppliers8esponsibilities towards s#ppliers are epressed mainly in terms of tradingrelationships"

/f0 The welfare of society as a whole The management of some companies are aware of the role that their company hasto play ineercising corporate social responsibility" This incl#des compliance withapplicable laws and reg#lations b#t is wider than that" 3ompanies may be aware oftheir responsibility to minimize poll#tion" 3ompanies also may consider their


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*positive* responsibilities$ for eample to ma'e a contrib#tion to the comm#nity bylocal sponsorship"

&ist o stakeholders

'gency relationship

. description of the relationship between management and shareholders epressing

the idea that managers act as agents for the shareholder$ #sing delegated powers

to r#n the company in the shareholders* best interests"

Reason or agency problem to arise.

9" . di,erence of objectives- The goals of the manager might di,er from that of the shareholders"" .symmetry of information

- &hareholders are not eposed to all the information as the managers are"- Managers do not provide all the information the shareholders;"


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9" 4rovide performance related pay element in the rem#neration pac'age of

managers" Follow the stoc' echange reg#lations if being listed on the stoc' echange;" 3orporate governance str#ct#res that minimize the problem ca#sed by the

separation of ownership and control"=" .n eec#tive share option scheme /2&O40

(tock )xchange. stoc' echange employs rules and regulations to ens#re that the stoc' mar'etoperates airly and e*ciently for all parties involved"

. stoc' echange is an organisation that provides a mar'etplace in which to tradeshares" It also sets r#les and reg#lations to ens#re that the stoc' mar'et operatesboth e+ciently and fairly for all parties involved"

The stoc' echange operates as two di,erent mar'ets"o It is a mar'et for iss#ers who wish to raise e(#ity capital by o,ering shares

for sale to investors /a primary mar'et0" ch companies are listed on thestoc' echange"

o It is also a mar'et for investors who can b#y and sell shares at any time$

witho#t directly a,ecting the entities in which they are b#ying the shares /asecondary mar'et0"

To be listed on a stoc' echange$ a stoc' m#st meet the listing requirements laiddown in the listing r#les in its approval process"

Corporate governanceCorporate governance is the system by which organisations are directed and

controlled"

• 6ood corporate governance involves ens#ring the e,ectiveness of ris'

management and internal control$ acco#ntability to shareholders and other

sta'eholders$ and cond#cting b#siness in an ethical and e,ective way"

Tere are a number o !ey elements in corporate governance./a0 The management and reduction o risk is a f#ndamental iss#e in alldenitions of good governance$ whether eplicitly stated or merely implied"/b0 The notion that overall perormance is enhanced by good organisational

structures and management practice within set best practice g#idelines#nderpins most denitions"/c0 6ood governance provides a rame"ork for an organisation to p#rs#e itsstrategy in an ethical and e+ective way from the perspective of all sta'eholdergro#ps a,ected$ and o,ers safeg#ards against mis#se of reso#rces$ physical orintellect#al"/d0 6ood governance is not j#st abo#t eternally established codes b#t also re(#iresa willingness to apply the spirit as well as the letter of the law"


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/e0 'ccountability is generally a major theme in all governance framewor's"

"orporate governance codes o good practice generally cover te ollowing areas./a0 The board sho#ld be responsible for ta'ing major policy and strategicdecisions"/b0 F4 organisation"/a0 rpl#s maimisation /e(#ivalent to prot maimisation eg a charity shop0/b0 8even#e maimisation /as for a commercial b#siness eg a charity shop0/c0 ?sage maimisation /for eample$ leis#re centre swimming pool #sage0

/d0 ?sage targeting /matching the capacity available$ for eample$ in a government-f#nded hospital0/e0 F#ll@partial cost recovery /minimising s#bsidy0/f0 #dget maimisation /maimising what is o,ered0/g0 4rod#cer satisfaction maimisation /satisfying the wants of sta, and vol#nteers0/h0 3lient satisfaction maimisation /the police generating the s#pport of the p#blic0

/alue or money

3an be dened as getting the best possible combination of services from the leastreso#rces$ which means maimising the benets for the lowest possible cost"

)+ectiveness is the etent to which declared objectives@goals are met")*ciency is the relationship between inp#ts and o#tp#ts")conomy is attaining the appropriate (#antity and (#ality of inp#ts at the lowestcost to achieve a certain level of o#tp#ts"

2ample: 2conomy$ e+ciency$ e,ectiveness


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/a0 )conomy. This dimension relates to the cost of inp#ts" 2conomy within a schoolco#ld be meas#red$ for eample$ by comparing average salaries per teacher withearlier years and b#dgets"/b0 )*ciency. The e+ciency with which a school*s IT laboratory is #sed might bemeas#red in terms of the proportion of the school wee' for which it is #sed"/c0 )+ectiveness. The e,ectiveness of a school*s objective to prod#ce (#ality

teaching co#ld be meas#red by the proportion of st#dents going on to higher orf#rther ed#cation"

1. Financial Management Objectives

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