Introduction to finance management

1. Introduction to Financial
Management
Lecture 1

2. Objectives of this course
• Recognize the meaning and scope of financial management
• Describe the goals and objectives of financial management
• Explain the different Finance functions
• Discuss various significant aspects related to financial management

3. What is Finance
Finance can be defined as the art and science of managing money. Virtually, all
individuals and organizations earn or raise money and spend or invest money.
Finance is concerned with the process, institutions, markets and instruments
involved in the transfer of money among individuals, business and governments.

4. Definitions of Financial Management
1. According to Weston and Brighan, “Financial Management is an area of financial
decision making, harmonising individual motives and enterprise goals”.
2. According to Howard and Upon, “ Financial Management is the application of the
planning and controlling functions to the finance function”.
3. According to Ezra Soloman and Pringle John, “Financial Management is
concerned with the effective use of an economic resource namely capital fund”.
4. A formal definition of finance would be determining acquisition, allocation,
understanding and utilisation of financial resources usually in the aim of achieving
of some particular goals of objective.

5. Scope of Financial Management
Financial Management is broadly concerned with the acquisition and use of funds by a business
firm. The important tasks of financial management, as related to the above, may be categorized
as follows:
 Financial Analysis, Planning and Control
 Analysis of financial condition and preference
 Profit planning
 Financial forecasting
 Financial control

6. Balance sheet and Financial Management

7. P&L and Financial Management

8. Objectives of Financial Management

10. Objectives of Financial Management

11. Functions of Financial Management

12. Functions of Financial Management
• Liquidity Management
• Raising funds
• Managing the flow of internal funds
• Cost control
• Pricing
• Forecasting profits
• Measuring required returns
• Managing Assets
• Managing Funds

13. Place of Finance Function

14. Relation with other functions

15. New functions of Finance Manager
• 1. Continuous focus on margins and ensure that the organisation stays committed to value creation.
• 2. Work across the functional divide of the company and exhibit leadership skills.
• Understand what’s driving the numbers and provide operation insights, including a sense of external market issues
and internal operating trends and become key strategy player.
• 4. Aware and use the highly innovative financial instruments.
• 5. Know the emergence of capital market as central stage for raising money.
• 6. Adding more value to the business through innovations in impacting human capital.
• 7. Must balance the need to cut overhead with the need to create a finance organisation able to meet long-term goals
by---designing financial processes, systems and organise that can support the business in the future and initiating
cost reductions that further cut organisational fat, but not operational muscle.

16. New functions of Finance Manager
8. Liaison / connection to the financial community, investors and regulators (rating agencies, investment and commercial bankers and
peers), which are valuable information sources for strategic and tactical decisions.
9. Assess probable acquisitions, contemplating initial negotiation, carrying out due diligence, communicating to employees and
investors about the horizontal integration.
10. Deal with the post-merger integration in the light of people issues.
11. Deal with the new legislation (New Companies Bill, limited liability of Partnership) and regulations merely add more formality and
, to an extent , bureaucracy, to what most already subscribe to as best practices in financial reporting.
12. Be one of the undisputed arbiters in matters of financial ethics, with the backing of legislation and stiff penalties.
13. Finance managers are central to changes in audit and control practices. Corporate governance is a key issue that must be
continuously monitored and he/she should not push the limit of the P&L and growth.
14. Be aware of the proposed changes in financial reporting systems such as International Finance Reporting Standards (IFRS), Goods
and Services Tax (GST), Direct Tax Code(DTC) and Extensible Business Reporting Language(EBRL). Adapting and optimising within
changing tax reforms would become imperative for them and their organisation.

17. Finance Department Organisation Chart

18. Business organisations and Finance aspects

19. Agency problem in Finance
• An agency problem is a conflict of interest inherent in any relationship where one party is expected
to act in the best interest of another.
• Agency problems arise when incentives or motivations present themselves to an agent to not act in
the full best interest of a principal.
• Through regulations or by incentivizing an agent to act in accordance with the principal's best
interests, agency problems can be reduced
• For example, a principal will hire a plumber—the agent—to fix plumbing issues. Although the
plumber‘s best interest is to collect as much income as possible, they are given the responsibility to
perform in whatever situation results in the most benefit to the principal..
• Agency costs are a type of internal cost that a principal may incur as a result of the agency problem.
They include the costs of any inefficiencies that may arise from employing an agent to take on a
task, along with the costs associated with managing the principal agent relationship and resolving
differing priorities. While it is not possible to eliminate the agency problem, principals can take steps
to minimize the risk of agency costs.
• Principal-agent relationships can be regulated, and often are, by contracts, or laws in the case of
fiduciary settings. The agency problem may also be minimized by incentivizing an agent to act in
better accordance with the principal's best interests.

20. Summary