KENYATTA UNIVERSITY
OPEN LEARNING PROGRAMME

DEPARTMENT OF ACCOUNTING AND FINANCE

UNIT CODE: BAC 502:
UNIT TITLE: FINANCIAL MANAGEMENT

Course Lecturer: F. Abdul

LESSON ONE
INTRODUCTION

1.1.

What is Financial Management

Financial management can be defined as the management of the finances of an organisation in order to achieve the financial objectives of the organization. The usual assumption in financial management for the private sector is that the objectives for the company is to maximize shareholders wealth.
1.2.

Financial Planning

The financial manager will need to plan to ensure that enough funding is available at the right time to meet the needs of the organisation for short, medium and long-term capital.
a)

b)

1.3.

In the short-term, funds may be needed to pay for purchases of inventory, or to smooth out changes in receivables, payables and cash: the financial manager is here ensuring that working capital requirements are met.
In the medium or long term, the organisation may have planned purchase of fixed assets such as plant and equipment, for which the financial manager must ensure that funding is available.

Financial Management decisions

The financial management decisions relate to investment, financing and dividends. The management of risk must also be considered.
Investments in assets must be financed somehow. Financial management is also concerned with the management of short-term funds and with how funds can be raised over the long term.
The retention of profits is a financing decision. The other side of this decision is that if profits are retained, there is less to pay to shareholders as dividends, which might deter investors. An appropriate balance needs to be stuck in addressing the dividend decision; how much of its profits should the company pay out as dividends and how mush should it retain for investment to provide for future