Presenting syllabus of 207 Financial Management MBA North Maharashtra University

1. 207 Financial Management
Presented By,
Prof. Kavita P Patil.
GHRIBM Jalgaon

2. Chapter : 1
Financial Management

3. What is Financial Management?
Meaning
The financial management means:
To collect finance for the company at a low cost
and To use this collected finance for earning
maximum profits.
Thus, financial management means to plan and
control the finance of the company. It is done
to achieve the objectives of the company.

4. Nature of Financial Management
• Procurement of Funds
• Effective Use Of Funds
• Flexibility
• Managerial Decision Making
• Financial Planning
• Financial Analysis
• Financial Control
• Credit Management

5. Role of finance manager
• Estimation of long term and short term financial
need.
• Formulation of financial policies.
• Evaluate financial and economic viability.
• Review of cash flow & performance measurement.
• Conduct special studies on cost.
• Submission of periodical report.
• Disclose of financial result.
• Selection of capital expenditure proposal.

6. Scope or Content of Financial
Management/ Finance Function:-
• Estimating Financial Requirements
• Deciding Capital Structure
• Selecting a Source of Finance
• Selecting a pattern of Investment
• Proper cash Management
• Implementing Financial Controls
• Proper use of Surplus

7. Traditional Approaches to financial
Management
• In traditional view the finance manager need
to look in to the following functions :
• Arrangement of short term long term finance.
• Mobilizing the fund.
• Orientation of finance functions.

8. Modern Approaches to financial
Management
• In modern approach the finance manager
expected to analyses the firm and following
things:
• Total fund requirement.
• Total asset acquire
• Pattern to financing to those assets.
• Take three important decisions ( investment,
finance, dividend)

9. Functional areas of finance manager
• Manager accounts.
• Management accountant
• Credit manager.
• Manager taxation
• Cash manager
• Corporate finance and funding manager.
• Foreign exchange manager.

10. Relationship of finance function with
other discipline
• Marketing
• Production
• Quantitative Methods
• Human Resources Management
• Accounting
• Economics.

11. Risk and Return
• Risk: it is the situation in which the individual
can assign the probability to the available
outcomes.
• Return: in simple words the return is nothing
but the yield on the investment or outcome
on investment.

12. Risk – return trade off
• High risk high return.
• Average risk average return.
• Low risk low return.

13. Portfolio Management
• Portfolio management is concern with
efficient management of investment in
securities.
• It deals with the process selection of selection
of securities from the number of securities
available with different risk and return.

14. Treasury management
• Treasury management (or treasury operations)
includes management of an enterprise's holdings,
with the ultimate goal of maximizing the firm's
liquidity and mitigating its operational, financial
and reputational risk.
• Treasury Management includes a firm's
collections, disbursements, concentration,
investment and funding activities. In larger firms,
it may also include trading in bonds, currencies,
financial derivatives and the associated financial
risk management.

15. Financial analysis: Value Analysis
• “The process of evaluating businesses,
projects, budgets and other finance-related
entities to determine their suitability for
investment”.

16. What will see while doing value
Analysis
• Focus areas while doing analysis
• Income statement
• Balance sheet
• Cash flow statements
• Past Performance of company.

17. The formula for calculating EVA is as
follows:
• Net Operating Profit After Taxes (NOPAT) -
(Capital * Cost of Capital)
• Eg. NOPAT= 200000.
• Cost of Capital= 50000
• EVA= 200000-50000= 150000

18. 'Economic Value Added - EVA'
• DEFINITION
A measure of a company's financial
performance based on the residual wealth
calculated by deducting cost of capital from its
operating profit (adjusted for taxes on a cash
basis). (Also referred to as "economic profit".)
• The EVA approach use to know real value of
business.

19. Time value of money
The time value of money theory states that a
dollar that you have in the bank today is
worth more than a reliable promise or
expectation of receiving a dollar at some
future date
In simple according to the time period the
value of money is change is called time value
of money.

20. Time value of money
e.g. the price of gold before 10 yrs amt(5000 for
10 gm)
The current value for the 10 gm gold is 30,000
So the time value of money is decrease in last
10 yr is around 25000 At that time the 5000
have greater worth than the todays 30000

21. Importance of Time value of money
• The great importance of the time value of
money is for financial decision making, like
finance decisions, investment decisions,
budgeting. Etc.

22. DEFINITION of 'Real Interest Rate'
• An interest rate that has been adjusted to
remove the effects of inflation to reflect the
real cost of funds to the borrower, and the
real yield to the lender. The real interest rate
of an investment is calculated as the amount
by which the nominal interest rate is higher
than the inflation rate.
• Real Interest Rate = Nominal Interest Rate -
Inflation (Expected or Actual)

23. For example
• if you are earning 4% interest per year on the
savings in your bank account, and inflation is
currently 3% per year, then the real interest
rate you are receiving is 1% (4% - 3% = 1%).
The real value of your savings will only
increase by 1% per year, when purchasing
power is taken into consideration

24. DEFINITION of 'Nominal Interest Rate'
• The interest rate before taking inflation into
account. The nominal interest rate is the rate
quoted in loan and deposit agreements. The
equation that links nominal and real interest
rates is:
(1 + nominal rate) = (1 + real interest rate) (1 +
inflation rate).
It can be approximated as nominal rate = real
interest rate + inflation rate.

25. Chapter : 2
Sources of Finance

26. Short term Sources
1. Trade Credit:
Trade credit is the facility in which business
firms are allowed by the suppliers of raw
material, service ,components , and parts to
defer the payment to definite future period.
2. In simple the credit allowed by supplier to
the customer in business is called as trade
credit .

27. Terms in Trade Credit
• Maximum credit limit.
• Credit Period
• Cash Discounts
• Starting Date

28. Commercial Papers
Commercial paper is simply the negotiable
instrument of short term finance which have
maturity period of 1 year

29. Public Deposits:
• Public deposits refer to the unsecured
deposits invited by companies from the public
mainly to finance working capital needs. A
company wishing to invite public deposits
makes an advertisement in the newspapers.

30. Bills Discounting
• In the process of bill discounting the supplier
of goods draw a bill of exchange with the
direction to buyer to pay certain amount of
money after some period and gets its
acceptance from buyer or drawee of the bill.
• It is simply noting but bill of exchange.

31. letter of credit
• A letter of credit is a document from a bank
guaranteeing that a seller will receive
payment in full as long as certain delivery
conditions have been met.
• A letter of credit provides the seller with a
guarantee that they will get paid as long as
certain delivery conditions have been met

32. letter of credit
• The bank that writes the letter of credit will act
on behalf of the buyer and make sure that all
delivery conditions have been met before making
the payment to the seller.
• The purpose of a letter of credit is to ensure
successful business transactions between sellers
and buyers. Basically, you make a promise to pay
a seller when you receive goods, and the seller
accepts your promise because the bank-issued
letter of credit guarantees payment.

33. Cash Credit
• Cash credit is a type of loan which is made
available on the business’ current account up
to a specific amount and according to certain
well-defined conditions, thereby offering a
greater flexibility of use.
• in simple A cash credit is a short-term cash
loan given to a company by bank against the
security with credit limits.

34. Cash Credit
• Advantages:
• Provide good cash flow.
• Benefits of discount.
• Fulfill the working capital requirements.
• Disadvantages:
• Higher rate of interest.
• Need to be kept security with bank
• Short period of notice given by bank

35. Overdrafts
• The banks allows to its customer to overdraw
his account up to a specific sanctioned
overdraft limit.
• The interest charge on the amount actually
overdrawn and not on the overdraft limit
sanctioned.
• This facility is used by the current account
holders.

36. Retained Earnings
• The retained earning is noting but
consequences of not distributing the profit
earned by company among the shareholders
by way of dividend . But utilize that profit into
working capital requirements.(internal
financing) and increase the saving of business.

37. Long Term sources
Debt/Equity
• Debt capital : debt capital means the capital
which is form on the basis of debt instrument
such as debentures, bonds , etc.
• Equity capital: Equity capital means the capital
form throughout the shares.

38. Chapter : 3
Indian Capital Market

39. Capital market
• Definition:
Capital market is a market where buyers and
sellers engage in trade of financial securities
like bonds, stocks, etc. The buying/selling is
undertaken by participants such as individuals
and institutions

40. Functions and importance
• Link between Savers and Investors
• Encouragement to Saving
• Encouragement to Investment
• Promotes Economic Growth
• Stability in Security Prices
• Benefits to Investors

41. Primary market
• The primary market is the part of the capital
market that deals with issuing of new
securities. Companies, governments or public
sector institutions can obtain funds through
the sale of a new stock or bond issues through
primary market.

42. Secondary market
• The term "secondary market" is also used to
refer to the market for any used goods or
assets, or an alternative use for an existing
product or asset where the customer base is
the second market.

43. SEBI
• The Securities and Exchange Board of India
(SEBI) is the regulator for the securities
market in India. It was established on 12 April
1992 through the SEBI Act, 1992. SEBI has to
be responsive to the needs of three groups,
which constitute the market:
• 1. the issuers of securities
• 2. the investors
• 3. the market intermediaries

44. Powers of SEBI
• To approve by−laws of stock exchanges. to require the stock exchange to
amend their by−laws.
• inspect the books of accounts and call for periodical returns from
recognized stock exchanges.
• inspect the books of accounts of a financial intermediaries. compel certain
companies to list their shares in one or more stock
• exchanges.
• levy fees and other charges on the intermediaries for performing its
functions.
• grant license to any person for the purpose of dealing in certain areas.
delegate powers exercisable by it. prosecute and judge directly the
violation of certain provisions of ⌡the companies Act.
• power to impose monetary penalties.

45. Bombay Stock Exchange
• Started in 1875.
• Oldest stock exchange.
• Largest in 23 stock exchange.
• 6000 are the participants.
• 2/3 rd transactions are done in this stock
exchange.
• Introduces the equity derivatives.

46. • Originated in 1992 but come to in trading in
1994.
• Near about 1000 participants.
• Work in 3 segments. 1. whole sale debts. 2.
future. 3. option.
• Main motive is to provide better transfer
system.
National Stock Exchange

47. • Started 1992.
• It is first worldwide electronic stock exchange.
• The main purpose is to provide cost effective
and convenient platform for raising finance.
• It introduced first time screen base system.
Over Trade Counter Stock Exchange

48. institutional investors:
• An institutional investor is an investor, such as
a bank, insurance company, retirement fund,
hedge fund, or mutual fund that is financially
sophisticated and makes large investments,
often held in very large portfolios of
investments.

49. Foreign institutional investors:
• The foreign institutional investors are nothing
but the investors who are investing their
money from the other country

50. Various intermediatories in capital
market
• Financial intermediaries include :
• 1. Stock Exchange : NSE, BSE
• 2. OTCEI
• 3. SEBI
• 4. Derivatives
• 5. Money Market Mutual Fund

51. Capital market index
• index is a number used to represent the
changes in a set of values between base time
period and another time period
• In simple index is indicator of market
movements.
• Types of index.
• 1. Sensex
• 2. Nefty

52. Capital Market Securities
• Stocks and bonds are generally termed as the
capital market securities. These are traded in
separate markets. These capital market
securities are used by a number of companies,
corporations and governments to raise funds
for various purposes.

53. Chapter : 4
Banking System in India

54. Overview of Banking System in India
• The first bank in India, though conservative, was
established in 1786. From 1786 till today, the
journey of Indian Banking System can be
segregated into three distinct phases.
• Early phase from 1786 to 1969 of Indian Banks.
• Nationalization of Indian Banks and up to 1991
prior to Indian banking sector Reforms.
• New phase of Indian Banking System with the
advent of Indian Financial & Banking Sector
Reforms after 1991.

55. Commercial Bank
• term "commercial bank" to refer to a bank or
a division of a bank primarily dealing with
deposits and loans from corporations or large
businesses.
• Structure of banking System
• Organized Sector.
• Unorganized sector.

56. Role and Functions of Commercial
Bank
• issuing bank drafts and bank cheques.
• accepting money on term deposit.
• lending money by overdraft, installment loan, or other means
• providing documentary and standby letter of credit, guarantees,
performance bonds, securities underwriting commitments and other
forms of off balance sheet exposures
• safekeeping of documents and other items in safe deposit boxes
• sale, distribution or brokerage, with or without advice, of insurance, unit
trusts and similar financial products as a “financial supermarket”
• cash management and treasury services
• merchant banking and private equity financing
• Traditionally, large commercial banks also underwrite bonds, and make
markets in currency, interest rates, and credit-related securities, but
today large commercial banks usually have an investment bank arm that is
involved in the mentioned activities.

57. NBFC
• NBFC is company registered under the companies
act 1956 of india and is engaged in the business
of loans and advances, leasing , hire purchase ,
insurance business, chit business but does not
include any institution whose principle business
is that of agriculture activity, sales/ purchase
/construction of immovable property.
• In simple it is complimentary to banking sector

58. Types of NBFC
• Equipment leasing company
• Hire-purchase company
• Loan company
• Investment company
Further classification of above companies.
• Asset finance company
• Investment company
• Loan company

59. Regulations
• Only those NBFCs holding a valid certificate of
registration can accept public deposits.
• Minimum NOF of Rs. 25 lakhs.
• Minimum capital to risk asset ratio should be
12 and 15 %
• Transfer of minimum 20% of the net profit to
the reserve fund.

60. New Concept in Banking
• Retail banking.
• Microfinance.
• Credit/debit card.
• ATMs.
• Online Banking.
• Mobile Banking.

61. Chapter : 6
Credit Rating

62. Credit Rating
• A credit rating is an evaluation of the credit
worthiness of a debtor ,especially a business
(company) or a government, but not
individual consumers.

63. Evolution
• Originated in 1841
• First credit rating agency established in 1841.
• Another one is established in 1959
• In india 3 credit rating agencies which are
giiven below:
• CRISIL
• ICRA
• CARE.

64. FUNCTIONS
• Providing superior information
• Low cost transaction
• Basis for calculating the risk
• Healthy discipline in corporate borrowings.
• Grater freedom to the financial and others.

65. Credit Rating Process
• The rating process takes about two to three
weeks, depending on the complexity of the
assignment and the flow of information from
the client.
• Ratings are assigned by the Rating
Committee.

66. Process of credit rating

67. Chapter : 5
Financial Services

68. Mutual Fund
• Mutual fund is the trust that pools the saving
of a number of investors who share a
common financial goal.
• According to SEBI act 1996 the mutual fund is
the fund establish trust which raise the money
throughout selling of units to the public.

69. Evolution
• Originated in 19 th century.
• US had about 68 funds in 1998.
• Start with close ended funds
• UTI is the first mutual fund in india.
• In 1992 SEBI pass the regulations.

70. Advantages
• Reduce risk
• Diversified investment
• Stress free investment
• Investment care
• Tax benefits
• Low investment and easy liquidity.

71. Types of mutual fund scheme
• Based on maturity period.
• 1. open ended
• 2. close ended
• Based on investment
• 1. growth
• 2. income
• 3.Money market
• 4.Guilt age.
• 5. other.

72. • Based on Special schemes.
• Growth
• Load
• No-load
• Industry specific
• Sector scheme.
Types of mutual fund scheme

73. Financial Risk
• Market Risk
• Interest rate Risk
• Inflation Risk
• Business Risk
• Credit Risk
• Political Risk
• Liquidity Risk
• Timing Risk.

74. Performance measurement of MFs
• The Treynor Measure
• The Sharp Measure
• Jenson model
• Eugene fama model.

75. Tax Implications
• Capital gain
• TDS
• Wealth tax
• Income from units
• Income distribution tax
• Section 88

76. Regulatory Aspect
• No scheme approved without prior permission
of board.
• Each MF always with document and filling
fees.

77. Insurance
“In simple protection against the possible losses
or future risk is called insurance.”
“Insurance is the instrument which saves the
person from future losses.”

78. Major insurance Role.
• The underwriter.
• The surveyor
• The broker.
• The claim advisor.
• The financial advisor
• The actuary.

79. Types of insurance policies
• Endowment policy
• Whole life policy
• Term life policy
• Money back policy
• Joint life policy
• Children insurance policy
• Pension plan or annuities
• Women's policies.

80. Types of insurance.
• Life insurance
• General insurance.
• Agriculture and banc assurance
• Re-insurance
• Group insurance
• Micro – insurance.

81. Financial services
• Financial services are the economic services
provided by the finance industry, which
encompasses a broad range of organizations
that manage money, including credit unions,
banks , credit card companies, insurance
companies, accountancy companies,
consumer finance companies, stock
brokerages, investment funds, real estate
funds and some government sponsored
enterprises.

82. Functions of financial services
• Mobilization of fund.
• Effective deployment of fund.
• Provision of regular fund.
• Enhancing economic activities.
• Provision of need base services.

83. Features of financial services
• Highly customer oriented
• Intangibility
• Inseparability
• People based
• Dynamic.

84. Constituents of financial services
• Instruments
• Market players.
• Specialized institutions
• Regulatory bodies.

85. Thank you !!!