financial management (FM).ppt

7/28/2019 financial management (FM).ppt

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BY: JASKARAN SINGH

MBA I sem.

FINANCIAL

MANAGEMENT


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FINANCIAL MANAGEMENT

Meaning:

Finance is said to be the life blood of

business.

Right from conceiving the idea of birth of

business to its liquidation finance is

required.

So finance is the pivot around which

whole business operations cluster.


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Therefore, Financial management is

concerned with the managerial decisionthat results in the acquisition of short term

and long term credits for the business.


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SCOPE OF FINANCIAL

MANAGEMENTWe may divide the scope of financial

management under two different aspects.

Traditional Approach:Under this role of

financial manager was only restricted to

procurement of funds and it includes:

Study and analysis of of the institutions

and sources of finance which can be used

for raising funds.


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Study and analysis of financial instruments

which can be used for raising funds. Estimation of requirement of finance.

Limitations of traditional approach:

Limited scope.

Ignores working capital financing.

Ignores routine problems.

Limited use,only corporate enterprises.


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Modern approach: It enlarged the scope

of financial management and it includes:

What is the total volume of the funds an

enterprise should commit.

What specific assets should an enterpriseacquire.

In what form should the firm hold its

asssets.


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Modern approach encompasses three

major decisions, namely: Investment decisions

Financing decisions

Dividend policy decisions


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FUNCTIONS OF FINANCE

MANAGER Formulation of objectives.

Forecasting and estimating capital

requirements.

Designing the capital structure i.e. Debt to

equity.

Determining the suitable source of finance.

Procurement of funds.


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Investment of funds.

Dispersal of profits. Maintaining the proper liquidity.

Maintaining relations with outside

agencies. Evaluating financial performance.

Keeping touch with stock exchange

quotations and behaviour of share prices.


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TOOLS AND TECHNIQUES OF

FINANCIAL MANAGEMENT Capital budgeting technique: The process

of deciding on long term investment is

known as capital budgeting. It is

concerned with suitable investment in longterm projects.

Cost of capital: their are different sources

of raising finance like equity shares,preference shares, debentures etc.Interest

has to be paid on debentures and dividend

on shares.


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Leverage: Leverage means that how much

debt should be incorporated so that equity

share capital gets maximized.

Cash management: It refers to a broad

area of financeinvolving the collection,

handling, and usage of cash.it involvesassessing market liquidity,cash flows and

investments.

Recievables management: Recievablesmeans current assets other than cash i.e.

B/R, debtors etc.


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Inventory management: Inventory

management is very important functionthat determines the health of supply chain

as well as the impact of financial health of

the balancesheet.


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FINANCIAL SYSTEM

A set of complex and closely connected

institutions,agents,practices,markets,

transactions,claims and liabilities in the

economy.

It is a market for creation and exchange of

financial assets and servises.

Indian financial system consists of

financial markets, financial instruments,

financial services, financial intermidiaries

and regulatory frameworks.


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Functions of financial system

Facilitating the pooling of funds and

channelizing them into productive

avenues.

It provides with a huge information base.

It provides a platform for transfer of

resources, both temporary and permanent.

It provides a payment mechanism for

exchange of goods and services.


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It ensures smooth functioning of all

financial markets.

It helps individuals and corporates in

managing and controlling risk.


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Participants of financial system

Financial markets:

Nature of claim-Debt & Equity market.

Seasoning of claim-Primary & Secondarymarkets.

Maturity of claim-Money & Capital market.

Organization structure-OTC & ExchangeTraded Markets.

Timing of delivery-Spot & derivative

markets.


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Financial Intermediaries:

BanksFinancial intermediaries.

Insurance companies.

NFBCs

Financial service providers.


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Financial instruments:

1.Money market instruments.Commercial papers:Unsecured promissory

notes with maturity period from 15 days to

1 year.Certificate of deposits: Also unsecured

and issued by the companies with god

credit worthiness.Treasury bills:Issued by RBI on the behalf

of govt.,also known as zero-coupan bond


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Call or term money:It is inter bank

transaction in which banks borrow moneyfor 1 day.Rate of interest is high in call or

term money.

2. Capital market instruments:Equity shares.

Preference shares(Hybrid security).

Debentures.

Bonds.

Fixed deposits.


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Regulatory framework:

RBI

SEBI


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OBJECTIVES OF FINANCIAL

MANAGEMENT The firms mainly have two major

objectives i.e. Profit maximization and

wealth maximization.

Profit maximization was traditional

concept, all the firms now look for wealth

maximization.


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Profit maximization

This implies that the finance manager has

to take decision in such a manner so that

the profit of the concern are maximized.

This can be increased by increasing sales

turnover and minimizing the manufacturing

and financial cost.


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Wealth maximization Wealth maximization means maximizing

the wealth of the shareholders in terms of

market value of the shares and value of

the firm.

It is regarded operationally and

managerially better objective because it

considers:

Time value of money

Risk or uncertainty

Effect of dividend policy on MP of shares.


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Difference between

Profit maximization

It does not specify the

time value of money.

It does not consider the

risk factor.

It doe not consider the

effect of dividend policy

on market price of shares

It ignores the interest ofoutsiders.

It does not differentiate

between long term and

short term profits.

Wealth maximization

It takes into account the

time value of money.

It considers the risk the

factor.

It consider the effect of

dividend policy on market

price of shares.

It considers the interestof outsiders.

It considers the fact.


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TIME VALUE OF MONEY

The concept of time value of money refers

to the fact that money received today is

different in its worth than money received

at some other time in future date.

This preference for current money as

against future money is known as time

value of money.


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Reasons for time preference of

money Future uncertainties.

Preference for consumption.

Inflationary economy.

Investment opportunities.

A bird in hand is worth than twoin the bush


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CAPITAL BUDGETING

DECISION The process of deciding on suitable long

term investment is known as capital

budgeting decision.

It is concerned with sizeable investment

long term projects.

They can be tangible assets like plant &

machinery,equipments or the intangible

assets like patents,technology and

trademark.


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Features of capital budgeting

decisions Affects the firms strategic position many

years hence.

Huge amount is invested.

Irreversible decision.

Difficult to take as almost more than one

alternative is present.


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Process of capital budgeting

decisions Strategic planning.

Investment opportunities.

Preliminary screening.

Feasibility study.

Implementation.

Post implementation audit.


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THANK YOU

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