Nature & scope of finance function.pptx

Bhs

1. Finance Function Finance is provision of money when it is required . Finance may be defined as the art and science of managing money The Finance Function is a part of financial management .  The finance function is the process of acquiring and utilizing funds of a business.

2. Corporate Finance/ Financial Management Corporate finance can defined as the process of raising , providing and administering of all money/fund used in a business enterprise. Financial management practiced by the corporate / company can be called as corporate finance. Finance function has become so important that given birth to Financial management as a separate subject.

3. Financial Management Effective utilization of amount of money invested in business is known as Financial Management. Financial Management refers to that part of the management activity which is concerned with the planning and controlling of firm’s financial resources

4. Definition of Financial Management Howard and Uptron define financial management “as an application of general managerial principles to the area of financial decision-making”. Weston and Brighem define financial management “as an area of financial decision making, harmonizing individual motives and enterprise goal”. “Financial management is the operational activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient business operations”- J.L. Massie.

5. Scope of Financial Management Estimating financial requirements 2. Deciding capital structure 3. Selecting a source of finance 4. Selecting a pattern of investment 5. Proper cash management 6. Implementing financial controls 7. Proper use of surpluses

6. Financial Decision Investment Decisions Financing Decisions Dividend Decisions

7. Functional areas of Financial Management Determining financial needs Selecting sources of funds Financial Analysis & Interpretation Cost-Volume – Profit Analysis Capital Budgeting Working Capital Management Profit Planning and Control Dividend Policy

8. Objectives of Financial Management Profit Maximization Wealth Maximization

9. Profit Maximization Profit maximization is also called as cashing per share maximization. It leads to maximize the business operation for profit maximization Ultimate aim of the business concern is earning profit, hence, it considers all the possible ways to increase the profitability of the concern. Profit is the parameter of measuring the efficiency of the business concern. So it shows the entire position of the business concern. Profit maximization objectives help to reduce the risk of the business

10. Wealth Maximization Wealth maximization is one of the modern approaches, which involves latest innovations and improvements in the field of the business concern. The term wealth means shareholder wealth or the wealth of the persons those who are involved in the business concern. Wealth maximization is also known as value maximization or net present worth maximization. This objective is an universally accepted concept in the field of business

11. Organization of Financial Function

12. Agency Problem Agency problem is a conflict of interest inherent in any relationship where one party is expected to act in the best interest of another. Agency problem is the likelihood that managers may place personal goals ahead of corporate goals   In corporate finance, the agency problem usually refers to a conflict of interest between a company's management and the company's stockholders.

13. Resolving/ Minimizing Agency Problem Market Forces (a) Behavior of security Market participants (b) Hostile takeover (2) Agency Cost (a) Monitoring Expenditures (b) Bonding Expenditures (c) Opportunity Costs ( d) Structuring Expenditure

14. Emerging Role of finance manager Financial structure, (b) Foreign exchange management, (c) Treasury operations, (d) Investor communication, (e) Management control and  (f) Investment planning.