MGT201 Lecture No. 01
Introduction to Financial Management Learning objectives: The purpose of this lecture is to provide you with an overview of financial management. After finishing this lecture, you would be able to have a better understanding of the following. Definition of financial management Significance of financial management for non-finance students and professionals Important concepts and areas in financial management The position of financial managers in organizational hierarchy and their respective work domains. Different business legal entities, their advantages and limitations. The external and internal business environments and their relevance to financial management. Different types of financial and real assets markets. What is FM? FM is the management of financial resources – how to best find and use investments and financing opportunities in an ever-changing and increasingly complex environment. Why should CS majors study FM? First of all, financial management is a core life skill; almost every one needs to understand some concepts of finance to manage his/her business & personal finances. It is generally and quite rightfully said, “Money makes the world go round”. Finance is like a life-blood for a company. Even the best of the companies and CEOs go out of the business because of poor financial management policies. Management Information Systems (MIS) and Information Technology (IT) are just a part of the overall corporate strategy which runs on finances, the major resource. So the computer sciences professionals need to have an understanding of the financial concepts to understand and contribute to the overall corporate strategy. Financial Engineering is an upcoming field that requires people with CS, math/science, and finance background. Financial engineering is the application of engineering methods to finance. One important area of study is the design, analysis, and construction of financial contracts to meet the needs of enterprises. This field is experiencing an increased demand for professionals, especially those who are trained in both the underlying mathematics/computer technologies and finance.
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MGT201 (Financial Management) Definitions Finance: Finance is the science of managing financial resources in an optimal pattern i.e. the best use of available financial sources. Finance consists of three interrelated areas: 1) Money & Capital markets, which deals with securities markets & financial institutions. 2) Investments, which focuses on the decisions of both individual and institutional
investors as they choose assets for their investment portfolios. 3) Financial Management, or business finance which involves the actual management of
firms. Major Areas & Concepts of Financial Management Following are some of the important areas and concepts of financial management, which would be discussed in detail in the lectures to come. Analysis of Financial Statements: Analysis of financial statement is one of the most common techniques of financial analysis, in which the financial performance and financial health of a company are analyzed based on its past performance. The following financial statements are used in the analysis process. • Profit & Loss Statement or Income Statement Income statement reflects the operating efficiency or profitability of a company as a result of its operations along with the net profit available to the shareholders for a given year (usually one accounting period). This statement provides the analyst with some insight into the financial performance of the company. Balance Sheet Balance Sheet is a snap-shot of an organization’s financial health at a particular time. It shows what assets are owned by the business and the sources of acquiring these assets. Statement of Shareholders’ equity Statement of shareholders’ equity provides the share of the owners in the business. Statement of...