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CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND OF THE STUDY

Raising and utilizing funds efficiently and effectively has been a major source of concern to all financial managers both in the corporate World and Public Sector all over the world. The prime purpose of establishing a firm is to ensure that returns will not only be sufficient to meet the cost of funds but also enough to satisfy the wealth of maximization objective of the firm, thus, raising finance for corporate bodies has become important. Financial management can thus, be described as the management planning and controlling of financial resources of a business to achieve the objectives of the business. It has long been considered as a branch of Economics but in the early 20th century it emerged as a separate discipline. It can also be defined as the identification of the possible strategies capable of maximizing an organization Net Present Value, the allocation of scarce resources
among the competing opportunities, and the implementation and monitoring of the chosen strategy so as to achieve stated objectives. Financial management as a subject is of growing interest to both academics and financial manages. On its emergence, it dealt with only the instruments, institutions and procedures in the capital market it later dealt with keeping records and reports, establishing funds (external financing) monitoring cash position and paying bills. It also deals with the concepts, assumptions, principle and techniques underlying the major financial decisions of the enterprises financial management connotes responsibility for obtaining and effectively utilizing the funds necessary for the efficient operation of an enterprise. The finance function Centre around the management of funds, raising and using them effectively. It therefore covers all functions concerned in attempting to ensure that financial resources are obtained and used in the most effective way to secure attainment of the objectives of the organization. It provides the background for though understanding of the nature, theories and critical issues relating to modern financial management. It thus serves as a necessary background to a more advanced treatment of the investment financial decision. 
Financial management today now includes a rigorous analysis of investment of organization's funds in assessing and obtaining the best mix of financial and dividend in relation to overall market valuation of a firm. The field is still changing with ideas and techniques. The historical background of the company under review is thus: Nigeria National Petroleum Company (NNPC) was established on April 1977 under the statutory instrument Decree No. 33 of the same year by a merger of the Nigeria National Oil Corporation operational functions and the Ministry of Mines and Power with its regulating responsibility, this decree established NNPC, a public organization that would on behalf of government adequately manage all government interest in the Nigeria oil industry. In addition to its expiration activities, the corporation was given powers and operational interest in refining petrochemicals and products transportation as well as marketing. Between 1978 and 1989, NNPC constructed refineries in Warri, Kaduna and Port Harcourt and took over 35,000 barrel shell refinery established in Port Harcourt in 1965. In 1988, the NNPC was commercialized into 12 strategic business units covering the entire spectrum of oil industry operations; exploration and production gas development, refining, distribution, petrochemical engineering and commercial investment. The subsidiary companies include:
i. National Petroleum Investment Management Services (NAPISMS)
ii. Nigeria Petroleum Development Company (NPDC) 
iii. The Nigerian Gas Company (NGC)
iv. The Products and Pipelines Marketing Company (PPMC)
v. Integrated Data Services Limited (DSL)
vi. Nigeria LNG Limited (NLNGN) 
vii. National Engineering and Technical Company Limited (NETCO) 
viii. Hydrocarbon Services Nigeria Limited (HYSON) 
ix. Warri Refinery and Petrochemical Co. Limited (WRPC) 
x. Kaduna Refinery and Petrochemical Co. Limited (KRPC) 
xi. Port-Harcourt Refining Co. Limited (PHRC) xii. Eleme Petrochemicals Co. Limited (EPCC) In addition to these subsidiaries, the industry is also regulated by the Department of Petroleum Resources (DPR) a department within the Ministry of Petroleum Resources. The DPR ensures compliance with industry regulations processes applications for licenses, leases and permits establishes and enforces environment regulations. The DPR and NAPIMS play a very crucial role in the day to day activities throughout the industry. The NNPC is by law a joint venture between the Nigerian Federal Government and a number of foreign multinational corporations, which includes Royal Dutch Shell, Exxon-Mobil, Agip, Total fina Elf, Chevron and Texaco (though now merged with Chevron). Through collaboration with these companies, the Nigerian government conducts petroleum exploration and development. According to the Nigerian constitution, all minerals, gas and oil in the country possess are legally the property of the Nigeria Federal Government.
1.2  STATEMENT OF PROBLEMS 
The basic role of finance can be described within the context of organizations financial requirement and their management for acquiring necessary resources, for effective operations in public enterprises. In order to achieve the aims and objectives of the research study, the research study will attempt to provide answers to the following questions.
1. What is the relationship between risk and return? 
2. What is the relationship between investment and finance? 
3. What is the implication of maximizing shareholders wealth as against shareholders wealth?
1.3  OBJECTIVES OF THE STUDY 
The objective this study is to look deep into the concept of financial management and the role it plays in the administration and management of a public enterprise. 
1. How the firm maximize stakeholders wealth.
2. How the firm maximize profit.
3. How the firm maximize stakeholders wealth and management. The role of financial management is what is to be examined in this study because most people of today are ignorant of what financial management is all about. It would also enable anyone who comes across this project to know more about the role of financial management in a public enterprise. 
1.4   RESEARCH QUESTIONS
In order to achieve the purpose of this research study, the study will attempt to provide answers to the following research questions in order to arrive at a logical conclusion
Does financial management helps in managing and controlling of the financial resources of your company?
Does Financial Management play any major role in a Public Sector?
Do Public enterprises maximize stakeholders’ wealth? 
Do you think financial management help in the identification of strategies in achieving desired goals? 
1.5   STATEMENT OF HYPOTHESIS 
The hypothesis designed to solve problems identified in public enterprises (a case study of NNPC). Hypotheses to be tested : Hypothesis One 
Ho : Financial management does not play a major role in a Public Sector. 
H1 : Financial management plays a major role in a Public Sector. 
Hypothesis Two 
Ho: Public enterprises do not maximize stakeholders’ wealth.
H1 : Public enterprises maximiz
1.6   SIGNIFICANCE OF STUDY
The purpose of this study is aimed at studying the relevance of financial management and its contribution in an enterprise. This would be appreciated when it is remembered that in a business concern organized to produce a profitable return to those who have invested in it (stakeholders), the objectives of management is to maximize such returns, and financial management is a technique that can be of assistance in attaining such maximization. The significances of this study will be appreciated in the following area which includes: 
1. Merit of having a suitable financial management in a public enterprise. 
2. To show the effectiveness of financial management in the public enterprise. 
3. To show that financial management helps in the co-ordination of other sectors in the enterprise. 
4. It could also serve as a reference pint to those who might want to carry out research in similar areas of study.
1.7   SCOPE AND LIMITATION 
The scope of the project is limited to a public enterprise. For the purpose of this study, the scope will cover the role of financial management and its relevance in a public enterprise. All investigation and researchers of this write up shall be limited to Nigeria National Petroleum Corporation (NNPC). Where facts on the role played by financial management would be highlighted. This project will be limited by time constraint and financial constraint and also non-cooperation on the part of the workers. 
1.8   DEFINITION OF TERMS
Financial Management:The managerial planning and control of financial resources of a business to achieve the objectives of the business. 
Financial Managers: This is a key manager who is responsible for the day to day financial services and record keeping of the organization. 
Investment Decision: This involves the identification of viable projects using various techniques to determine those that are viable. 
Financing Decision: This involves the identification of the appropriate sources of finance that would be used to finance the projects.
Dividend Decision: This is the determination of the appropriate amount to be paid as dividend and the profit that would be ploughed back to finance expansion in the company. 
Stakeholders: This is a coalition of a group of people that has a stake in what the company does. It comprises of equity shareholders, preference shareholders, lenders, employees, suppliers and customers. 
Public Enterprises: These are governmental organizations which are run in the interest of the society as a whole and they might be a gap between the benefits they provide to society and the cost of their operation. 
Finance: This is the management of money (i.e. the management of the flows of money through an organization and claims against money). 
Objectives: This slates precisely what into be achieved and when the results are to be accomplished.

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