Financial Management

Concept of Financial management, Objectives of Financial Management, decisions,significance and limitations of Financial management

1. Financial Management Dr. Shaifali Mathur

2. Dr. Shaifali Mathur If I have no intention of becoming a financial manger, why do I need to understand financial management?

3. Dr. Shaifali Mathur To prepare yourself for the workplace of the future. The successful manager will need to be much more of a team player that has the knowledge and ability to move not just vertically within an organization but horizontally as well. To oversee the preparation of financial reports, direct investment activities, and implement cash management strategies Different Roles of Financial manager

4. Dr. Shaifali Mathur Credit managers Cash managers Finance Managers in Financial institutions Branch Manager of any Company

5. Introduction Finance is a broad term that describes two related activities- Finance is defined as the management of money and includes activities such as investing, borrowing, lending, budgeting, saving, and forecasting.  “ Finance may be defined as the position of money at the time it is wanted”… According to F.W. Paish Dr. Shaifali Mathur Money Management Process of acquiring Fund

6. Areas of Finance Dr. Shaifali Mathur Institutional Finance

7. Dr. Shaifali Mathur Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise.

8. Objectives of Financial Management The Process of decision making by a finance manager must be goal oriented one. He must have a specific goal in mind as he plans future course of action. Dr. Shaifali Mathur

9. Dr. Shaifali Mathur Profit Maximization A business firm is profit-seeking organization. Under this approach, actions that increases profits should be undertaken and those that decreases profits should be avoided . In specific operational terms, as applicable to financial management, the profit maximization criterion implies that the investment, financing and dividend policy decisions of a firm should be oriented to the maximization of profits . Earlier the only aim of sole proprietor then was to enhance his individual wealth and personal power, which could easily be satisfied by the profit maximization objective. Profit maximization fails to serve as an operational criterion for maximizing the owners’ economic welfare. It suffers from the following limitations : It is vague It ignores timings It ignores risk It Ignores Social responsibility

10. Professor Ezra Soloman has suggested the adoption of wealth maximization as the best criterion for the financial decision making. This objective is generally expressed in terms of maximisation of the value of a share of a firm . Wealth maximisation means maximizing the ’net present value’(or wealth) of a course of action. A financial action which has a positive net present value creates wealth and, and therefore, is desirable. On the other hand, a financial action resulting in negative net present value should be rejected. Between a number of desirable mutually exclusive projects the one with the highest net present value should be adopted. The wealth maximisation criterion is based on the concept of cash flows generated by the decision rather than accounting profit which is the basis of the measurement of benefits in case of the profit maximisation criterion . Benefits Measuring benefits in terms of cash flows avoids the ambiguity associated with accounting profits . It considers both the quantity and quality dimensions of benefits. it also incorporates the time value of money. It analyses risk and uncertainity Dr. Shaifali Mathur Wealth Maximization

11. Dr. Shaifali Mathur Goals Objectives Advantages Disadvantages Profit maximization Large amount of profits Easy to calculate Profits. Easy to determine the link between financial decisions and profits 1.Emphasizes the short term. 2. Ignores risk or uncertainty 3. Ignores the timing of returns 4. Requires immediate resources Wealth Maximization Highest market value of common stocks Emphasizes the long term . Recognizes Risk and Uncertainty Recognizes the timing of returns. Considers return Offer no clear relationship between financial decisions and stock price. Can lead to management anxiety and frustration. Comparison

12. Dr. Shaifali Mathur Decision Areas of Financial Management

13. Dr. Shaifali Mathur Questions Financial Management is mainly concern with-----------------. All aspects of acquiring and utilizing financial resources for firms activities. Arrangement of Funds Efficient management of every business Profit maximization Answer 2. The primary goal of Financial management is----------------------. To maximize the return To maximize risk To maximize the wealth of the owners To maximize profits Answer 3. Corporate restructuring decisions of financial management are related with which of the following ? Investment decisions Financing decisions Dividend decisions All of the above Answer

14. Dr. Shaifali Mathur Scope/Functions of Financial Management

15. Dr. Shaifali Mathur Primary Functions

16. Dr. Shaifali Mathur L iquidity Subsidiary Functions Enable the firm in paying its obligations in time and meeting day to day needs. Profitability function Finance manager tries to maximize the profits of the firm so that value of the firm may increase Evaluation of Financial performance Coordination with other Departments Evaluation of financial performance of the firm to facilitate changes to be made in future policies and plans by pointing out the errors committed. Success of a firm depends on the coordination with other departments . There should be uniformity in decisions taken by the different departments

17. Dr. Shaifali Mathur The c hief Financial executive /controller is mainly responsible for taking decisions regarding execution/ administrative finance functions

18. Dr. Shaifali Mathur

19. Dr. Shaifali Mathur Thank You