Financial management is the management of a firm’s finance function—planning, raising, allocating and controlling funds to achieve organisational objectives. It is a core part of corporate decision-making because almost every decision has a cash flow impact.
In exams, this unit is mostly theory but scoring. You can secure marks by writing:
You should be able to:
Financial management is the process of:
One-line definition (use in 1-mark/2-mark): Financial management is the efficient planning and controlling of funds to maximise firm value.
Financial management is:
It covers:
Two common objectives discussed in syllabus:
Goal: increase accounting profit (net profit, EPS). Limitations:
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Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise.
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Financial management is the management of a firm’s finance function—planning, raising, allocating and controlling funds to achieve organisational objectives. It is a core part of corporate decision-making because almost every decision has a cash flow impact.
In exams, this unit is mostly theory but scoring. You can secure marks by writing:
You should be able to:
Financial management is the process of:
One-line definition (use in 1-mark/2-mark): Financial management is the efficient planning and controlling of funds to maximise firm value.
Financial management is:
It covers:
Two common objectives discussed in syllabus:
Goal: increase accounting profit (net profit, EPS). Limitations:
Goal: maximise shareholder wealth (market value of shares) by maximising the present value of future cash flows. Why it is preferred:
Quick table (exam-friendly):
Financial management is often explained through 4 key decisions:
Investment decision (capital budgeting)
Financing decision (capital structure)
Dividend decision
Working capital decision
Flowchart (write/draw): Plan funds → Raise funds → Invest funds → Manage operations (WC) → Distribute/retain earnings → Control
The CFO (Chief Financial Officer) is the top finance executive responsible for:
In modern firms, CFO is not only a “number-keeper” but a strategic partner.
In companies, owners (shareholders) and managers are different, which can create agency conflict:
Controls to reduce agency problem:
General principle: Higher risk requires higher expected return to compensate investors.
Example line for exams: “A project with uncertain cash flows should be accepted only if it provides higher expected return.”
Objective (wealth max) → Decisions → Cash flows → Risk control → Firm value
From this topic
Profit maximisation vs wealth maximisation:
Hence, wealth maximisation is preferred for long-term value creation.
Scope of financial management includes (any three):
These areas collectively manage funds for value creation.
The CFO is the senior executive who leads the finance function and supports strategic decision-making.
Thus, the CFO is a strategic partner to the CEO/board, not merely a record-keeper.