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Introduction to Finance Meaning & Definition: FM is “concerned with the efficient use of an important economic resource viz., capital funds” - Ezra Solomon in ‘Theory of Financial Management’
Definition.. Continued FM is concerned with, ”the managerial decisions that result in the acquisition and financing of long-term and short-term credits for the firm. As such, it deals with the situations that require the selection of specific assets (or combination of assets), the selection of specific liability (or combination of liabilities) as well as the problem of size and growth of an enterprise” -Phillipatus
Scope of Financial Management Scope UNDER Traditional Approach -Raising Funds -External Reporting (Accounting Function) -Institutions & Instruments
Scope Under Modern Approach Financing Decisions: Estimation of Fund Requirement, Procurement of Fund, Planning the Capital Structure, Negotiating with Funding Agencies Investment Decisions: Cash Management, Working Capital Management, Capital Budgeting, Portfolio Management, Risk Management, Evaluation of Performance Dividend Policy Decisions: Profit Allocation and Framing Dividend policies
Objectives of Financial Management Profit Maximisation: Need for Profit and Criticisms in the form of Ignorance of Time Value of Money, Vagueness, Ignoring Risk and Uncertainties and the role of Growth Wealth Maximisation: Gross Present Value, Net Present Value and Wealth Imparting Sufficient Liquidity Adding to Shareholder Value Corporate Governance
Changing Role of Finance Managers Performing Financial Analysis & Planning Financial Restructuring Portfolio Management Designing Innovative Instruments Enhancing Shareholders' Wealth Legal Compliance Monitoring Share Price Movement Searching for Investment Opportunities Facilitating Organic Growth Enabling Inorganic Growth