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FM, Module-1

The document provides an overview of financial management, including its definition, key activities of financial managers, and the scope of financial management. It discusses the importance of finance in business operations, the roles of financial managers, and the objectives of financial management, such as profit maximization and wealth maximization. Additionally, it outlines financing, investment, and dividend decisions that financial managers must make to ensure the effective use of financial resources.

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Bindushree Bade
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2 views

FM, Module-1

The document provides an overview of financial management, including its definition, key activities of financial managers, and the scope of financial management. It discusses the importance of finance in business operations, the roles of financial managers, and the objectives of financial management, such as profit maximization and wealth maximization. Additionally, it outlines financing, investment, and dividend decisions that financial managers must make to ensure the effective use of financial resources.

Uploaded by

Bindushree Bade
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Module – 1

Financial Management: Introduction – Meaning of Financial


Management, Finance, Financial Services, Financial
Managers, Scope of Financial Management - Finance
functions: Investment, Financing and Dividend decisions,
Key activities of the Financial Manager, Objectives of
Financial Management - Profit Maximization vs. Wealth
Maximization.
Finance
Finance is the lifeblood of business organization.

It needs to meet the requirement of the business concern. Each and


every business concern must maintain adequate amount of finance
for their smooth running of the business concern and also maintain
the business carefully to achieve the goal of the business concern.
Financial services.

The term financial services can be defined as “activities, benefits,


and satisfactions, connected with the sale of money, that offer to
users and customers, financial related value. within the financial
services industry the main sectors are banks, financial institutions,
and non-banking financial companies.
Financial Management
Means planning, organizing, directing and controlling the financial
activities such as procurement and utilization of funds of the
enterprise. It means applying general management principles to
financial resources of the enterprise.

Financial management refers to the efficient and effective


management of money (funds) in such a manner as to accomplish
the objectives of the organization.
Definition of financial
management

“financial management is concerned with the efficient use of an


important economic resources, namely, capital fund.” By Prof. Ezra
Solomon
Financial Managers

A finance manager is a person who is responsible for an


organization's finances, including budgeting, financial analysis, and
strategic planning. They also help the company make financial
decisions and manage risk.

They create financial reports, direct investment activities, and


develop plans for the long-term financial goals of their organization.
Key activities of the Financial
Manager
Business forecasting
Determination of financial objectives, financial polices and operational
procedures
Estimation of the capital requirements of the business
Designing the capital structure
Determination of the proper sources of finance Investment decision
Ensuring supply of required funds
Controlling the use of funds
Profit planning
Key activities of the Financial
Manager
Disposal of surplus or profit, or dividend decision
Management of working capital
Helping in valuation decisions Wealth maximization
Legal responsibilities
Designing suitable system of providing information
Keeping track of stock exchange quotations
Co-ordination of the activities of subordinates
Scope of financial
management
It is also called as Functions of Financial management.
Financing Decisions
Managers also make decisions pertaining to raising finance from long-term
sources (called Capital Structure) and short-term sources (called Working
Capital).

Financial Planning decisions ;It means pre-estimating financial needs of an


organization to ensure the availability of adequate finance.

Capital Structure decisions ; involve decisions with respect to choosing


external sources like issuing shares, bonds, borrowing from banks or internal
sources like retained earnings for raising funds.
Investment Decisions
Managers need to decide on the amount of investment available out
of the existing finance, on a long-term and short-term basis. They are
of two types:

Long-term investment decisions or Capital Budgeting mean committing


funds for a long period of time like fixed assets.

Short-term investment decisions or Working Capital Management


means committing funds for a short period of time like current assets.
Dividend Decisions
These involve decisions related to the portion of profits that will be
distributed as dividend.

Shareholders always demand a higher dividend, while the


management would want to retain profits for business needs. Hence,
this is a complex managerial decision
Objectives of Financial
Management
The main objectives can be-
1. Profit Maximization
2. Wealth Maximization
Other objectives.
1. To ensure sufficient flow of funds to the organization.
2. To ensure optimal utilization of funds Once funds are raised, they
should be used efficiently to maximize returns at the lowest possible
cost.
3. To ensure safety on investment, i.e, funds should be invested in
safe ventures so that adequate rate of return can be achieved.
4. To design a balanced capital structure: There should be a well-
planned and fair mix of debt and equity capital to maintain a healthy
financial foundation.
Profit Maximization vs. Wealth
Maximization.

Profit Maximization – the main objectives of profit maximization is


making as much profit as possible in the short term.
It focuses mainly on increasing the company’s profits, usually in the
current period or financial year.
Limitations
It Ignores the risk involved in generating profits.
Doesn't consider the timing of profits
Wealth Maximization
Wealth maximization focuses on increasing the overall value of the
business, which benefits the shareholders in the long run.

It Fous on maximize the company’s value, reflected in the market price


of its shares.

Focuses on long-term growth and sustainability.


Takes into account the risk, time value of money, and shareholder
interests.
Thank you…

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