This document provides an introduction to financial management. It discusses that financial management is concerned with planning and controlling a firm's financial resources. The four main financial decisions are investment, financing, dividend, and liquidity decisions. The role of the financial manager is to carry out all financial functions like fund raising, allocation of funds, and profit planning. Financial management helps balance inflows and outflows while making these important decisions.

1. Introduction to Financial
Management
Presented By:
Jia Dhingra,
Assistant Professor,
Baba Farid College of Management & Technology, Bathinda.

2. The Agenda of today’s Lecture
• What is finance?
• What is financial management?
• What are the four financial decisions?
• What is the role of Financial Manager in
modern times?

3. Finance
• It is a life blood of every business.
• “It is a provision of Money at the time it is
needed”
• This is an art and
science of managing
money.

4. Financial management
• It is a managerial activity which is concerned with
the planning and controlling of firm’s financial
resources.
• “acquisition of fund at optimum cost and its
utilization with minimum financial risk.”
• It was a branch of Economics till 1890s and
emerged as a separate subject after that.
• It is important to study financial management for
both Academicians and Practicing managers.

5. Financial Management
• It is related with the activities of the Financial
managers in raising the funds and proper
utilizing of these funds for meeting the needs
and goals of a business firm.
• There are two approaches of Financial
Management
1. Traditional Approach.
2. Modern Approach.

6. • Narrow term.
• Related with the activity of
procuring funds for the needs.
• Basically the analytical aspect was
missing at that time.
Traditional
approach.

7. • Emphasis is on both the aspects:
Conceptual & analytical.
• The role of manger also changed.
• Emerged after mid 1950s.
• As the business vital strategic role
emerged at that time.
Modern
Approach

8. Importance of Financial management
• Business are concerned with three main
activities that are:
1. Production.
2. Marketing
3. Finance.
Finance is the joint between these three main
activities of the business. Almost all the business
activities directly or indirectly involve the
acquisition of funds.

9. Four financial decisions
• The financial management revolves around the
four major financial decisions.
Investing
them in assets
Distributing the
returns earned
to the
shareholders
Raising
of funds
Balancing the
inflows and
outflows
while
performing
these
functions.

10. Four Financial decisions
Investment Decision.
Financing decision.
Dividend decision.
Liquidity decision.

11. Investment decision
• Includes capital expenditure.
• Related with the capital budgeting decision.
• Decision or allocation of capital or commitment
of funds to long term assets.
• Aspects of investment decision:
1. Evaluation of prospective profitability
of new Investment or Replacement.
2. Deciding the cut off.
• Risk and return.

12. Financing decision
• When?
• From where ?
• From whom?
are these funds to be acquired to meet the
firm’s investment needs!!
• Control is a main issue: Debt + equity
• Capital structure decision.
• In absence of debt, the shareholders returns
= firm’s returns.

13. Dividend decision
• Whether to distribute all the profits or retain
them.
• What is dividend?
• Related with the Dividend payout ratio.
• Related with the determination of dividend
policy.
• Optimum dividend policy.
• The ultimate role is maximization of
shareholders wealth.

14. Liquidity decision
• Related with current assets (working capital)
• Relationship between liquidity and profitability.
• Liquidity?
• Trade off between liquidity and profitability.
• Lack of liquidity leads to firm’s insolvency. On the other hand idle
resources will not fetch anything.

15. Financial Manager & His role
• Simply responsible for carrying out all the
financial functions.
• The transition in the role took place between the
shift of FM from the traditional to modern
approach.
• Fund raising.
• Funds allocation.
• Profit planning.
• Understanding capital markets.

16. Financial functions
Financial
functions
IncidentalExecutive

17. Finance functions
• Executive finance function requires
administrative skill in planning and execution
of the financial decisions.
• Whereas the incidental finance function
covers routine work mainly clerical that is
necessary to carry out the financial decision at
executive level.

18. Conclusion

19. Thanks