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INTRODUCTION

RAIS AHMAD

MBA (FINANCE), MA (ECO)

M.PHIL IN PROGRESS

FELLOW MEMBER OF PAKISTAN INSTITUTE OFPUBLIC FINANCE ACCOUNTANT (FPA 2379)

CORRESPONDANCE COURSES:

ISLAMIC LAW

HADITH

FROM INTERNATIONAL ISLAMIC UNIVERSITYISLAMABAD

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YAHOO GROUP ADDRESS:

http://groups.yahoo.com/group/raiskasbit/

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STRATEGIC FINANCIALMANAGEMENT

Finance studies and addressesthe ways in which individuals,

business, and organizations raise,allocate, and use monetaryresources over time, taking into

account the risks entailed in theirprojects.

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The term "finance" may thus

incorporate any of the following:The study of money and other assets;

The management and control of those assets;Profiling and managing project risks;

The science of managing money;

As a verb, "to finance" is to provide funds forbusiness or for an individual's large purchases(car, home, etc.).

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The activity of finance is theapplication of a set of techniquesthat individuals and organizations

(entities) use to manage theirmoney, particularly the differences

between income and expenditureand the risks of their investments.

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An entity whose income exceedsits expenditure can lend or investthe excess income. On the other

hand, an entity whose income isless than its expenditure can raisecapital by borrowing or selling

equity claims.

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The lender can find a borrower,

a financial intermediary, such asa bank or buy notes or bonds inthe bond market.

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The lender receives interest, the

borrower pays a higher interestthan the lender receives, and the

financial intermediary pockets thedifference.

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A bank aggregates the activities ofmany borrowers and lenders. A

bank accepts deposits fromlenders, on which it pays theinterest. The bank then lendsthese deposits to borrowers.

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Banks allow borrowers andlenders, of different sizes, tocoordinate their activity. Banks

are thus compensators of moneyflows in space.

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A specific example of corporatefinance is the sale of stock by a

company to the public. The stockgives whoever owns it part

ownership in that company.

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Of course, in return for the stock,

the company receives cash, which ituses to expand its business in aprocess called "equity financing".

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Equity financing when mixedwith the sale of bonds (or any

other debt financing) called thecompany's capital structure.

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Finance is used by individuals

(personal finance), by governments

(public finance), by businesses(corporate finance), as well as by awide variety of organizations including

schools and non-profit organizations.

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In general, the goals of each of

the above activities are achievedthrough the use of appropriatefinancial instruments, withconsideration to their institutionalsetting.

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Finance is one of the most

important aspects of businessmanagement. Without properfinancial planning a new enterprise

is unlikely to be successful.Managing money (a liquid asset) is

essential to ensure a secure future,both for the individual and anorganization.

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THE FINANCIAL MANAGER'SRESPONSIBILIES

The financial manager's task isto acquire and use funds so asto maximize the value of the firm.

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Forecasting and planning

The financial manager mustinteract with other executives asthey look ahead and lay theplans, which will shape the firm's

future.

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Major investment andfinancing decisions

A successful firm usually has rapidgrowth in sales, which requiresinvestments in plant, equipment andinventory. The financial manager

must help decide what specificassets to acquire and the best way

to finance those assets.

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For example, should the firmfinance with debt, equity, or

some combination of the two,and, if debt is used, how

much should be long termand how much should beshort term?

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Coordination and control

The financial manager mustinteract with other executivesto ensure that the firm isoperated as efficiently as

possible.

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Dealing with the financial markets

The financial manager mustdeal with the money and capital

markets. The general financialmarkets where funds are raised,where the firms securities are

traded, affect each firm andwhere its investors either make

or lose money.

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Risk management

All businesses face risks, includingnatural disasters such as fires andfloods, uncertainties in commodity

and security prices, volatile interestrates, and fluctuating foreignexchange rates. However, many of

these risks can be reduced bypurchasing insurance or byhedging in the derivatives markets.

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The financial manager isusually responsible for thefirm's overall riskmanagement program,

including identifying therisks that should be hedged

and then hedging them in themost efficient manner.

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H d i A h i d i d

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Hedging: Any technique designedto reduce or eliminate financial

risk; for example, taking twopositions that will offset each other

if prices change.

Derivative: A financial instrumentwhose value is based on anothersecurity