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Financial Management - 1 Covers Following Topics

This document provides an outline of topics covered in Chapter 1 of an introduction to financial management textbook. The topics covered include: an overview of the basic areas of finance, the role of the finance manager, objectives of financial management, forms of business organization (sole proprietorship, partnership, corporation), finance and other functions, the agency problem and control of corporations, and the environment of corporate finance.

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Kumar Vivek
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41 views

Financial Management - 1 Covers Following Topics

This document provides an outline of topics covered in Chapter 1 of an introduction to financial management textbook. The topics covered include: an overview of the basic areas of finance, the role of the finance manager, objectives of financial management, forms of business organization (sole proprietorship, partnership, corporation), finance and other functions, the agency problem and control of corporations, and the environment of corporate finance.

Uploaded by

Kumar Vivek
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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Financial Management -1 covers following

topics

 Overview of Financial Management


 Financial Institutions &Markets
 Risk & Return Analysis
 Time Value of money
 Valuation of securities
 Capital Structure &Sources Of Finance
 Cost of Capital
 Capital Expenditure Decisions
Introduction to Financial Management

Chapter 1
CHAPTER OUTLINE

 Basic Areas Of Finance


 Role of finance manager
 Objective of Financial Management
 Forms of Business Organization
 Finance and other Functions
 The Agency Problem and Control of the
Corporation
 Environment of Corporate Finance
Basic Areas Of Finance

• Corporate finance

• Business Finance
• Public Finance
• International Finance
• Financial institutions &markets
Role of finance manager

•Raising of funds (Financing Decision)


•Allocation of funds(Investment Decision)
•Distribution of profits(Dividend Decision)
•Risk- Return Trade -off
Objective of financial management

•Profit Maximization

•Minimise Cost
•Maximize Market share
•Maximize the current
value of the compay’s stock

•Wealth Maximization
Finance and other functions
Forms of Organization

Three major form of business organization


1. Sole proprietorship
2. Partnership
General
Limited
3. Corporation
Private limited company
Public limited company
Forms of Business Organization
(Sole Proprietorship)
Advantages Disadvantages
 Easiest to start  Limited to life of
 Least regulated owner
 Single owner keeps  Equity capital

all the profits limited to owner’s


 Taxed once as personal wealth
 Unlimited liability
personal income
 Difficult to sell
ownership interest
Form Of Business Organisation
(Partnership)

Advantages  Disadvantages
 Unlimited liability
 Two or more owners
 More capital
General partnership
Limited partnership
available
 Partnership
 Relatively easy to
dissolves when one
start
partner dies or
 Income taxed once
wishes to sell
as personal income  Difficult to transfer
ownership
Form of Business Organization
(Corporation/Company)

 Advantages  Disadvantages
 Limited liability  Separation of
 Unlimited life ownership and
 Separation of management
 Double taxation
ownership and
management (income taxed at the
 Transfer of corporate rate and
ownership is easy then dividends taxed

at personal rate)
Easier to raise capital
The Agency Problem

 Agency relationship
 Principal hires an agent to represent their
interest
 Stockholders (principals) hire managers
(agents) to run the company
 Agency problem
 Conflict of interest between principal and
agent
Managing Goals and Agency cost

 Managerial compensation
 Incentives can be used to align management
and stockholder interests
 The incentives need to be structured carefully
to make sure that they achieve their goal
 Corporate control
 The threat of a takeover may result in better
management
Environment of Corporate Finance

FEMA 2001
MRTPA 1969
COMPETITION ACT 2002
 INDIAN COMPANIES ACT 1956
 INDIAN PARTNERSHIP ACT 1932
 SEBI
INDUSTRIAL POLICY
Let us recall what we have learn today

 What are the basic areas of finance?


 What is the role of role of finance manager?
 Objective of financial management
 What are the three major forms of business
organization?
 Finance and other functions
 What are agency problems and why do they exist
within a corporation?
What Next ?

 We will go through Financial


Institutions and markets in the next
class

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