1. of Financial Management Traditional View Modern View Objective of Financial Management Scope of Financial Management Relationship of Finance with other Business Function Factors Influencing Financial Decisions

2. Financial Management is broadly concerned with the acquisition and use of funds by a business firm. Its scope may be defined in terms of the following questions.  How large should the firm be & how fast should it grow?  Composition of firm’s assets?  Mix of the firm’s financing ?  Analyzing, planning & controlling its financial affairs?

3. Part of overall management Closely related with other disciplines Continuous process Different from accounting Fast growing Helpful in decision making Wider scope Both science & art

4. Arrangement of short term & long term funds from financial institutions Mobilization of funds through financial instruments Orientation of finance function with accounting function With increase in complexity of modern business situation, the role of financial manager extends to judicious & efficient use of funds available to firm.

5.  Investment or Long Term Asset Mix Decision  Financing or Capital Mix Decision  Dividend or Profit Allocation Decision  Liquidity or Short Term Asset Mix Decision

6. Long term investment decision - Capital Budgeting decisions for the expansion of present units, research & Development etc.

7. Optimal capital structure to minimize the risk and raise the profitability The market prices of the shares will go up maximizing the wealth of shareholders

8. Disbursement of profits back to investors who supplied capital to the firm The quantum of profits to be distributed among shareholders High rate of dividend may raise the market price of shares and maximizes the wealth of shareholders

9. Short term investment decision - Working capital management ensures higher profitability, proper liquidity & strong structural health of organization Profitability – Liquidity Tradeoff

10.  Profit Maximization (profit after tax)  Maximizing Earnings per share(EPS)  Shareholder’s Wealth Maximization

11. The profit of firm becomes the income of the owner The force of competition imposed profit maximization upon the firm to survive in business Criticism of profit maximization are: a) concept is vague b) ignores risk factors c) ignores shareholders interests d) may lead to production of goods which are not in the interests of society

12. It takes into account long term survival and growth of firm It is consistent with the object of owners economic welfare It suggest the regular and consistent dividend payments to the shareholders It considers risk and time value of money Redefined as value maximization

13. Sales Maximization Growth Maximization Return on investment Maximization Social Objectives etc

14. Estimating financial requirement Financial analysis and interpretations Selecting a source of finance Capital Budgeting Proper cash management Cost-Volume-Profit Analysis Implementing financial controls Proper use of surpluses

15. The Fundamental Principle Of Finance A business proposal-regardless of whether it is a new investment or acquisition of another company or a restructuring initiative –raises the value of the firm only if the present value of the future stream of net cash benefits expected from the proposal is greater than the initial cash outlay required to implement the proposal. CASH ALONE MATTERS Investors Investors provide the initial cash required The business proposal Shareholders to finance the business proposal Lenders The proposal generates cash returns to investors

16. Business Functions Of A Manufacturing Undertaking Purchase Function Production Function Distribution Function Research & Development Function Accounting Function Personnel Function

17. Purchase Function Materials should be procured on economic terms Efficient utilization to achieve maximum productivity Productivity Function It involves heavy investments in fixed assets and in working capital Cost benefit criteria for allocating funds Distribution Function Helps in choosing distribution channel and media of advertising which are cost effective

18. Accounting Function Financial accounting Cost accounting Management accounting Financial management Decision Investment Finance Dividend

19. Relationship Of Finance To Accounting Accounting is concerned with score keeping, whereas finance is aimed at value maximising. The accountant prepares the accounting reports based on the accrual method. The focus of the financial manager is on cash flows. Accounting deals primarily with the past. Finance is concerned mainly with the future.

20. Personnel Function It includes proper wage structure, incentives schemes, Promotional opportunity etc Research & Development Function Balance between the amount necessary for continuing R&D work and the funds available for such a purpose

21. All Managers Are Financial Managers The engineer, who proposes a new plant, shapes the investment policy of the firm The marketing analyst provides inputs in the process of forecasting and planning The purchase manager influences the level of investment in inventories The sales manager has a say in the determination of the receivables policy Departmental managers, in general, are important links in the finance control system of the firm

22. Operations (plant, equipment, projects) Financial Manager Financial Markets (investors) 1a.Raising funds 2.Investments 3.Cash from operational activities 4.Reinvesting 1b.Obligations (stocks, debt securities) 5.Dividends or interest payments Finance function – managing the cash flow

23. Operations Financial markets Financial Manager InvestmentsFinancing Capital structure and cost of capital

24. External Factors State of economy Structure of capital and money markets Requirements of investors Government policy Taxation Policy Lending policy of financial management Internal Factors Nature and size of business Expected return, cost and risk Composition of assets Structure of ownership Trend of earnings Age of the firm Liquidity position Working capital requirements

25. Emerging Role Of The Financial Manager In India The job of the financial manager in India has become more important, complex and demanding due to the following factors: Liberalisation Globalisation Technological developments Volatile financial prices Economic uncertainty Tax law changes Ethical concerns over financial dealings Shareholder activism

26. Emerging Role Of The Financial Manager In India The key challenges for the financial manager appear to be in the following areas: Investment planning and resource allocation Financial structure Mergers, acquisitions, and restructuring Working capital management Performance management Risk management Corporate governance Investor relations

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