AEFIN1 REVIEWER debenture Holders, while some are kept as

reserves.
Chapter 1
5. Assessment. It means controlling all the
What is Financial Management?
financial activities of the company.
Is about preparing, directing and Managing Finance area and Career Opportunities
the money activities Of the company such as
buying, Selling and using money for the Best 1. Financial service - concerned with the
results to maximize wealth Or to produce design and delivery of advice and financial
best value of Money. Products to individuals, businesses, and
governments.
Key objectives
2. Managerial finance - concerned with the
-To generate cash duties of a Financial Manager working In a
-To create wealth for the business business.

-To provide an adequate ROI Personal certification finance:

Personal finance deals with an Individual's 1. Chartered Financial Analyst (CFA) - This
decisions on the Spending and investing of is a graduate-level course of study offered by
Income. Business finance involves same CFA Institute which is Focused largely on the
Type of decisions focusing on How the firms investments. Side of finance.
raise money from Investors, how to invest 2. Certified Treasury Professional (CTP) -
money To earn a profit, and how to Invest This program requires students to pass a
money to earn a profit.
single exam that assesses Knowledge and
Key elements in the Process of FM skills needed in working for a corporate
treasury department.
-Financial Planning
3. Certified Financial Planner (CFP) - To
-Financial Control obtain CFP status, students should pass a
-Financial Decision Making 10-hour exam covering a wide Range of
topics related to personal financial planning.
Scope of FM
4. American Academy of Financial
FM wide scope based on the Five 'A's of Dr. Management (AAFM) - This administers
S.C Saxena. certification programs for financial
Professionals in a wide range of fields. The
1. Anticipation. The financial needs of a
certifications they issue include the Charter
company are being estimated, as it finds out
Portfolio Manager, Chartered Asset
how much Finance is required.
Manager, Certified Risk Analyst, Certified
2. Acquisition. It collects finance for the Cost Accountant, Certified Credit Analyst,
company from different sources. and many Other programs.

3. Allocation. It uses the collected or 5. Professional Certifications in Accounting -

acquired finance to purchase fixed and These include Certified Public Accountant
current assets for the Company. (CPA), Certified Management Accountant
(CMA), Certified Internal Auditor (CIA), and
4. Appropriation. It distributes part of the many other programs.
company profits among the shareholders,
Form of business balance sheet And its revenue and expenses
in the Income statement.
•A sole proprietorship is a business owned by
one Person and operated for one's own COMPONENT OF FINANCIAL
profit. STATEMENT
•A partnership is a business owned by two or 1. Balance sheet - It shows the financial
more People and operated for profit. This is position of the firm at a particular time and in
based on an Agreement called Article of Co- codes the is assets, liabilities, a the
Partnership. stockholder's equity, The balance sheet
includes the list of all the assets of the firm.
•A corporation is an entity created by law.
Corporations have the legal powers of an Assets - Section of the balance sheet shows
individual In that it can sue and be sued, everything that the firm owns and which has
make and be party to Contracts, and acquire Monetary value.
property in its own name.
Classification of Assets:
1. Current Assets - cash, bank deposits,
Objective of FM prepaid expense and other items readily
Convertible into cash like accounts
1. Profit maximization
receivable, inventory, stocks and Work-in-
2. Wealth maximization process and marketable securities.

Importance of FM 2. Non-Current assets

1. Financial planning Trade Investment- investment to subsidiary

or associated companies; Fixed Assets-
 Acquisition of funds ownership of property like land, building, plan
 Proper use of funds and machinery, Equipment, vehicles,
 Financial decision furniture, fixtures, Machinery, investment, all
valued at cost less Depreciation written off.
2. Increase the value of the firm
Intangibles- item present goodwill, patents,
Objectives of entity
copyright which are attributed to the firm
1. Profit maximization
Liabilities - Section of the balance sheet
2. Shareholder wealth maximization shows the profile of the debts of the
company.
3. Social responsibility
Types of Liabilities:
4. Business ethics
1. Account Payable - composed of debts
5. Growth payable within few days, weeks, or months
Like those incurred in the purchase of raw
materials.
Chapter 2
2. Loans and Notes Payable - are the debts
What is financial statement? evidenced by promissory notes and
Oftentimes backed up by collaterals.
Is the presentation of data in the Company
assets, liabilities, and Equities. Including the
3. Advances from the Customers - down b. Retained earnings. It is the accumulated
payment before orders are processed. Not income or loss of the company covering the
Yet earn, considered as liabilities. past year of operation.
4. Accrued Expenses - obligation not yet c. Declaration of cash dividends. It is the
paid declaration for the year that is indicated as a
deduction from retail earnings.
5. Mortgage Payable - companies
borrowing and other sources of funds. d. Distribution of stock dividends. It discloses
the stock dividend rate and the number of
6. Bonds Payable - when the large amount
stock dividends distributed to stockholders.
of long term debt is sought by the firm From
This amount is also shown as a deduction
a large number of creditors, bond usually from retained earnings.
issued.
e. purchase and sale of treasury stock. It
2. Income statement is a formal statement
includes the originally issued both were
that indicates the Output of the operation for
brought back and we do not retain. This sale
a certain period. It shows the revenue of treasury stock is shown as an addition to
Gathered during the operating period, the stockholders' equity while the purchase is
expenses incurred, And the firm's net
shown as a deduction.
earnings.
f. The accumulated other comprehensive
This is also used to distinguish for broad income. It includes unrealized gains and
classes of expense:
losses on available-for-sale investment and
a. Cost of Goods Sold, which is direct cause foreign currency transportation
attribute to manufacturing The products sold g. Correction of errors. It includes at least
by the firm:
errors in the past but corrected in the current
b. General and Administrative expenses, year.
which correspond to overhead Expenses,
FINANCIAL STATEMENT ANALYSIS
salaries, advertising, and other operating
costs that are not Directly attributable to It is the comparison of one firm of the past
production; and present activities of the firm and
Forecast in the future. It involves
c. The interest of the firm depth; and
computations and calculations of figures.
d. Taxes of earning owned by the Firms compute by combining accounts
government coming from an income statement and
Balance sheet. It simply relating an account
3. Statement of stockholder’s equity is a within the statement. This Calculation helps
required basic statement that shows the the management assess the deficiencies
movements in the component of equity and take necessary Action to improve
THE MAJOR ELEMENTS OF THE performance.
STATEMENT EQUITY INCLUDE: COMMON TOOLS AND TECHNIQUES
a. Insurance of stocks. It is common for USED IN FINANCIAL STATEMENT
preferred stocks issued during the year. ANALYSIS
1. Horizontal analysis - Comparative
statements are comparing financial data of
Two years showing the increase or decrease
in the account balance with Their 3. It states the changes in the financial
corresponding percentages. position of the firm.
2. Vertical analysis - It uses a significant item 4. It clarify the capability of the firm to
on the financial statement as a Base value. produce cash and cash equivalents.
All other financial items on the statement are
5. It provides relevant information about the
compared with it.
cash receipts and cash payments of the
The financial ratio provides two types of
comparison:
Chapter 3
1. Industry comparison - Financial ratios are
computed and compared with the industry Working capital is the Amount of cash and
average. Though industry comparison, the other Current assets a business has
company may be able to compare their Available after all its current Liabilities are
Performance against their competitors and accounted for.
how they fare with them.
Managers must have the basic
2. Trend analysis - Financial ratios are Understanding on some investment
computed and compared with their past Terms and principles:
performance. By the Trend, the company will
know if their financial performance is Hedging principle (rule of Self-liquidating
improving or not over The years. It is a very debt) provides the Basis for firm's working-
powerful tool and deciding the action that a capital Decisions. Hedging principle
company should Take in the future. assumes That those assets needed by the
firm Not to be financed by spontaneous
Cash flow statement. It Represents the Sources, such as payables and accruals,
firm's cash receipt And cash payment during Should be financed, in general, applying The
a Specified period. This will Recognize cash following rule:
on hand the only Transaction. The balance
sheet Changes could be reviewed to 1. Permanent investment in an asset is
Determine the facts. the One which the firm expects to
hold for a Period of more than one
The exact movement of cash are the year. This may Involve current or
following: fixed assets.
2. . Temporary investment in an asset
1. Net income after tax, together with the
Includes the firm's investment in
increase and decrease in the firm's Current
current Assets that is liquidated and
assets
not replaced During the year.
2. Current liabilities, fixed assets, long-term 3. Spontaneous sources of financing
liabilities, and Include all sources available upon
Demand, such as, trade credits or
3. Stockholders equity Accounts payable, or those that arise
Functions of the Cash Flow Statement: Naturally as part of doing bus.
4. Temporary sources of financing
1. It offers information on the structural Include all forms of current or short-
health, liquidity, and profitability of the firm. term Financing not categorized as
2. It gives opinions on the different activities spontaneous, Such as bank loans,
of the firm.
 commercial papers, And financing • Product or service competitive conditions
company loans. and Seasonal variations;
• Government regulations;
5. Permanent sources of financing
Include all long-term sources such as • Self-imposed internal policies and
debt Having a maturity of more than Commitments; and
one year, Such as preferred stock,
common stock or Long-term bonds. • Operational efficiencies.

Short-term financial management Refers Advantages of Adequate Working Capital

to the administration and Control of more • Solvency of the business. It helps in
liquid resources to Ensure sufficiency in Maintaining solvency of business by
covering day To day business operations, Providing uninterrupted flow of Production.
Including anticipated Contingencies. It
generally deals With managerial decisions • Goodwill. Sufficient working capital helps In
on Current assets and how they are creating and maintaining goodwill.
Financed.
• Easy loans. A high solvency and good
Current assets include inventory, Accounts Credit standing can arrange loans from
receivable, marketable Securities, and cash. Banks and others on easy and favorable
Terms.
The following conditions should be
attained: • Cash discounts. It enables a concern to
Avail cash discounts on purchases which
1 Cash should be enough to support firm's Reduce cost.
Operation;
• Regular supply of raw material. Sufficient
2 Accounts Receivable should not be too lax working capital ensures regular
nor Too strict in granting credits,
• Regular payment of salaries, wages and
3 Inventories should be enough to support Other day to day commitments. A company
Market demand; and With ample working capital can make
4 Current liabilities must involve prudence in Regular payment of salaries, wages and
Making use of the time before it finally pays Other day to day commitments which Raises
off Its obligations. morale of its employees, increases Their
efficiency, reduces costs and Wastages.
Objectives of Working Capital
Management • Ability to face crisis. This enables a concern
To face business crisis in emergencies such
• To generate additional income for the As depression.
Business;
• Quick and regular return on investments.
• To reduce the amount of investment This enables a concern to pay quick and
needed To support sales and production. Regular dividends to its investor as there
May not be much pressure to plough back
• The general nature of the business;
Profits which gains the confidence of
• The cost and length of the operating
• Exploitation of favorable market conditions.
process;
Only concerns with adequate working Capital
can exploit favorable market Conditions such
as purchasing its Requirements in bulk when
the prices are Lower and by holding its
inventories for Higher prices.
• High morale. It creates an environment of
Security, confidence, and high morale as
Well as overall efficiency in a business.
Management of Cash
Cash is a "non-earning" asset in the sense
that cash Itself or commercial checking
account earns no Interest or very little
interest. It is needed to pay for Labor, raw
materials, taxes, debts or dividends and To Motives of Holding Cash Balances
buy fixed assets. Cash management refers
to The most effective way of handling cash or 1. Transaction motive - transactions
its Equivalent, in a manner intended to result balances Allow the firm to make payments
in its Most efficient use. that arise in the Ordinary course of doing
business.
Some important cash management issues
that A financial officer must always have in 2. Precautionary motive - precautionary
mind Are: balances Provide a buffer stock of liquid
assets that can be Drawn if there are
1. Cash is the most important and unexpected demands for cash.
challenging Resource to manage.
3. Speculative motive - speculative balances
2. The optimal cash level is influenced by a Permit the economic unit to take advantage
Subjective factor. of Future income producing activities.
3. Effective management of the cash Possible Placements of Cash.
collection Cycle can both reduce the demand Management Responsibilities Relating to
for cash and Increase its supply. Cash it is the responsibility of the
4. The normal operating cycle begins with management:
cash, Extends to the purchase of materials, 1. To prevent losses from fraud or theft;
then to the Exchange of those materials for
receivables, and Ultimately to the collection 2. To provide accurate accounting of cash
of the receivables receipts, Cash payments, and cash.
Balances
The cash flow cycle diagram
3. To maintain enough cash at all times to
make Necessary payments plus reasonable
balances for Emergencies; and
4. To prevent unnecessary large amounts of
cash From being held idle in bank accounts
which Produce no revenue.
Chapter 4 4. Collections Collections involve the process
of following up with customers to ensure
Receivable management refers to the
timely Payment.
Planning and monitoring of debt owed to The
firm from a customer account. Professionals 5. Bad debt provision Bad debt provision is
working in finance and Accounting an allowance set aside by the business to
departments such as finance Managers may account for the
use this concept to grow Sales and increase
10 Step accounts receivable processes
profits.
and procedures
Role of accounts receivables in business
operations STEP 1: Customer credit check

1. Cash flow management - Accounts STEP 2: Setting credit term

Receivables directly impact the cash flow of STEP 3: Invoicing and billing
a business. Timely collection of outstanding
Payments ensures a steady cash inflow, STEP 4: Sending payment reminders
which is essential for meeting day-to-day STEP 5: Collections and follow-up
expenses and Pursuing growth
opportunities. STEP 6: Aging of receivables analysis

2. Risk management - Efficient management STEP 7: Bad debt provisioning

of accounts receivables involves assessing
STEP 8: Reconciliation and reporting
customers' creditworthiness Before
extending credit. This helps minimize the risk STEP 9: Bad debt recovery or write-offs
of bad debts and potential losses due to
Customers defaulting on their payments. STEP 10: Continuous improvement

3. Financial analysis - Accounts Receivables Importance of accounts receivables in

are crucial for financial analysis. By financial statements
monitoring the aging of receivables, a •Balance sheet impact: Accounts
Business can identify trends, potential receivable is listed as a current asset on The
issues, and opportunities for improvement in balance sheet, representing money owed to
its credit and Collection policies. the company.
Components of accounts receivable •Income statement impact: Accounts
1. Invoicing Is the process of generating bill receivable is directly related to revenues And
or invoice for the goods or services provided is reflected as sales in the income statement
to Customers. •Cash flow statement impact: Accounts
2. Payment terms Payment terms define the receivable affects the cash flow Statements
period within which customers are expected it represents cash inflows from credit sales.
to settle their Outstanding balances. Accounts receivable challenges and YOUR
3. Aging of receivables The aging of solutions?
receivables refers to categorizing • Late payments and delinquent accounts.
outstanding invoices based on the Number of
days they have been overdue. •Managing credit risk and minimizing bad
debts.
• Resolving disputes and customer issues: Future trends and innovations in
accounts receivables
Best practices for effective accounts
receivable management 1. Artificial intelligence and machine
learning - Al and machine learning
•Credit risk assessment and monitoring:
algorithms can be used to predict customer
Regularly assess and monitor the
payment behavior, identify High-risk
Creditworthiness of customers before
accounts, and optimize collection strategies
extending credit. for improved efficiency and reduced bad
•Timely invoicing and billing: Generate and Debts.
send invoices promptly after goods or 2. Blockchain technology - Blockchain can
Services are delivered. enhance security and transparency in
•Effective collection strategies: Develop a financial transactions, leading to more
systematic and courteous collection Process Secure invoicing, faster payment processing,
to follow up on overdue accounts. and reduced fraud in accounts receivable
Management.
•Customer relationship management:
Maintain open and transparent 3. Digital transformation and remote work
communication With customers regarding - The increasing digitization of financial
their accounts. processes enables remote work capabilities,
allowing Accounts receivable teams to
•Continuous process improvement: manage tasks efficiently from anywhere and
Regularly review and evaluate the accounts collaborate effectively With other
Receivable management process. departments.
Technology solutions for managing 4. Predictive analytics and risk
accounts receivables management - Predictive analytics can help
1. Accounts receivables software - Utilize forecast future cash flows, identify potential
specialized accounting software designed for credit risks, and Optimize working capital
managing accounts receivable. management. It enables businesses to
proactively address challenges And seize
2. Automation and integration - Implement growth opportunities.
automation to streamline accounts
receivable processes, such as invoice
Generation, payment reminders, and
collections.
3. Electronic invoicing and payments
systems - Embrace electronic invoicing and
offer multiple payment options to customers,
such As online payments, credit card
payments, or electronic fund transfers.
4. Data analytics and reporting tools - Use
data analytics to gain insights into accounts
receivable trends, customer payment
Behaviors, and collection performance.