Intro i m pandey

8/10/2019 Intro i m pandey

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I. M. Pandey, Financial Management,9th ed., Vikas. 1

Apna Sapna Money-Money


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By-Rahul Jain

Nature of Financial

Management


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COURSE GUIDELINES

Introduction and Basics of Financial Management

Sources of funds

Capital budgeting & structure

Marginal cost analysisRatio analysis

Budgeting & Financial Planning


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Aim of the Module

identify different sources of raising funds

for an enterprise and methods of

deploying them

understand how capital structure is

planned and executed

To Know about the viability of project.


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Our Strategy for achieving these

Objectives?

Concepts, Cases and Class Discussion

Punctuality, Participation and Preparation

(Its compulsory to bring your own calculators, Pen,Stationary, Registers, Prescribed Book,Printouts of the Intranet documents- Otherwisenecessary disciplinary action will be taken)

Judgment challengeLearning to communicate ideas

Learning from each other

Learning through discovery


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What is Good

Participation?

Quality, not quantity.

Analyzing and discussing course

material.

Questioning the analysis of others.

Seeking clarification.

Summarizing / synthesizing.

Adherence to guidelines for

professionalconduct.


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Some Important rules

Switch off your Mobiles

Attendance rules will be strictly applied

Non completion of Assignment will lead to strict

disciplinary measuresStudents can gather additional bonus points by being a

Star Performer in the whole course.

Students falling in the Improvement category would be

penalized.If Attendance less than 75% then one grade will be

reduced in respective Viva/Exam/Log Process.


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Learning objectives:

What is financial management?

Difference between financial management

and financial accounting

The goals of financial management !


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Business Activities

Production

Marketing

Finance


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Meaning

Financial managementis a systematic

process that provides the necessary

financial information to help a business

produce and distribute goods and servicesin a way that will maximize wealth.

It also provides feedback about how well

the organization is doing.


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Overview of Financial Management

Dev: A Finance Manager has many responsibilities. He has to manageall the incomes and expenses related to the company. He has to seethat resources are not wasted anywhere. He has to negotiate withthe suppliers. And see that all departments get the money to meettheir expenses.

Ajay:Please tell me more

Dev:Just as the Purchase Manager needs money to buy the rawmaterials, the Production Manager also has to maintain hismachinery so that the production goes on smoothly. This

maintenance also requires money. If Ranjeet does not give therequired funds to either of them, the production will stop. What will

ABC sell, if no textile is manufactured? Financial managementinvolves several functions, especially in bigger companies.


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Overview of Financial Management

Dev:Matching the income and expenditure isnot the only job. Ranjeet has to allocate thecash, but at the same time, he has to see thatequipment, workers, supplies, etc. are also

being used properly. Wastage of any of theseresources will affect the cash balances of ABC.

Using resources efficiently will help ABC toreduce the costs of operations. At the same

time, if resources are used efficiently, it willgenerate additional resources for the company.Ranjeet also has to analyze ABCs financialperformance. If the company is not able to makeprofits, he has to find out the reasons for it.


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Finance Functions

Investment or Long Term Asset Mix

Decision

Financing or Capital Mix Decision

Dividend or Profit Allocation Decision

Liquidity or Short Term Asset Mix

Decision


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Financial accounting and Financial

Management

Financial accounting gives the financial

status of the company to people outside

the company. It is recording and reporting

the activities and events that lead to cashinflow and outflow.

Financial management means efficiently

managing the various resources of thecompany.


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Management

Financial accounting aims at maintaining a clearrecord of the financial condition of the firm.

Accounting measures the performance of thefirm so that the situation of the company can bemeasured in financial terms.

Financial management is concerned with valuemaximization. Managements efforts are forincreasing the value of the company for theshareholders. This requires investing in projectsthat are likely to provide positive returns to the

company.


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Management

Certainty

Accounting is maintenance of financialrecords. So, it deals with what has already

occurred. This makes it more certain.A finance manager is concerned with what is going tohappen in the future. He takes critical decisions that willaffect the future of the company. These are based on

various calculations and assessments. This is not easybecause there are many uncertainties in financialmanagement.


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Finance Managers Role

Raising of Funds

Allocation of Funds

Profit PlanningUnderstanding Capital Markets


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Financial Goals

Profit maximization (profit after tax)

Shareholders Wealth Maximization


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Profit Maximization

Maximizing the Rupee Income of Firm

Resources are efficiently utilized

Appropriate measure of firm performance

Serves interest of society also


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Objections to Profit

MaximizationIt is Vague

It Ignores the Timing of Returns

It Ignores Risk

In new business environment profitmaximization is regarded as Inappropriate and Immoral.


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Shareholders Wealth

MaximizationMaximizes the cash flow.Accounts for the timing and risk of the

expected benefits.

Fundamental objectivemaximize the

market value of the firms shares.


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Risk-return Trade-off

Risk and expected return move in

tandem; the greater the risk, the greater

the expected return.

Financial decisions of the firm are

guided by the risk-return trade-off.

The return and risk relationship:

Return = Risk-free rate + Risk premium

Risk-free rate is a compensation for

time and risk premium for risk.


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Managers Versus

Shareholders GoalsA company has stakeholders such as employees, debt-holders, consumers, suppliers, government and society.

Managers may perceive their role as reconciling conflictingobjectives of stakeholders. This stakeholders view of

managersrole may compromise with the objective of SWM.Managers may pursue their own personal goals at the cost ofshareholders, or may play safe and create satisfactory wealthfor shareholders than the maximum.

Managers may avoid taking high investment and financingrisks that may otherwise be needed to maximize

shareholders wealth. Such satisfying behaviour ofmanagers will frustrate the objective of SWM as a normativeguide.


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Financial Goals and Firms

Mission and ObjectivesFirms primary objective is maximizing the welfare ofowners, but, in operational terms, they focus on the

satisfaction of its customers through the production of

goods and services needed by them

Firms state their vision, mission and values in broad

terms

Wealth maximization is more appropriately a decision

criterion, rather than an objectiveor a goal.

Goals or objectives are missions or basic purposes of a

firmsexistence


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Financial Goals and Firms

Mission and ObjectivesThe shareholderswealth maximization isthe second-level criterion ensuring that

the decision meets the minimum standard

of the economic performance.

In the final decision-making, the

judgement of management plays the

crucial role. The wealth maximizationcriterion would simply indicate whether

an action is economically viable or not.


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Interview Exercise

Meet Owner/Manager of an Organization:

Find following:

1) About the Organization and its USP.2) Important financial decisions that his

organization is taking.

3) Challenges faced.4) Sources of Revenues and Top three

costs.

5) Future Plans of Expansion. 27


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Learning Tools

Website

www.learningfinancialmanagement.pbworks.com

Phone: 9811228852

Email: [email protected]

Text Book:

Financial Management , I.M. Pandey, Vikas

Publications28
http://www.learningfinancialmanagement.pbworks.com/http://www.learningfinancialmanagement.pbworks.com/


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Assignment

Prepare an individual file having :

a) Key learnings of Class-1

b) Summary of any Fashion Business News

Read Chapter 1 of the Book. (I.M. Pandey)

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Intro i m pandey

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