INTRODUCTION TO FINANCIAL MANAGEMENT

FINANCIAL MANAGEMENT “ Financial management is that managerial activity which is concerned with the planning and controlling of the firm’s financial resources.”

OBJECTIVE OF FINANCIAL MANAGEMENT Objective: To ensure that the various financial decisions are taken in such a way that they result in the maximization of shareholders’ wealth. The three major financial decisions are: (a) Financing Decision (b) Investment Decision (c) Dividend Decision

FUNCTIONS OF A FINANCE MANAGER To explore profitable avenues for investment. Mobilization of funds To ensure proper deployment of funds and control over the use of funds To achieve the right balance between risk and return. To decide the optimal dividend payout ratio To ensure that the liquidity of assets is maintained.

Interface Between Finance & Other Functional Areas Marketing-Finance Interface Production-Finance Interface HR-Finance Interface Linkage With the Functions of the Top Management

Forms of Business Organizations Sole Proprietorship PartnershipsCompanies

Sole Proprietorship - A business owned by a single person. -The owner realizes all profits and bears all the losses. -No distinction between business and personal income and all business is taxed as personal income. -Simplest form of business, subject to minimal regulation. Disadvantages: The owner has unlimited personal liabilities. These firms cannot raise external capital which results in lack of growth.

Partnerships - A business owned by two or more persons. - The partners bear the risks and reap the rewards of the business. - A partnership comes into existence with the execution of a partnership deed - They are governed by the Indian Partnership Act, These firms can benefit from the varied experience and expertise of the partners and draw on their combined capital resources. Disadvantages: Personal liabilities of the partners are unlimited. Ability to raise external funds is limited The life of the firm depends on the agreement between the partners.

Companies A company is collectively owned by the shareholders, who assign the task of management to their elected representatives called the directors. It is a distinct legal “person” separate from its owners (i.e shareholders). It can own assets, incur liabilities, enter into contracts, sue and can be sued in its name. The liability of a company is limited to the share capital subscribed to by them. A company can be either a private company or a public limited company.

Distinction Between a Private Company & a Public Company FeaturePrivate CompanyPublic Company Minimum no. of members Maximum no. of members Minimum no. of Directors Subscription of shares Transfer of shares Audit committee A Private limited company cannot invite members of the public to subscribe to its shares. A Private limited company usually imposes restrictions on transfers of shares. Not applicable 7 No restriction 3 A Private limited company can invite members of the public to subscribe to its shares. A Public limited company permits free transfer of its shares. Applicable if paid-up capital is more than five crores of rupees

REGULATORY FRAMEWORK Industrial Policy Industrial Licensing Provisions and Procedures Regulation of Foreign Collaborations and Investments Foreign Exchange Management Act Companies Act, 1956