Supporting presentation for Chapter 1 from Fundamentals of Financial Management by Prasanna Chandra. The presentation is useful when accompanied with the textbook.

1. Financial
Management
An Overview
From the “Fundamentals of FINANCIAL MANAGEMENT”
- by Prasanna Chandra

2. How till you handle day-to-day financial activities?
Start your own business???

3. Financial
Management
When Starting a business, the entrepreneur
is encountered with these questions
relevant to the finances of the company.
While these may not be the only concerns,
but t h e y a r e t h e v i ta l o n e s .
Managing the finances of a company is
FINANCIAL MANAGEMENT. The following
slides will provide an overview of the
financial management…

4. Forms of Business Organisation
Sole Proprietorship
• Simple
• Single person ownership
• Unlimited Liability
Partnership
• Two or more persons
• Partnership deed
• Unlimited shared Liability
Limited Liability Partnership
• Two or more partners
• One Indian Resident is must
• Partnership agreement
• Limited Liability
Cooperative Society
• Minimum 10 members
• Members are owners
• One member one vote
• Limited Liability
Company
• Owned by shareholders
• Distinct legal ‘person’
• Complex
• Public Ltd or Private Ltd
• Limited or no Liability

5. Financial Decisions
FINANCIAL MANAGEMENT
Capital Budgeting
• Define business or businesses
• Financial Planning
• Capital Allocation
• Investment projects
Capital Structure
• Debt-equity ratio
• Capital Markets
• Securities
• Dividend payout
Working Capital
• Day-to-day financial activities
• Current assets and liabilities
• Inventory
• Cash in hand

6. Goal of the Firm
Shareholders’
Wealth Maximisation
Adam Smith’s ‘Invisible Hand’ is at work when investors’ private gain is a public value
A proper balance between shareholders, employees, and communities is
what we try to achieve. But it is a tough balancing act because, in the end,
if you don’t satisfy shareholders, you don’t have the flexibility to do the
things you have to do to take care of employees or communities. In our
society, whether we like it or not, we have to satisfy shareholders.
Jack Welch
CEO
General Electric

7. Adam Smith’s ‘Invisible Hand’
Adam Smith introduced the concept in his 1759 book The Theory of Moral Sentiments and later in his 1776 book An Inquiry Into the Nature and Causes of the Wealth of Nations.
Competition and
Self-interest act as
an invisible hand
that regulates the
free market
Competition keeps prices low
Competition keeps quality high
Profit seeking producers will earn more
Government does not get involved
Needs of Society automatically met

8. Alternative Goals
Maximisation of Profit
Maximisation of Earnings per share
Maximisation of return on equity
Each of the goals mentioned
here have their own
shortcomings and hence
maximization of the wealth of
shareholders appears to be the
most appropriate goal for
financial decision making

9. Fundamental Principal 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 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
Net present value
= Present value of future cash benefits – Initial cash outlay

10. Organisation of the Finance Function
Chief Financial
Officer
Treasurer Controller
Financial Accounting
Manager
Cost Accounting
Manager
Tax
Manager
Data Processing
Manager
Internal Auditor
Cash
Manager
Credit
Manager
Capital Budgeting
Manager
Portfolio Manager
Fund Raising
Manager

11. Relationship of Finance to
Economics and Accounting

12. Linkages to Economics
MICROECONOMICS MACROECONOMICS
Defines the environment
within which a firm
operates
Provides the conceptual
underpinning for the tools
of financial decision making

13. Linkages to Accounting
Storekeeping Value Maximising
• Measure performance
• Assess financial health
• Determine base for tax
Vs
• Create shareholder value
• Positive NPV
• Minimise cost of financing

14. Linkages to Accounting
Accrual Method Cash Flow Method
The accrual method recognizes
revenues when the sale occurs and
matches expenses to sales
(irrespective of actual cash
transactions)
Vs
Finance manager are focused on cash
flows. Financial manager are concerned
about the magnitude, timing and risk of
cash flows

15. Linkages to Accounting
Certainty Uncertainty
• Accounting deals primarily with
the past. It records what has
happened.
• Hence it is more objective and
certain
Vs
• Finance is concerned mainly with
future
• Involved decision making under
imperfect information and
uncertainty

16. Regulatory Framework
SEBI Guidelines
Industry Policy
Company Act

17. Thank you