48024802 financial management ppt

8/10/2019 48024802 Financial Management Ppt

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FINANCIAL MANAGEMENT


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FINANCE

PUBLIC FINANCE PRIVATE FINANCE

PERSONAL FINANCE

BUSINESS FINANCE

FINANCE OF NON-PROFIT

ORGANISATIONS

CENTRAL GOVT

STATE GOVT

LOCAL AUTHORITIES


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BUSINESS FINANCEDEFINITION: That business activity which is

concerned with the acquisition and conservation ofcapital funds in meeting the financial needs andoverall objectives of business enterprise. (Wheeler)

Accord ing toGuthamann & Dougal l, Businessfinance can be broadly defined as the activityconcerned with the planning, raising, controlling andadministering the funds used in the business

Meaning:Business finance is the process of raising,providing and administering of all money/funds to beused in a business enterprise


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FINANCIAL MANAGEMENT

Financial management refers to that part of

management activity which is concerned with the

planning and controlling of the firms financial

resources. It deals with finding out various sourcesof raising fundsfor the firm and also using such

funds in the most appropriate manner

J.F.Bradley, The area of the business management

devoted to a judicious use of capital and a carefulselection of sources of capital in order to enable a

spending unit to move in the direction of reaching its

goals.


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Importance of

Financial Management

FM helps in

Financial planning & successful promotion of an

enterprise

Acquisition of funds at minimum cost

Proper use & allocation of funds

Taking sound financial decisions

Improving profitability through financial control

Increasing the wealth of investors and the nation Promoting and mobilising individual and corporate

savings


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SCOPE OF FINANCIAL MANAGEMENT

Estimating financial requirements (sho rt term &long term )

Deciding capital structure

Selecting a source of finance Selecting a pattern of investment

Proper cash management

Implementing financial controls Proper use of surpluses


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FINANCE FUNCTION

Long-term asset mix or investment decision

Capital-mix or financing decision

Profit allocation or dividend decision Short-term asset mix or liquidity decision


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INVESTMENT DECISION

Also referred to as Capital Budgeting Decision,involves the decision of allocation of capital tolong term assetsthat would yield benefits in thefuture.

Important aspects-a) Evaluation of prospective profitabilityand

b) Measurement of cut-off rate or required rate ofreturn

Evaluation should be made in terms of both risk andreturn

Capital budgeting also involves replacement decisions


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FINANCING DECISION

Deciding- when, where from and how to acquire funds

to meet the investment needs.

Central issue- determining the optimum capital

structure(mix of debt & equity). Capital structure will

be optimum when the market value of shares is

maximised

Proper balancehas to be struck between risk & return

Also considers factors such as control, flexibility, loan

agreements, legal aspects etc


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DIVIDEND DECISION

Decide whetherthe firm should distribute all profits, orretain them, ordistribute a portion and retain the

balance.

The proportion of profits distributeddividend-payout

ratioThe proportion of profits retainedretention ratio

Optimum dividend policymaximises the market value

of shares

Dividendcan be paid either in cash orin shares.[Bonus shares]


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LIQUIDITY DECISION

Investment in current assetsor current assetmanagement or working capital management

Short term survivalis a pre requisite for long termsuccess

Lack of liquidityinsolvency( in extreme situations)

Profitability-liquidity trade-off

2 basic ingredients-

a) overview of working capital management as a whole

b) Efficient management of individual current assets


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FACTORS INFLUENCING FINANCIAL

DECISIONS

External Factors:

a) State of economy

b) Structure of capital & money markets

c) Requirements of investors

d) Government policy

e) Taxation policy

f) Lending policy of financial institutions


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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

Conditions of debt agreements


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Functional Areas of FM

Determining Financial needs Choosing the sources of funds

Financial Analysis & Interpretation

Cost-Volume Profit Analysis Capital Budgeting

Working Capital Management

Profit Planning and Control Dividend Policy


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ROLE OF A FINANCIAL MANAGER

Financial Forecasting & Planning

Acquisition of funds

Funds allocation

Helping in valuation decisions Maintain proper liquidity

Profit planning-operating decisions in theareas of pricing, costs, volume of output and

the firms selection of product lines. Understanding capital markets

48024802 financial management ppt

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