Financial Management Lectures - Introduction To FM |CFA |ICAG |CIMA|ACCA |CPA - Nhyira Premium

hi there my name is inshira premium and welcome to our online course in financial management now this is one of the subjects that are fundamentally that i can revise syllables in level two and in the entire ica levels this is the only subject in financial management in the previous levels we had financial management in level two and we had advanced financial management in level three but now in the revised syllabus we only have the single paper as financial management for the entire syllabus in relation to that now this is one of the subjects that is my personal favorite in the syllabus because of the fact that uh it is simple and it's straightforward the syllabus is structured in such a way that you'll be able to apply principles from one area to the other and you can flip concepts from one part to another in order for you to position yourself to pass the examination so hey prepare yourself up and know that this is one of the good this is going to be one of the most interesting papers that you're going to be learning not only for the examination but it will make you understand various things about how finance actually work in uh uh in the world now for those of you who did your nda for some reason in finance you might be exempted from this paper but maybe you did some finance in other courses in relation to that so there are a couple of things that are going to be a bit familiar here but we're going to skyrocket take everything to the next level and most importantly making sure that we understand the concepts in that case now in this very first video what i want to do to you well for you is to take you through the entire syllabus for us to also see uh the examination structure i'll look at the key areas we have to focus on and have an understanding of the entire levels in relation to that what it means is that in this very first session i'm actually going to complete the syllabus ah what are you saying what i mean is that i'm gonna be going through the entire levels breaking down the syllabus taking you through the various things that you need to understand why are we gonna be learning the topics that we're gonna be learning and how we can structure all of these things out in order for us to understand what we are doing very well in relation to that so hey prepare yourself uh but hey let me know uh what do you think about financial management what have you heard about financial management is always the question that i asked uh of students about it so pause the video and then think about it what have you heard about financial management pause the video and think about it a little bit what have you heard about financial management oh in in the past several years teaching this paper in both the acca and then ica one of the things i hear from students is that financial management is technical no no no no is it just like financial reporting where if you are strong in the accounting standards you are likely to uh pass the financial reporting examination and by extension the corporate reporting examination uh financial management also had some basic principles some basic concepts that you need to understand some basic areas that you need to focus on in order for you to position yourself to be able to pass the examination and that is what exactly we want to do today in this discussion and see how we can go about it so you can see on the far uh right here and we have the syllabus coverage and then in my immediate uh right you see that i have the role of the cfo the chief financial manager now note that the entire syllabus of financial management is categorized into four which we scored the role of the financial manager now remember that the financial manager of the cfo of an organization has a role of assisting the organization in order to maximize the welfare of the company now remember as far as we are dealing with a for-profit making organization it means that our objective is to what maximize the welfare of the shareholders now what does it mean to maximize the welfare of the shareholders maximization of welfare of shareholders can come from two or three angles number one it can come from uh giving them high returns on their investments okay so what we say we are maximizing the welfare of shareholders is about number one giving them higher returns on their investments so for instance if the shareholders give us twenty thousand dollars how much can we give them a return that is one way we maximize their welfare our shareholders but not only that not only are we thinking about high returns but also if the company happens to be listed which is where our focus is going to be most of the time is to be able to increase the share price okay so to increase the share price of the company so if the company happens to be listed sometimes it's not about returns because the return should be in the form of dividends but if the company is not paying dividends which you will get into later or already excited about it but if the company is not paying dividends that means that we need to also increase the share price so what are the decisions we can make as an organization in order to increase the share price that is the second thing that is the second thing so when we say we are maximizing the welfare of the shareholders i'm using the welfare to share with us but uh uh the right word is to maximize the shareholders wealth okay that is the right word maximizing the wealth of shareholders not the welfare of shareholders maximizing the wealth of the shareholders so maximization of the wealth of the shareholders comes in two or three forms like i've said number one giving them higher returns on their investments number two if we're not going to give them returns in the short term okay what can we do to increase the share price that is the second thing so increasing the share price of the organization and the number three is to minimize whatever rates that their money is going to be exposed to we minimize rates we minimize risks what it means is that we're going to manage their rates which is something we're going to be looking out for later on in relation to that so remember our objective as an organization for profit of organization is to maximize the wealth of shareholders is to maximize the wealth of the shareholders when we say maximization of the wealth of the shareholders what exactly the women we mean giving them high returns on their investments we made making decisions that will increase the share price of the organization we mean number three minimizing their risk that we expose their money to us an organization in relation to that and these things are interconnected when we pay higher returns share prices will go up if we're able to manage their rates very well share prices will go up we'll make more profit as an organization and we can pay them more returns so these are intact wine interconnected they are not separate individual on their own but they are together that we need to look out for in relation to that so these are the three key things that we can talk about when it comes to maximizing the wealth of the shareholders high returns increasing share price and then minimizing the risks that we expose their funds to in relation to that so having those are at the background meaning that that is the role as financial managers that is what we want to do we want to find out how can we maximize the wealth of the shareholders that is our goal that is our objective that is our assignment as the cfo of the organization so to achieve this maximization of the wealth of the shareholders remember we have what we call stakeholders just want to make sure that uh i touch on various things here in relation to that we are only called stakeholders and you like this in kg2 already so i'm not going to really go deeper into it here because you know it's already right so who are the stakeholders of our organization or institution in a simple language we say that the stakeholders are simply the individuals organizations corporate bodies and other institutions that are interested in the operations the activities of an organization and are affected directly or indirectly by the activities or the operations of the organization let's say that again when we say stakeholders of an entity we are referring to individuals corporate bodies institutions who are interested in the activities or oppressions of an organization and are affected directly or indirectly by the operations or activities of an organization these are stakeholders now depending on the school of thought that you have we have what we call internal stakeholders external stakeholders we are what we call internal stakeholders connected stakeholders and then external stakeholders it depends on the school of thought that we are applying but in general we can have stakeholders as follows number one the management or the bottom heritage and we're gonna be coming to these guys later on in our discussion when we start with the first aspect number two we're gonna talk about the employees of the organization number three we're gonna be talking about the people who give us the money so the shareholders of the organization very critical and then number four we're going to be talking about the issue in relation to um customers okay number five we're going to be talking about an issue in relation to suppliers bankers the government or government authorities or institutions and all these things so all these are stakeholders now this is what the journey becomes interesting even though you're looking at the introduction to the syllabus this level structure and all that i'm already dropping some bombs that will save me later on in the discussion these stakeholders each of them have their objective so let's take them one after the other mindless what's the objective of managing the objective of management is to be able to design and implement policies that will be able to maximize the wealth of the shareholders that's it the objective of management is that now we're going to be looking at the agency theory later on okay i don't want to get myself into a lot of things here but there is that there is that agency relationship where shareholders have a trust management with their funds so management objective is to be able to design policies and put in place procedures internal controls in order to maximize the wealth of the shareholders give them a higher returns increase their share price or better still minimize the risk that the fund is exposed to that is the objective of money we are not much excited about what management wants then we come to the employees of the organization what is the objective of the employees the employees are there because they want what better salaries good working conditions not only that they will also be interested in job security all right because who wants to work in a company where you are freaked out you are afraid that there is there could be job loss or those things in relation to that who wants to work in that organization nobody wants to work in such an organization so they also want what good salary good working environment job security that is the objective that is the objective now there's a manufacturing organization that they would want to have what safety uh equipment helmet goggles uh hand gloves boots everything that we want to have everything they need in order for them to work well in relation to that shareholders we've mentioned already shareholders at the end of the day wants retains on their investments there's not a charity or organization we want some money so their objective is to be able to what gets their returns get more dividends and make sure that their money is not dissipated or used for some for other purposes and we'll get into these later on in relation to that customers customers won't uh have an objective they will want a quality product or service from the organization at an affordable price with and after sales what services and they will also want to be guaranteed that the organization will operate into the foreseeable future so they can continue to get the service or the product from that company that we're talking about here so guaranteeing continuous supply it's what they are interested in as customers at the end of the day then it comes to suppliers suppliers are the organizations or individuals who provide the organization or the company with resources raw materials and all these things that we need in order to manufacture our products or render our services as an organization suppliers are interested to see whether the entity has the ability to be able to pay its debts as and when they fold you and not only that to also be guaranteed that the entity can operate into the foreseeable future so that their produce can be acquired by the company so they don't go out of business in relation to that the reason why this is very critical is that if the supplier has only one organization that is demanding from them and you get to understand this later on if they have only one organization that they are selling their products to uh what it means is that a customer the company is going to have strong bargaining power on them what it means is that should that customer or company go into bankruptcy that means that hey you're also going to go into bankruptcy in relation to that so suppliers who want to see can this company they will assess the liquidity the liquidity of the company to find out whether the company can pay its short-term debts as and when they fall due and whether they are guaranteed to be able to pay them how much or for the goods that they are buying from them in relation to that bankers or finance providers these are the people we borrow some money from man so the bank will be interested in looking at our overall profitability outside organization our gre level our financial jury level our printing general level we will get into all of these later on in the syllabus but they are interested in that then government and government institution it depends on the industry we are in primarily the government revenue authority is interested in every for profit making organization and even not for profit-making organization if you're a good tax student you know that ngos are not subject to tax but they are subject to tax on their uh profit making activities or endeavors in relation to that so the government revenue authority has that interest in companies in relation to that to make sure that companies are paying the taxes that they are supposed to pay to the government in relation to that not only that if we happen to be a food company a food manufacturing company or a food seller that means that the food and drug authority is going to be after us then uh ghana standard authority is going to be after ranks not only that we may have the national fire service or the ghana national fire service also uh after us because if you have a well-structured organization well-structured institution you should have some fire data in place and all that so all these organizations are going to be after us in relation to that if you're a mining company on top of all these then the epa the environmental protection agency is going to be upon us even if a manufacturing company the environmental protection agency would still be after us as a government organization as a government institution why is that important because we want to find out how much toxic gases are we admitting into the atmosphere and most importantly how responsible we are in the disposal of our waste either to the water bodies or to the communities that we are actually operating in as an organization so that is also there in that case so all these we have students that are uh stakeholders we can talk about that all of these are stakeholders now like you can see what i just went through with you you will realize that each of these stakeholders have their own objective now it is the objective of the organization management and the cfo to find out how they can actually reach the gap now this is where there is going to be conflict of interest why because while uh customers want quality products at affordable prices and after sales services you gotta make sure that shareholders get more money on their returns because the more you provide quality product to your customers the more you provide it at a lower price and the more you do after sales services yes you are satisfying the customers but then you will be using shareholders money to do that so you realize that there's going to be a conflict of interest employees they want good salary uh good working environment job security they want better working conditions the more you try to provide yourself your uh employees with better market environments and everything they need to be happy in the organization it means that the less money will be available to the shareholders then shareholders will come after you hey if this year you cannot make these returns then we are going to liquidate the company so you won't also satisfy the shareholders so you realize that almost always there is going to be conflict of interest because one is looking for this the other is looking for those and the more you try to satisfy the welfare of other stakeholders you will be actually sacrificing shareholders at the expense the community is also a stakeholder the community that we as an organization so if an organization is undertaking a corporate social responsibility whose money is being used for the corporate social responsibility shareholders money but we need to employ you to do corporate social responsibility and you're going to understand this later on that uh strategic case study in the level 3 paper where we open all of these things up in that case but what are we saying here you realize that to satisfy the welfare to satisfy the interest to satisfy the benefits of all the other stakeholders there has to be a sacrifice sacrifice of the shareholder as well of the shareholders money in relation to that so these leads always to a complaint of interest it is the objective of the cfo that is the chief finance officer the management of the organization to be able to find a tune of how far can we go on customers how far can we go on the shareholders so that we'll be able to satisfy everybody at a certain point that is the crop of financial management that is the headache of management of organizations that is what they want to look out for that is what they want to find out that is what they always want to think about and identify what is really going on how can we bridge the gap how can we make sure that yes we are doing we are producing quality products rendering quality services to our customers at a competitive price or at an affordable price and we still rendering of the sales services however we are not carrying much cost in these things so that at the end of the day we can also provide better working environment to the employees give them good working conditions pay them better salaries and most importantly most importantly also make some returns for our shareholders and become a good corporate organization and undertake some corporate social responsibilities that is the headache of every organization at the end of the day it is for those reasons why you come in as the financial manager to find out how the organization can find you to find out how the organization can bridge the gap to find out how the organization can bring all these things together to be able to maximize the welfare of the shareholders at the end of the day that is what you have to understand about that so that is the idea so in a nutshell what have we mentioned so far we've said that the objective of the organization primarily is to maximize the wealth of the shareholders what does it mean to maximize the wealth of the shareholders three things it means that giving the shareholders high returns it means that increasing the share price of the shareholders the share price of the company shared and the number three means that minimizing every breaks that the organization is going to be exposed to so as not to uh increase the rates that the shareholders found will be exposed to but we said that to share what is about the only people we're going to be interested in as an organization but we also have to look at the other stakeholders of the organization and each of them have their own each of them uh will have people uh objective in relation to that but we have to find out how we can bring all these together and most importantly be able to achieve our objective as an organization so good about that let me know if you have any questions make sure you put it down and then during our discussion sessions you can uh bring that up to me in relation to that so how can you distribute the stakeholders of our organization and what the organization's goal is then the big question we ask ourselves is okay so how can uh cfo the chief finance officer now assist the company help the company in order to achieve the company's objective this is where the subject financial management comes to be you got it so let's go so the role of the cfo you being the financial manager of the company or the chief financial uh officer finance officer of the company there are four key roles that you're gonna be playing four key roles that you're gonna be playing as the financial manager to assist the company to do two things number one maximizing the world will share what is number two making sure that the needs of our stakeholders are also met so four key decisions the cfo makes now these four key decisions like i said are feather bridge into what we see in our syllabus so like i told you in the beginning this is our syllabus the breakdown of our syllabus and then this is also the row of the ceo the four rows of the cfo is actually into what we call the solagos coverage in relation to that so let's go through it in that case as the chief finance officer of an organization there are four heroes that you play these heroes are broken down into various topics that will be taken one after the other as we go ahead with our discussion the first position is investment decision that is the fundamental decision that we start with as an organization the investment decision has to do with where can the entity invest its capital where can the entity invest its capital in other words the investment decision tries to answer the question where do we invest our money now in trying to answer the question when we would we invest our money as an organization various things come in now when it comes to making all the investment decisions these decisions are broadly categorized into two we are what we call the long-term investment decisions the medium-term investment decisions and then the uh short-term investment decisions sometimes the medium-term is ignored to some extent so i'm just going to deal with it to the long-term investment decisions and then what the short-term investment decision now let's escalate a little bit uh on the short term real quick now when it comes to short-term investment decisions we are talking about the day-to-day uh i know you can see that but it's a short-term decision okay i know you can see that but short-term decision now the short-term decision is uh has to do with the issue in relation to the day-to-day running of the organization so this is where working capital management comes to the picture how much money do we invest in the day-to-day running of the company now remember when we say working capital you know this from your financial reporting class and then financial reporting last full semester how do you expect me to understand this you understand so what capital has to do with your your current assets ca minus cl current liability so karen accent has to do with what inventory trade receivables and then cash your carrying liability has to do with laws trade payable so how much money do we have to keep in this in the day-to-day running of the organization that is where our topic of working capital management is going to come to town so we recommend that from our syllabus coverage f is about working capital management and that is 15 of the syllabus grading because what i would like you to know there is a question waiting for you in the example on working capital management how much money do we keep in the working capital and how do we ensure that that money is utilized very well to ensure that the organization is run very well so under working capital management we're going to be talking about how we manage inventory so this is where the eoq formula will come in economic order quantity issues will come in what is the total inventory cost in management accounting you did that it's going to come in how do we manage trade receivables how do we deal with invoice discounting debt factory all these are techniques of how we monetary receivable cash how do we uh keep the cash level we're going to be using the miller or principle and then the preparation of the cash brokers or the cash budget of the organization when it comes to trade payables do we uh delay their payments and uh use the money to run the company or we can pay them so that we're going to borrow money rather from the bank so we're going to be looking at the cost of bank over drugs and then the discounts we're going to be losing for not paying our suppliers on time in relation to that that is a short-term investment decision and that is about what working capital management that is about working capital money so that is 15 of the syllabus grading very much excited about it we're going to be expanding on that topic later on but like i said it's about looking at the various components of working capital and how we manage those things in relation to that so we will come back to this later on in that case but that is short-term investment decision but our focus also is going to be extended a little bit to what we call the long-term investment decision so where do we invest our money should we launch a new product as an organization should we make some investment in r d research and development should we expand our factory as an organization should we acquire some assets vehicle for the sales department buy a new software for the accounting department or buy a new delivery ban for the marketing department or what assets do we have or should we even go and acquire another business okay acquisition of our businesses in relation to that or if we merge with some businesses in that case all these are investment decisions now it depends on the money available to the organization as well as where the organization is at the point of the decision making that they will decide which of these decisions they should go for so that is where the topic of investment appraisal techniques comes in so that is our second thing so another investment decision we're going to be doing investment appraisal technique that is if we want to launch a new product we want to do some r d we want to expand the factory we want to buy some assets these decisions we would have to watch appraise those decisions using the investment appraisal techniques now we will get into this later on but the investment appraisal techniques includes the following methods we're going to be looking at the accounting rate of return the net present value the internal rate of return the payback period the discounted payback period in relation to that so these are the methods that we're going to be using to appraise an investment decision but remember all investment decisions will be undertaken if they will maximize the wealth of the shareholder of the shareholders so the objective of the organization is that we will only undertake an investment decision if it is going to maximize the wealth of the shareholder so irrespective of the method that we are using the objective the goal the target is to take into consideration the maximization of the wealth of the shareholder very very critical very very important in relation to that but not only that when we are making the investment appraisal decision another thing we're going to be taking into consideration will have to do with what is called sensitivity analysis sensitivity analysis you want to say we meet carefully others because like i said this session is about introduction to the syllabus so i'm going to try to you know chop a bed chop a bit on everything to set you on board as you continue in relation to that now what is sensitivity analysis about you see once we are making these decisions okay using the net present value the internal rate of return and all of those things we're going to be making certain assumptions we're going to say that okay assuming that we sell 2 000 products every year or 3 000 products every year we're going to be making certain assumptions on even the cost of capital we're going to be using the inflation rates that we're going to be using the capital allowance the cost of the assets the initial capital outlay and even when the project is starting but you see what if the analysis the assumptions we use change what is going to happen to us so the possibility and the effect on the project if our assumption changes is what we refer to as what sensitivity analysis is what refers to as sensitivity analysis so the possibility of a change in our decision is what we refer to as what the sensitivity and others and we'll look at it later or we will look at what would be the effect on the net present value of the project if let's say the initial cost changes so let's say for example let me give a weird example here but we're going to follow him here so let's say for instance i want to marry right so let's say that i imagine that uh i want to marry whatever maybe later i want to marry in two years time right so in two years time i want to marry let's say i said okay i want to spend how much will i want to spend on my writing whatever let's say 50k so 50 000 so let's say i'm spending 50 000 on my wedding that is what i want to spend uh and we've broken this down into wedding gown ring suits everything event uh food deco like everything everything is covered i mean it should be covered this isn't sure if you was wearing it you got it so fifty thousand dollars and uh that is what i do i said in two years time so i had i did okay

Channel: Nhyira Premium

Views: 2,542

Rating: 5 out of 5

Keywords: Investment Appraisal Techniques, nhyira premium, payback period, methods of investment appraisal, acca, cima, cfa, sbr, financial management lectures, net present value, capital budegting techques, acca f2, acca f9, financial management, net present value and internal rate of return, capital budgeting, acca f9 investment appraisal methods, internal rate of return, discounted cash flow, net present value calculation, net present value method, net present value in hindi

Id: xk8DuFNco3I

Length: 32min 11sec (1931 seconds)

Published: Thu Jan 07 2021