Learning objectives

After studying this chapter, readers will be able to:

• appreciate the importance of financial management

• understand the underlying principles and concepts of financial management

• discuss the financial manager's responsibilities

• explain some of the main financial management objectives and concepts

• identify some of the key functions of financial management (for example, financial analysis, planning, control and sourcing for funds), and analyse each function from a services perspective

• apply a selection of financial management techniques to the services environment (for example, activity-based costing, financial risk management)

• examine contemporary issues in financial management of services.

Introduction

This chapter highlights the underlying principles and contemporary importance of financial management with particular reference to its implications for services. In general, the study of finance consists of three interconnected areas:

1. Capital and money markets, which deals with securities markets, banks and financial institutions.

2. Investments, which includes the decision making of individuals and organisations with respect to securities (shares and bonds) for their respective investment portfolios.

3. Financial management, which involves the acquisition, management and financing of resources for organisations.

The broad nature and characteristics of the global finance environment will be discussed first.

Financial management has undergone significant changes in recent years. The focus of financial management has changed dramatically from the historical emphasis on legal aspects such as mergers, acquisitions, consolidations, the formation of new organisations, and the various types of securities (shares and bonds) issued by corporations in the early 1900s.