finance.pptx by mr. vishal pathak (CUTM)

Finance ppt

1. finance

2. Important Business Activities Production Marketing Finance

3. Real And Financial Assets Real Assets: Can be Tangible or Intangible Tangible real assets are physical assets that include plant, machinery, office, factory, furniture and building. Intangible real assets include technical know-how, technological collaborations, patents and copyrights. Financial Assets are also called securities , are financial papers or instruments such as shares and bonds or debentures.

4. Equity and Borrowed Funds Shares represent ownership rights of their holders. Shareholders are owners of the company. Shares can of two types: Equity Shares: Equity shares are shares that represent ownership in a company . There are several types of equity shares that companies may use to raise capital Preference Shares: a share which entitles the holder to a fixed dividend, whose payment takes priority over that of ordinary share dividends. Loans, Bonds or Debts : represent liability of the firm towards outsiders. Lenders are not owners of the company. These provide interest tax shield .

5. Debentures Debenture is a long-term security yielding a fixed rate of interest, issued by a company and secured against assets. Different Types of Debentures: Secured Debentures Unsecured Debentures Redeemable Debentures Irr edeemable Debentures Convertible Debentures Non-Convertible Debentures Coupon Rate Debentures Etc . ( Types of Debentures - Meaning, Examples (byjus.com) )

6. Finance and Management Functions All business activities involve acquisition and use of funds. Finance function makes money available to meet the costs of production and marketing operations. Financial policies are devised to fit production and marketing decisions of a firm in practice.

7. Finance Manager’s Role Raising of Funds Allocation of Funds Profit Planning Understanding Capital Markets

8. FINANCIAL MANAGEMENT Financial management is that managerial activity which is concerned with the planning and controlling of the firm’s financial resources. In other words it is concerned with acquiring, financing and managing assets to accomplish the overall goal of a business enterprise

9. Nature of fm : It is an indispensable organ of business management. Its function is different from accounting function. It is a centralised function. Helpful in decisions of top management. It is applicable to all types of concerns. It needs financial planning, control and follow-up. It is related to different disciplines like economics, accounting, law, information technology, mathematics, etc.

10. FUNCTIONS (a) Investment decisions (b) Financing decisions (c) Dividend decisions

11. Financial Goals Profit maximization (profit after tax) Wealth maximization

12. Profit Maximization Maximizing the rupee income of firm Resources are efficiently utilized Appropriate measure of firm performance Serves interest of society also

13. Wealth Maximization Maximizes the net present value of a course of action to shareholders. Fundamental objective —maximize the market value of the firm’s shares.

14. Overview of Financial Management

15. Risk-return Trade-off Financial decisions of the firm are guided by the risk-return trade-off . The return and risk relationship: Return = Risk-free rate + Risk premium Risk-free rate is a compensation for time and risk premium for risk.

16. Risk Return Trade-off Risk and expected return move in tandem; the greater the risk, the greater the expected return.

17. Sources of finance For a  businessperson or entrepreneur, finding the sources of business finance is the most important aspect when starting a business or a new venture. It needs the maximum effort and dedication. The sources of business finance are categorized based on ownership, time, period, control, etc., evaluated, and used in different situations.

18. Classification of Sources of Funds Businesses can raise capital through various sources of funds which are classified into three categories. Based on Period : Long Term Source of Finance (more than 5 years ) Medium Term Source of Finance ( 1-5 years) Short Term Source of Finance ( less than 1 year)   Based on Ownership Owner’s Fund Borrowed Funds  Based on Generation Internal source External source

19. Sources of long term finance Equity shares Preference shares Ploughing back of profits Debentures Financial institutions

20. Sources of short term finance Deferred income: A business receives payment in advance before delivering the agreed upon services or goods delivered. Trade credit: A major source of short-term financing that happens during the normal course of business transaction. Commercial banks loans Commercial papers Accruals

21. Time Value of Money The time value of money (TVM) is the concept that a sum of money is worth more now than the same sum will be at a future date due to its  earnings potential  in the interim. The time value of money is a core principle of finance. A sum of money in the hand has greater value than the same sum to be paid in the future. The time value of money is also referred to as the present discounted value.

22. Time Value Adjustment Two most common methods of adjusting cash flows for time value of money: Compounding —the process of calculating future values of cash flows and Discounting —the process of calculating present values of cash flows.

23. Future value Compounding is the process of finding the future values of cash flows by applying the concept of compound interest. Compound interest is the interest that is received on the original amount (principal) as well as on any interest earned but not withdrawn during earlier periods. Simple interest is the interest that is calculated only on the original amount (principal), and thus, no compounding of interest takes place.

24. Present value Present value of a future cash flow (inflow or outflow) is the amount of current cash that is of equivalent value to the decision-maker. Discounting is the process of determining present value of a series of future cash flows. The interest rate used for discounting cash flows is also called the discount rate .