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UNIT-1 Introduction To Financial Management: Course Instructor Twesha Chharia

This document provides an introduction and overview of key concepts in financial management. It discusses that corporations are large businesses owned by shareholders through shares. Financial management involves planning and controlling a firm's financial resources to maximize shareholder wealth. The two main aspects of financial management are the procurement of funds from various sources, and the utilization of funds in a productive manner. The primary objectives of financial management are profit maximization and shareholder wealth maximization over the long run.

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Rahul Kumar Jain
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113 views

UNIT-1 Introduction To Financial Management: Course Instructor Twesha Chharia

This document provides an introduction and overview of key concepts in financial management. It discusses that corporations are large businesses owned by shareholders through shares. Financial management involves planning and controlling a firm's financial resources to maximize shareholder wealth. The two main aspects of financial management are the procurement of funds from various sources, and the utilization of funds in a productive manner. The primary objectives of financial management are profit maximization and shareholder wealth maximization over the long run.

Uploaded by

Rahul Kumar Jain
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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UNIT-1 Introduction to Financial Management

Course Instructor Twesha Chharia

Corporation
Not all businesses are corporations. Small ventures can be owned and managed by a single individual. These are called sole proprietorships. In other cases several people may join to own and manage a partnership.

Almost all large and medium-sized businesses are organized as corporations. For example, General Motors, Bank of America, Microsoft, and General Electric are corporations. So are overseas businesses, such as British Petroleum, Unilever, Nestl, Volkswagen, and Sony. In each case the firm is owned by stockholders who hold shares in the business.

When a corporation is first established, its shares may all be held by a small group of investors, perhaps the companys managers and a few backers.

In this case the shares are not publicly traded and the company is closely held. Eventually, when the firm grows and new shares are issued to raise additional capital, its shares will be widely traded. Such corporations are known as public companies.

Financial Management
It is defined as managerial activity which is concerned with planning and controlling of firm financial resources. In other words , it is concerned with acquiring, financing and managing company assets to accomplish overall goal of a business enterprise( to maximise shareholder wealth)

FM comprises the forecasting, planning, organizing, directing,co-ordinating and controlling of all activities relating to acquisition and application of financial resources of an undertaking in keeping with its financial objective-Raymond Chambers

Another defination FM is concerned with the managerial decisions that result in the acquisition and financing of short term and long term credits for the firm.

2 Aspect of FM

Procurement of funds

Aspect of FM
Utilization of fund

Procurement of Funds
Funds can be obtained from different sources eg equity,preference capital,debentures,loan Funds procured from different sources have different characteristic in terms of risk,cost and control. The cost of fund should be minimum.Hence proper balancing of risk and control factor is must.

It involves Identification of source of finance Determination of source of finance Raising of funds Division of profits between dividend and retention of profit.

Utilization of fund
Funds are procured at a cost. Hence it is crucial to employ them properly and profitably. Identifies where funds remain idle and where they are not used properly. Analyses financial implication of each decision- to invest in fixed assets,working capital.

Scope of Financial Management


Necessity FM is essential where fund are involved-in a central planned economy and also a capitalist set up. Attempt to use funds in most productive manner. Focus on effective utilisation of most important resource ie money.

Pervasiveness FM is necessary for all types of organization whether profit making or non profit institutions. It is a must for private and public enterprises.

Primary Strength of finance function determine strength of other function since production, marketing etc are possible only with sound financial management. FM guarantees the survival of a business and constitutes a primary place in management attention.

Objective of FM/Financial Goal

Profit maximisation

Wealth maximisation

Profit Maximization
Maximizing

a firms earnings after taxes.

Problems
Could increase current profits while harming firm (e.g., defer maintenance, issue common stock to buy T-bills, etc.). Ignores changes in the risk level of the firm.

Earnings per Share Maximization


Maximizing

earnings after taxes divided by shares outstanding.

Problems
Does not specify timing or duration of expected returns. Ignores changes in the risk level of the firm. Calls for a zero payout dividend policy.

Shareholder Wealth Maximization


Takes account of: current and future profits and EPS; the timing, duration, and risk of profits and EPS; dividend policy; and all other relevant factors. Thus, share price serves as a barometer for business performance.

Finance Function
Fund Requirement Estimation Capital structure/Financing decisions Investment decisions Dividend decisions Cash Management decisions Performance Evaluation Financial negotiations Market impact analysis

Role of financial Manger

Organization chart of finance function


Board of director

President

VP(manufacturing)

VP(finance)

VP(marketing)

Treasurer

Controller

Credit mgmt

Cash mgmt

Banking relation

Portfolio mgmt

Gen accounting

Taxation

Internal audit

Budgeting

Finance and Other Function


Investment aspect-Decision on investment in inventories,stock level Decision making aspect-Production decision such as make and buy Finance and components,retain and replace machinery production Investment decision-Investment in finished goods inventories. Decision making-Decision and strategies such as credit Finance and granting,change in sale price to sell additional quantity. marketing

Decision making-Bound to increase in times to come.Restructing of pay packages,drafting of voluntary retirement schemes. Finance and
Personnel

The Modern Corporation

Modern Corporation
Shareholders Management

There exists a SEPARATION between owners and managers.

Advantage-It allows share ownership to change without interfering with the operation of the business. It allows the firm to hire professional managers. Disadvantage-Rather than attending to the wishes of shareholders, managers may seek a more leisurely or luxurious working lifestyle; they may shun unpopular decisions, or they may attempt to build an empire with their shareholders money.

Assignment
Take a organization of your choice and evaluate it from financial management perspective.

THANKS

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