MEETING 8

FINANCIAL MANAGEMENT

OBJECTIVE OF THE STUDY

At this meeting, students will learn about FINANCIAL MANAGEMENT after

students learn, students will be able;
1. Analyze the role of financial management in maximizing the value of the
company and the prosperity of shareholders.
2. Identify financial management functions in planning, budgeting, managing,
searching, storing, controlling, and auditing the company's finances.
3. Evaluate investment decisions, funding decisions, and asset management that
contribute to the company's profitability and cash flow.
4. Examine the role of financial management in meeting corporate social goals and
responsibilities, such as the external environment, occupational safety, and product
safety.

MATERIAL DESCRIPTION

1. Definition of Financial Management

Financial management is the process of planning, organizing, controlling, and monitoring

a company's financial resources to achieve organizational goals. The primary objective of
financial management is to maximize company value and shareholder wealth through the
efficient and effective management of assets, liabilities, and equity. Financial management
encompasses various aspects, including:

1. Financial Planning: Developing plans for the use of funds over the short and long
term.
2. Budgeting: Creating budgets to regulate the company’s expenditures and revenues.
3. Investment Decisions: Determining which investments to pursue to maximize
profitability.
4. Financing: Selecting appropriate sources of funding, whether through debt or equity.
5. Financial Control: Monitoring and evaluating financial performance to ensure
adherence to plans and budgets.

2. The Purpose of Financial Management

The goal of Financial Management is to maximize company value. In this way, if one day
the company is sold, the price can be set as high as possible. Management must also be able
to suppress the flow of money in order to avoid unwanted actions. However, efficient
financial management fulfills the objectives used as a standard in assessing efficiency
(Sartono: 2000, 3), namely, the normative objective of financial management is to maximize
shareholder prosperity, namely maximizing company value, such as:

• The goal of maximizing shareholder prosperity can be achieved by maximizing

company value.
• Conceptually clear as a guide in making decisions that consider risk factors.
• Maximizing shareholder prosperity places more emphasis on cash flow than net profit
in the accounting sense.
• Do not ignore social objectives and social obligations, such as the external
environment, work safety and product safety.

3. Financial Management Functions

Financial management in a company plays a very important role in carrying out its
functions in various financial activities, as follows, A brief explanation of the functions of
financial management, namely:

• Financial Planning
Financial management functions to create income and expenditure plans as well as
other activities for a certain period.
• Financial Budgeting
Financial management functions as a follow-up to financial planning by making
detailed expenditure and income.
• Financial Management
With financial management, companies can use funds to maximize existing funds in
various ways.
• Financial Search
In this case, financial management functions to find and exploit existing sources of
funds for the company's operational activities.
• Financial Storage
Financial management functions to collect company funds and store these funds
safely.
• Financial Control
In this case, financial management functions to evaluate and improve the company's
finances and financial system.
• Financial Audit
Financial management functions to carry out internal audits of the company's existing
finances to prevent irregularities.
4. Main Functions of Financial Management

a. Investment Decision (Investment Decision) is a decision on what activities will be

managed by the institution.
• Addition:
Assets = liabilities + capital (passive) Assets = assets used to run operations
Passive=source (debt and capital). Assets are protected by liabilities, which include
assets which are all assets used for operations, including liabilities which are capital +
 debt. This investment decision is the most important decision among the three
decision areas because it will have a direct influence on:
• Amount of return on investment.
Profitability: the ability to return on investment.
• Institutional cash flow.
It turns out that every investment decision affects cash flow in the future.

b. Financing Decision
Financing Decisions are decisions related to determining the sources of funds needed
and determining the best learning balance (optimal capital structure). c. Asset
Management Decisions
Asset management decisions are decisions regarding the use and management of assets
(wisdom: it is easier to build than to manage. Currently the financial management
function can be carried out with BLU/BLUD status whereas in the past, it was still up in
air. And it was often problematic, because sometimes it was not paid in full, because if
everything is paid, it will be a problem if there is a shortage of funds. And the hospital
will not be able to refuse patients, so there is often income that is managed by themselves
and is outside the tariff.

5. The Examples
a. Investment Decision

Example: A retail company decides to invest in opening new store locations across the
country. This decision impacts future cash flow and profitability, as the company must
consider the costs of opening new stores and the potential revenue generated. The
decision influences the return on investment (ROI) as well as the company’s overall
institutional cash flow.

b. Financing Decision

Example: A manufacturing company is considering whether to fund its new factory

through a bank loan or by issuing more shares. They must evaluate the best balance
between debt and equity (optimal capital structure) to minimize costs and maximize
financial flexibility without overleveraging the company.

c. Asset Management Decisions

Example: A BLUD hospital must manage its medical equipment and facilities efficiently
to provide quality healthcare. Poor asset management could lead to underutilization or
overuse of equipment, resulting in higher maintenance costs or equipment shortages.
Additionally, income from self-managed services, such as outpatient care, must be
carefully controlled to prevent financial issues caused by unregulated pricing and tariff
discrepancies.
 B. TARGET LANGUAGE: PART OF SPEECH: PREPOSITION

The Target Language: Preposition

A preposition is a part of speech that shows the relationship between a noun (or pronoun)
and other words in a sentence, typically indicating direction, location, time, or a method.
Prepositions often form prepositional phrases, which consist of the preposition, its object,
and any modifiers of the object.
Formula For Preposition Target Language:
The formula for using prepositions in a target language typically follows this structure:
1. Subject + (Verb) + Preposition + Object

 Subject: The person or thing performing the action.

 Verb: The action being taken (optional, depending on the sentence).
 Preposition: A word that shows the relationship between the subject (or verb)
and the object.
 Object: The noun or pronoun that follows the preposition.
Here’s a breakdown of how it works with examples in English (you can adapt this
formula to other target languages based on their syntactic rules):
 Place:

o Formula: Subject + verb + preposition + location

o Example: "She is at the park."
 Time:

o Formula: Subject + verb + preposition + time expression

o Example: "The meeting is on Monday."
 Direction:

o Formula: Subject + verb + preposition + destination

o Example: "He is going to the store."
 Means or Instrument:

o Formula: Subject + verb + preposition + means/instrument

o Example: "She wrote the letter with a pen."
 C. READING TEXT

FINANCIAL PLENNING
Financial planning is the process of creating a roadmap to achieve financial security
and stability. It involves setting both short-term and long-term goals, such as saving for
emergencies, purchasing a home, or planning for retirement. To achieve these goals,
individuals must analyze their current financial situation, including income, expenses, debts,
and savings. This evaluation helps in creating a personalized financial plan that aligns with
their financial objectives.
A crucial component of financial planning is budgeting. By establishing a budget,
individuals can manage their cash flow effectively, ensuring that their spending is in line with
their financial priorities. Budgeting also allows individuals to allocate funds toward important
areas such as savings, investments, and debt repayment. Additionally, it can highlight areas
where they may be overspending, encouraging more mindful financial habits.
Another important aspect is investment and risk management. Investments are
essential for growing wealth over time, but they must be chosen carefully based on risk
tolerance and financial goals. Diversification, or spreading investments across different asset
types, can help reduce risks. Simultaneously, obtaining insurance coverage protects
individuals from unexpected financial shocks, such as illness or accidents, ensuring that their
financial plans stay on track.

QUESTION SESSION

1. How Many Principles of Financial Management Are There?

(please use the function of adjective as a stative verb (specifik verb) subjek +
stative verb + adjective )

Answer:
There Are Six Principles of Financial Management, and They Are Essential for
Maintaining the Financial Health of an Organization.

"They are essential."

 "They" is the subject.
 "Are" is the stative verb.
 "Essential" is the adjective.
 This part of the sentence fits the pattern of using a stative verb with an adjective to
describe the subject.

2. what is the difference between financial planning and financial reporting?

(please use the function of adjective as a function of adverb s + auxilary verb +
article + adverb + adjective)

Answer:
Financial planning is usually a forward-looking activity, while financial reporting is
primarily a forward-looking process.

(In the above sentence, "typically" and "mainly" function as adverbs that describe the
adjectives "forward-looking" and "backward-looking", clarifying the nature of the
activity described (financial planning and financial reporting).

3. Explain what is meant by capital budgeting and capital working?

(please use the function of adjective as a stative verb (specifik verb) subjek +
stative verb + adjective )

Answer:
Capital budgeting is a planning and evaluation process to determine the feasibility of
a major investment or [Link] budgeting is an important accounting principle
for companies to analyze risks and profit projections before investing.
Working capital is the difference between current assets and current liabilities owned
by a [Link] capital is the net capital used to finance the company's daily
activities.

4. Can you give me a case study by financial planning by the as a general adjective
subject + to be + adjective?

Answer:
Case Study: Financial Planning for Families

Subject: A middle-class family

To be: Financially stable

Scenario :
A middle-class family of four aims to become financially stable in the next five years.
They want to save for their children's education, build an emergency fund, and pay off
their mortgages.

Financial Planning Approach:

 Identifying needs: Families are aware of their need to be safe and prepared for
unexpected expenses.
 Budgeting: Creating a budget allows them to be organized in their spending
and savings.
  Debt management: Taking out a mortgage is essential for them to be debt-free.
 Saving and investing: Allocating a portion of the income for investment will
help them to be financially secure long-term.
Outcome;
By following this plan, the family manages to be financially independent and well-
prepared for future financial goals.

D. EXERCISEA OF RELATING FORM FINANCIAL MANAGEMENT

1) What is the primary objective of financial management?

Answer: The primary objective of financial management is to maximize company value and
shareholder wealth through the efficient and effective management of assets, liabilities, and
equity.

2) Give an example of an investment decision in a company?

Answer: An example of an investment decision is when a retail company decides to invest

in opening new store locations across the country. This impacts future cash flow and
profitability as the company needs to consider the costs of opening new stores and the
potential revenue generated.

3) What is the purpose of financial control in financial management?

Answer: The purpose of financial control is to monitor and evaluate financial performance to
ensure that the company adheres to its plans and budgets, avoiding financial irregularities.

4) How does poor asset management affect a hospital with BLU/BLUD status?

Answer: Poor asset management in a BLU/BLUD hospital can lead to underutilization or

overuse of medical equipment, resulting in higher maintenance costs or shortages of essential
equipment. Additionally, unmanaged income from self-operated services could lead to
financial issues from unregulated pricing and tariffs.

5) Explain the difference between financing decisions and asset management

decisions?
Answer:
• Financing decisions involve determining the best sources of funds, such as deciding
whether to take a loan or issue more shares to fund new projects, aiming for an
optimal capital structure.

• Asset management decisions involve managing and utilizing the company’s assets
 efficiently to ensure they contribute to operations without excessive costs or
inefficiencies.

________________________________________________________________________
___
E. EXERCISES OF MATERIAL FROM THE TARGET LANGUAGE
______________________________________________________________________________

1. What is a Preposition?

Answer:
A preposition is a part of speech that shows the relationship between a noun (or pronoun)
and other words in a sentence, typically indicating direction, location, time, or a
method. Prepositions often form prepositional phrases, which consist of the
preposition, its object, and any modifiers of the object.

2. What is a preposition and what is its main function in a sentence?

Answer:
A preposition is a word used to indicate a relationship between a noun or pronoun,
with another word in a sentence. Its main function is to show relationships such as
place, time, direction, cause, means, or possession. Example: "The book is on the
table." (indicates the relationship between "book" and "table").

3. Why can't a preposition stand alone without an object in a sentence? Give

examples of wrong and correct sentences related to this.

Answer:
Prepositions require objects to complete their meaning. Without an object, a sentence
becomes incomplete.

False: "He sat ok."

True: "He sat on the chair."

4. How can a preposition have multiple meanings depending on the context?

Provide an example sentence that shows this.

Answer:
Prepositions can have different meanings depending on the context. Example:

"She is in the car." (indicates the place) "She

will arrive in an hour." (shows time)

5. Why is a preposition called having an invariable form?

Answer:
Prepositions do not change shape even if the subject or object in a sentence changes. They
do not have plural forms, pasts, or other tenses. For example, "in", "on", and "at"
remain the same regardless of who is the subject or what the tense of the sentence is.
 REFERENCES

Kumar Anuj, (2023). "Finance / Financial Management"

Latifatul Dwi, (2022). "Definition preposition" Jakarta.
Sarker Anupom , (2019).
Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2019). Fundamentals of Corporate Finance
(12th ed.). McGraw-Hill Education.
Azar, B. S. (2002). Understanding and Using English Grammar (4th ed.). Pearson Education.