Apna Sapna Money-Money
I. M. Pandey, Financial Management,
9th ed., Vikas.
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By-Rahul Jain
Nature of Financial
Management
COURSE GUIDELINES
Introduction and Basics of Financial Management
Sources of funds
Capital budgeting & structure
Marginal cost analysis
Ratio 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- Otherwise
necessary disciplinary action will be taken)
Judgment challenge
Learning 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
professional conduct.
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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 measures
Students 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.
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 management is a systematic
process that provides the necessary
financial information to help a business
produce and distribute goods and services
in 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 manage
all the incomes and expenses related to the company. He has to see
that resources are not wasted anywhere. He has to negotiate with
the suppliers. And see that all departments get the money to meet
their expenses.
Ajay: Please tell me more…
Dev: Just as the Purchase Manager needs money to buy the raw
materials, the Production Manager also has to maintain his
machinery so that the production goes on smoothly. This
maintenance also requires money. If Ranjeet does not give the
required funds to either of them, the production will stop. What will
ABC sell, if no textile is manufactured? Financial management
involves several functions, especially in bigger companies.
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Overview of Financial Management
Dev: Matching the income and expenditure is
not the only job. Ranjeet has to allocate the
cash, but at the same time, he has to see that
equipment, workers, supplies, etc. are also
being used properly. Wastage of any of these
resources will affect the cash balances of ABC.
Using resources efficiently will help ABC to
reduce the costs of operations. At the same
time, if resources are used efficiently, it will
generate additional resources for the company.
Ranjeet also has to analyze ABC’s financial
performance. If the company is not able to make
profits, 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 cash
inflow and outflow.
Financial management means efficiently
managing the various resources of the
company.
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Financial accounting and Financial
Management
Financial accounting aims at maintaining a clear
record of the financial condition of the firm.
Accounting measures the performance of the
firm so that the situation of the company can be
measured in financial terms.
Financial management is concerned with value
maximization. Management’s efforts are for
increasing the value of the company for the
shareholders. This requires investing in projects
that are likely to provide positive returns to the
company.
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Financial accounting and Financial
Management
Certainty
Accounting is maintenance of financial
records. So, it deals with what has already
occurred. This makes it more certain.
A finance manager is concerned with what is going to
happen in the future. He takes critical decisions that will
affect the future of the company. These are based on
various calculations and assessments. This is not easy
because there are many uncertainties in financial
management.
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Finance Manager’s Role
Raising of Funds
Allocation of Funds
Profit Planning
Understanding Capital Markets
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Financial Goals
Profit maximization (profit after tax)
Shareholder’s 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
Maximization
It is Vague
It Ignores the Timing of Returns
It Ignores Risk
In new business environment profit
maximization is regarded as
– Inappropriate and Immoral.
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Shareholders’ Wealth
Maximization
Maximizes the cash flow.
Accounts for the timing and risk of the
expected benefits.
Fundamental objective—maximize the
market value of the firm’s 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’ Goals
A company has stakeholders such as employees, debtholders, consumers, suppliers, government and society.
Managers may perceive their role as reconciling conflicting
objectives of stakeholders. This stakeholders’ view of
managers’ role may compromise with the objective of SWM.
Managers may pursue their own personal goals at the cost of
shareholders, or may play safe and create satisfactory wealth
for shareholders than the maximum.
Managers may avoid taking high investment and financing
risks that may otherwise be needed to maximize
shareholders’ wealth. Such “satisfying” behaviour of
managers will frustrate the objective of SWM as a normative
guide.
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Financial Goals and Firm’s
Mission and Objectives
Firms’ primary objective is maximizing the welfare of
owners, 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 objective or a goal.
Goals or objectives are missions or basic purposes of a
firm’s existence
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Financial Goals and Firm’s
Mission and Objectives
The shareholders’ wealth maximization is
the 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 maximization
criterion 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.
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Learning Tools
Website
www.learningfinancialmanagement.pbworks.com
Phone: 9811228852
Email: rahulkjain16@yahoo.co.in
Text Book:
Financial Management , I.M. Pandey, Vikas
Publications
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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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