MBA606 - Principles of Financial Management

Running head: FINANCIAL MANAGEMENT PRACTICES 1
Topic: Financial Management Practices
[Name of Student]
[Institutional Affiliation]
[Instructor’s Name]
[Date of Submission]

FINANCIAL MANAGEMENT PRACTICES 2
Contents
Introduction......................................................................................................................................2
Financial Management practices in public sector........................................................................2
Research Questions and Hypotheses...............................................................................................3
Research Hypotheses...................................................................................................................4
Literature Review............................................................................................................................4
Methodology....................................................................................................................................6
Data Collection................................................................................................................................6
Timescale.........................................................................................................................................6
References........................................................................................................................................6

FINANCIAL MANAGEMENT PRACTICES 3
Introduction
Financial management is one of management functional areas which is core to success of
business enterprises. Inefficient financial management, combined with the uncertainty of the
business environment often led Business Enterprises to serious problems (Deresse & Prabhakara,
2012). Paramasivan and Subramanian (2009) argued that financial management helps to improve
the profitability position of business organizations with the help of strong financial control
devices such as budgetary control and ratio analysis.
As the financial sector at The National Securities’ Exchange, which include banking,
investments and insurance firms, continues to record growth, some firms in the nonfinancial
sector have been characterized by a decline in performance and as a result market prices of their
shares at the National Securities Exchange has recorded a decline. Non-financial sector include,
Agricultural, Automobiles and accessories,
Commercial and services, Construction and allied, Energy and petroleum, Manufacturing and
allied, Telecommunication and technology, (NSE, 2014). Some companies listed under the non-
financial sector at the NSE have been delisted, suspended or even put under receivership due to
poor performance.
Business Enterprises have often recorded poor performance due to lack of knowledge of
efficient financial management (Deresse & Prabhakara, 2012). The uncertainty of the business
environment causes business enterprises to rely excessively on equity and maintain high
liquidity and these financial characteristics affect profitability (Deresse & Prabhakara, 2012). It
is therefore worth investigating the effect of financial management practices on financial
performance of non- financial firms.

FINANCIAL MANAGEMENT PRACTICES 4
Financial Management practices in public sector
The decision function of financial management can be broken down into three major areas: the
investment, financing, and asset management decisions. Financial management practices revolve
around these three key decisions. Efficient financial management requires the existence of some
objective or goal, because judgment as to whether or not a financial decision is efficient must be
made in light of some standard. Different authors and researchers approach the particular areas
of financial management in various ways given their area of focus. For instance, a study carried
out in Malaysia by Mohd et al., (2010) identified the components of financial management as
financial planning and control, financial accounting, financial analysis, management accounting,
capital budgeting and working capital management. Chung and Chuang (2010) studied five
particular areas of financial management practices: capital structure management, working
capital management, financial reporting and analysis, capital budgeting and accounting
information system. From the study variables, Financing, Investing and asset management
decisions play out.
Deresse and Prabhakara (2012), used independent variables such as accounting, reporting, and
analysis, working capital management, fixed asset management and financial planning to
represent financial management practices in the study on the effect of financial management
practices and characteristics on profitability. Other variables which they considered were
Liquidity, Leverage and asset turnover.
Kieu (2006) used financial management practices variables such as accounting information
system, financial reporting and analysis, working capital management, fixed asset management,
financial planning and good performance in financial characteristics such as liquidity and
business activity. Therefore, the study emphasized on three key variables to represent financial