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Unit 1 Financial Management Notes Semester 3

The document discusses key concepts in financial management including meaning, importance, objectives and scope of financial management. It covers topics like profit maximization, wealth maximization, time value of money, risk and return.

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prince raj
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2K views

Unit 1 Financial Management Notes Semester 3

The document discusses key concepts in financial management including meaning, importance, objectives and scope of financial management. It covers topics like profit maximization, wealth maximization, time value of money, risk and return.

Uploaded by

prince raj
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Unit 1 : Financial Manageent :


an Overview
Meaning Of Financial Management
Financial management is concerned with Efficient acquisition
and allocation of fund with objective to make profit for owner.

Financial management focuses mainly on 3 major financial


decision : investing, financing and dividend decision.

Financial management comprises of forecasting, planning,


organizing, directing, coordinating and controlling of all
activities relating to acquisition and application of financial
resources of undertaking in keeping its financial objective.

Importance Of financial management :-


 Take care not to over invest in fixed assets.
 Balance cash outflow and cash inflow.
 Ensuring there is sufficient level of working capital
 Setting sales revenue targets that delivers growth.
 Increasing Gross Profit by setting correct pricing for
product.
 Controlling level of expense by finding more cost efficient
ways of running day to day operations.
 Tax Planning that minimize taxes that a company has to
pay.
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Scope of Financial Management :-


 Determine Size of enterprise and rate of growth
 Determine composition of Assets of an enterprise.
 Determine mix of enterprise financing
 Analysis, planning and controlling financial affairs of
enterprises.

Objective Of Financial Management :-


1. Profit Maximisation  Finance manager has to make
decision to maximize profit of concern.

Advantages :

 Must for survival of business.


 Essential for growth and development of business.
 Impact on society through factor payments.
 Only profit making firm can pursue social obligations.

Disadvantages :

 Term profit is vague


 Higher the profit, higher the risk
 Ignore time pattern of return.
 Ignore social and moral obligation of business.

2. Wealth Maximization  The objective of firm is to


maximize its value or wealth. Wealth or value of firm is
represented by market price of its share.
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Advantages :

 Emphasizes long term gains


 Recognizes risk or uncertainities
 Recognize timing of returns
 Considers shareholder’s return

Disadvantages :

 Offer no clear relationship between financial decision and


share price
 Can lead management anxiety and frustration.

Time Value Of Money :


A project involve investing a sum of money in anticipation of
benefit spread over a period of time in future.

How will be determine whether project is financially viable or


not ?

Time value of money is the benefit accuring over future period


and compare total value of benefit with initial investment.

Concept of risk and return :


The finance manager seeks to achieve right balance between
risk and return.
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The objective of any investor is to maximize expected return


from their investments subject to various risks.

The Rate of return is total return investor receive during the


holding period.

Risk is the chance that the actual outcome from a investment


may different from expected outcome.

Sources of risk are : Interest rate risk, Market Risk, Inflation


risk, Business risk, Financial Risk

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