My name is  John Taabavi the Tutor who will be presenting this interesting subject of Financial Management. How do I help you as a student capture the understanding of this subject in a nut-shell. By asking and answering these questions.

What is the Accounting Equation?

ASSETS = LIABILITIES + STATED CAPITAL.

This equation means that we can, through the balance sheet determine the value of the business Assets, Liabilities and Capital at a point in time. The left side of the equation must equal the right side. The equation also means the money used in acquiring the Assets came from two sources, our creditors and Owners of the business.

HOW DID WE ACQUIRE THE ASSETS?

Certainly not through random picking but through thoughtful selection called decisions. In Financial Management we call that CAPITAL BUDGET DECISIONS. The process through which we analyze and pick the assets for the business is known as INVESTMENT APPRAISAL.

HOW DID THE BUSINESS GET THE MONEY FROM CREDITORS AND OWNERS?

a. Borrow

b. Ask owners to contribute funds and take ownership stake.

Decisions are made in choosing where and how much to borrow from lenders as well as acquire fuds from equity sources. In Financial Management we call this FINANCING DECISIONS. In the end the business wants to create a manageable CAPITAL STRUCTURE because these external sources of funds have a cost that will be charged to the Profit and loss account.

AFTER SETTING UP THE PRODUCTIVE ASSETS OF THE BUSINESS WHAT DO WE NEED TO RUN THE DAY TO DAY BUSINESS?

We need to organize WORKING CAPITAL for daily business operations, such as money to buy and control the use Stocks, Cash to pay employees, cash to pay services, Collections from trade debtors, Payments to trade creditors etc. We call this WORKING CAPITAL MANAGEMENT.

HOW DOES THE BUSINESS COMPENSATE OWNERS FOR INVESTING IN THE FIRM?

There is no free money any- where in the world. Share- holders must be compensated. It is done from business profits. Therefor the management ongoing decisions will be.  Do we pay all profits to owners or retain part? We call this the DIVIDEND DECISION.

MOST IMPORTANTLY WILL THE BUSINESS OPERATE IN SPACE?

Certainly not. Every business set -up is within an environment of a country or Region. For example in Ghana we can identify a good number of companies, private and public, doing business and taking Financial management decisions as illustrated above. The influence of Macro-economic factors like inflation, taxation, on decisions cannot be overlooked neither can Regulatory controls be ignored. Taxes have to paid out of profits before dividends are declared. The cost of borrowing can be influenced by inflation and Central Bank policies. This is the environment within which FM decisions are taken.

In summary I will be preparing you for the ICA exam by taking you through a rigorous practice -based course with reading materials and test questions where you will learn the principles and technics of taking management decisions on RAISING FINANCE, INVESTING IN ASSETS, MANAGING WORKING CAPITAL AND DISTRIBUTING PROFITS.  On passing this paper you will be required to advise or take Financial Management decisions that lead to one thing in business, CREATE WEALTH IN THE BUSINESS FOR THE OWNERS.

                  DON’T BE LEFT OUT.