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Objectives of Financial Management

The document discusses the objectives and functions of financial management. The key objectives are profit maximization, wealth maximization, and achieving growth. The functions of financial management include estimating fund requirements, raising funds, investing funds, managing working capital, and ensuring returns for stakeholders. Financial managers are responsible for the financial health of an organization through activities like forecasting, acquiring capital, cash management, and financial reporting.

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narunsankar
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70 views

Objectives of Financial Management

The document discusses the objectives and functions of financial management. The key objectives are profit maximization, wealth maximization, and achieving growth. The functions of financial management include estimating fund requirements, raising funds, investing funds, managing working capital, and ensuring returns for stakeholders. Financial managers are responsible for the financial health of an organization through activities like forecasting, acquiring capital, cash management, and financial reporting.

Uploaded by

narunsankar
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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OBJECTIVES OF FINANCIAL

MANAGEMENT
1. Profit maximization
Profit maximization is also called as cashing per
share maximization. It leads to maximize the
business operation for profit maximization.
2. Ultimate aim of the business concern is earning
profit, hence, it considers all the possible ways to
increase the profitability of the concern.
3.Profit is the parameter of measuring the
efficiency of the business concern.So it shows the
entire position of the business concern.
4. Profit maximization objectives help to reduce
the risk of the business
2. Wealth maximization.
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.
Achieving a higher growth rate.
Attaining a large market share.
Promoting employee welfare
Increasing customer satisfaction.
Improve community life.
FUNCTIONS OF FINANCIAL
MANAGEMENT
Estimating the total requirements of funds for a
given period.
Raising funds through various sources, both
national and international, keeping in mind the
cost effectiveness;
Investing the funds in both long term as well as
short term capital needs;
Funding day-to-day working capital requirements
of business;
Collecting on time from debtors and paying to
creditors on time;
Managing funds and treasury operations;
Ensuring a satisfactory return to all the stake
holders;
Paying interest on borrowings;
Repaying lenders on due dates;
Maximizing the wealth of the shareholders over
the long term;
Interfacing with the capital markets;
Financial Manager?

Financial managers are responsible for the


financial health of an organization. They produce
financial reports, direct investment activities, and
develop strategies and plans for the long-term
financial goals of their organization. Financial
managers work in many places, including banks
and insurance companies.
Role of Finance Manager

Forecasting Financial Requirements


Acquiring Necessary Capital
Cash Management
(a) Investment decisions,
includes investment in fixed assets (called as
capital budgeting). Investment in current assets
are also a part of investment decisions called as
working capital decisions
.
(b) Financing decisions,
They relate to the raising of finance from various
resources which will depend upon decision on
type of source, period of financing, cost of
financing and the returns thereby
(c) Dividend decisions
Dividend decision - The finance manager has to
take decision with regards to the net profit
distribution. Net profits are generally divided into
two:
Dividend for shareholders- Dividend and the rate
of it has to be decided.
Retained profits- Amount of retained profits has to
be finalized which will depend upon expansion
and diversification plans of the enterprise
Interrelation with Other
Departments
Acquisition of Funds
Proper Use of Funds
Promoting Savings/Investments
Prepare financial statements, business activity
reports, and forecasts
Monitor financial details to ensure that legal
requirements are met
Supervise employees who do financial reporting
and budgeting
Review company financial reports and seek ways
to reduce costs
Analyze market trends to find opportunities for
expansion or for acquiring other companies
Help management make financial decisions
TIME VALUE OF MONEY

Time value of money :a rupee that is receivable


today is more valuable than a rupee receivable in
future
Time preference for money:
Uncertainty
Current consumption
Possibility of investment opportunity
Time preference for money is expressed in terms
of interest
Interest

Interest is the cost of borrowing money, where the


borrower pays a fee to the owner for using the
owner's money.
SIMPLE INTEREST

Simple interest is the interest paid (earned) on the


original amount or principal amount.
Simple Interest Formula:
Simple Interest = Pnr
Amount =p(1+nr)
Problem No:1:mr A who has deposited Rs.1,00,000
in a savings bank account at 6 per cent simple
interest and was interested to keep the deposit for
a period of 5 years. He requested you to give
accumulated interest at the end of 5 years.
Ans:Rs.30,000
Problem No 2:
a student obtains a simple interest loan to pay
one year of her college tuition fees, which costs
$18,000, and the annual interest rate on her loan is
6%. She repaid her loan over three years .how
much does she repaid ?
Question no 3: What is the simple interest of
Rs8000 for 4 years at12% p.a? Ans:Rs3840
Question No4: A sum deposited at a bank fetches
Rs.13,440 after 5years at 12% simple rate of
interest. Find the principle amount.Ans:Rs8400
Compound interest
Compound interest: the interest that is earned on
a given deposit and has become part of
principal at the end of a specified period.
Formula for Compound interest:
A=P(1+i)n
Where
A =amount at the end of n period
P=principal amount at the beginning of the n
period
i=rate of interest payment
N=no of payment periods
Question no1:
Find out compounded interest on Rs.6000 for 3
years at 9% compounded annually.AnsRS.7770
Question no2:How much does a deposit of
Rs40000 grow to at the end of 10 years at the rate
of 6 per cent interest and compounding is done
semi-annually determine the amount at the end
of 10 years? Rs.72240
Question no 3: a company deposits Rs.50,00,000
at the end of each year for 4 years at the rate of
8% interest and compounding is done on
quarterly basis. What is the compound value at
the end of the 4th year? AnsRs.68,65,000
Doubling Period

What is doubling period?


Doubling period is that period required to double
the amount invested at a given rate of interest.
This is calculated by using the following two
formulas:
1. Rule 72:-
Doubling Period= 72/Rate of
interest(approximate)
2. Rule 69:-
Doubling Period= 0.35+ 69/Rate of interest
(Accurate)
Question No 1:
If you deposit Rs.500 today at 10 per cent rate of
interest ,in how many years will this amount
double?
Effective rate of Interest in
case of Doubling Period
If the investors may get a doubt that what is the
effective interest rate is applicable if a financial
institutions pays double amount at the end of a
given period of time or number of years.
This is calculated by using the following two
formulas:
1. Rule 72:-
Doubling Period= 72/Doubling period (D)
2. Rule 69:-
Doubling Period= 0.35+ 69/Doubling period(D)

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