FM MODULE 1. introduction and basic informations

Financial Management

1. INTRODUCTION TO FINANCIAL
MANAGEMENTMODULE 1

2. Overview of Financial Management
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3. FINANCIAL MANAGEMENT
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All business activities involve acquisition and use of
funds.
The art and science of managing money, or management
of money – FINANCE
•Itisthestudyofhowtomake
good decision that involve money.
–What assets to buy?
–How to pay for the assets you buy?

4. According to Phillippatus “Financial Management is
concerned with the managerial decisions that results in the
acquisition and financing of short and long term credits for the
organizations.”
“Financial management is the activity concerned with
planning, raising, controlling and administering of funds used
in the business.”
 
FINANCIAL MANAGEMENT
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5. SCOPE OF FM
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6. SCOPE OF FM
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7. Evaluating the risk involved, measuring the cost of fund and
estimating expected benefits from a project comes
under
 investment decision.
The two major components of investment decision are –
Capital budgeting and liquidity.
Capital budgeting is commonly known as the investment
appraisal. It deals with the allocation of capital and funds in
such a manner that they will yield earnings in future.
1. INVESTMENT DECISION
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8. Decisions related to
 working capital is another crucial scope
of financial management.
Decisions involving around working capital and short term
financing are known as working capital decision.
 It also manages the relationship between short term assets
and its
 liabilities.
2. WORKING CAPITAL DECISION
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9. A good dividend policy helps to achieve the objective of
wealth maximization.
The entire profit in the form of dividends or distributing only
a certain percentage of it is decided by dividend policy. It is
known as deciding the optimum dividend payout ratio i.e.
proportion of net profits to be paid out to shareholders.
3. DIVIDEND DECISION:
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10. The main aim of financing decision is to cover expenses and
investments.
The decision involves generating capitals by various methods,
from different sources, in relative proportion and considering
opportunity costs, with respect to time of flotation of
securities, etc.
4. FINANCING DECISION:
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11. FINANCE MANAGER’S ROLE
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Acquisition of funds
Allocation of Funds
Profit Planning
Understanding Capital Markets
Financial forecasting and planning
Helping in valuation decision
Maintain proper liquidity

12. FINANCIAL GOALS/ OBJECTIVES
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Profit maximization (profit after tax)
Wealth maximization

13. Profit Maximization
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Maximizing the rupee income of firm
Profit is the parameter of the business operation.
Resources are efficiently utilized.
Appropriate measure of firm performance
Serves interest of society also
Main aim is earning profit.

14. Objections to Profit Maximization
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It is Vague
It Ignores the Timing of Returns
It Ignores Risk
Assumes Perfect Competition
In new business environment profit maximization
is regarded as
Unrealistic
Difficult
Inappropriate
Immoral

15. Shareholders’ Wealth Maximization
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Maximizes the net present value of a course of
action to shareholders.
Accounts for the timing and risk of the expected
benefits.
Benefits are measured in terms of cash flows.
Fundamental objective—maximize the market
value of the firm’s shares.

16. Organisation of Finance Function
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Organization for finance function
Organization for finance function
in a multidivisional company

17. Risk
Return
TWO PILLARS OF FINANCE
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