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Module 3 - Functions of Financial Management.pdf -...

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Functions of Financial ManagementLEARNING OBJECTIVESAfter studying this module, you should be able to:1.Describe the role of Finance Manager in achieving the primary goal of the firm.2.Understand how finance fits in the organizational structure of the firm.3.Enumerate the fundamental activities of the Treasurer and the Controller.4.Explain how the finance function relates to the other functional areas of a business.5.Learn the importance of corporate governance in achieving the goals of a businessorganization.6.Appreciate the importance of ethics in financeROLE OF FINANCE MANAGERHaving examined the field of finance and some of its more recent developments, let us turn ourattention to the functions of the financial manager.Figure 3-1shows the financial manager's role in achieving the primary goal of the firm.Figure 3-1. The financial manager's role in achieving the goal of the firmModule 3: Functions of Financial ManagementFinancial Manager Makes DecisionsInvolvingAnalysis and PlanningUtilization of FundsImpact on Risk andReturnAffect the Market Priceof Common StockLead to Shareholder'sWealth MaximizationAcquisition of Funds
Functions of Financial ManagementIn striving to maximize owners' or shareholders' wealth, the financial manager makes decisionsinvolving planning, acquiring, and utilizing funds which involve a set of risk-return trade-offs.These financial decisions affect the market value of the firm's stock which leads to wealthmaximization.In the short run, many factors affect the market price of a firm's shares which are beyondmanagement's control. Some of the changes in market price do not reflect a fundamental changein the value of the firm. In the long run, increased prices of the firm's stock reflect an increase inthe value of the firm. Hence, financial decision making should take a longer-term perspective. It

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Term
Fall
Professor
Maxine

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