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Title: OVERVIEW OF FINANCIAL MANAGEMENT
Description: This note explained all about OVERVIEW OF FINANCIAL MANAGEMENT
Description: This note explained all about OVERVIEW OF FINANCIAL MANAGEMENT
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OVERVIEW OF FINANCIAL
MANAGEMENT
Definition: Financial management is that
managerial activity which is concerned with the
planning and controlling of the firm’s financial
resources
...
Scope of Finance
The three most important activities of a business firm
are:
1
...
Marketing
3
...
and Intangible real assets like patents,
copyrights
etc
...
Issued in
primary market and traded in secondary market
Equity & Borrowed Funds
• Two type of funds that a firm can raise: equity fund
and
borrowed fund(debt)
• A firm sell shares to acquire equity funds
• Another important source of securing capital is
creditors or lenders
...
• All activities directly or indirectly involve the
acquisition and use of funds
Finance Functions
The finance function are divided into long term
and
short term decisions and includes:
Long term decisions
• Investment or Long Term Asset Mix Decision
• Financing or Capital Mix Decision
• Dividend or Profit Allocation Decision
Short term decisions
• Liquidity or Short Term Asset Mix Decision
Long term decisions- decisions have a longer time
horizon, generally greater
than a year
• Investment or Long Term Asset Mix Decision- also
known as capital
budgeting decisions
...
Basically its a
capital structure decision
• Dividend or Profit Allocation Decision- Finance
manager must decide
whether the firm should distribute all profits or
retain i
...
Dividend
payout ratio
...
• Four broad functions are:
1
...
Allocation of Funds
3
...
Understanding capital Markets
1
...
Funds Allocation: The new or modern approach
to
finance is an analytical way of looking into the
financial problems of the firm
...
He has to answer the following questions:
• How large should an enterprise be, and how fast
should
it grow?
• In what form should it hold its assets?
3
...
• It refers to the operating decisions in the areas of
pricing, costs & volume of output
...
e
...
• Profit planning helps to anticipate the relationships
between volume, costs and profits and develop
action
plan to face unexpected surprises
4
...
• He or she should fully understand the operations
of
the capital markets and the way in which the
capital
markets value securities
...
Profit maximization
2
...
Shareholder’s Wealth Maximization
Goal 1:Profit Maximization
• Profit Maximization implies that a firm either
produces
maximum output for a given amount of input, or
uses
minimum input for producing a given output
...
Through Profit Maximization:
1
...
Appropriate measure of firm performance
3
...
Goal 2: Maximizing EPS
• Objections
• Maximizing EPS implies that the firm should make
no dividend payment so long as funds can be
invested at positive rate of return—such a policy
may not always work
• Ignores time value of money and risk of the
expected benefit
Goal 3: Shareholders’ Wealth
Maximization
• A financial action that has a positive NPV creates
wealth for shareholders and is therefore desirable
• Net Present value means the difference between
the
present value of cash inflows and the present value of
cash outflows
...
• Benefits are measured in terms of cash flows
...
Title: OVERVIEW OF FINANCIAL MANAGEMENT
Description: This note explained all about OVERVIEW OF FINANCIAL MANAGEMENT
Description: This note explained all about OVERVIEW OF FINANCIAL MANAGEMENT