This presentation covers basic aspects of Financial management, its scope, goals, type of financial decision,

1. Finance Management
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2. Finance Management
“Collection of funds and their effective utilisation for efficient running of and
organization “is called financial management.
Financial management has influence on all activities of an organisation.
Two basic aspects of finance management are
 Procurement of Funds
 Utilization of Funds
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3. Basic Aspects of Finance Management
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Debenture
s & Bonds
Owner’s
fund (Equity)
Venture
capital
Banks &
FI’s
Angel
Financing
Hire purchase
& leasing
Procurement
of funds
Equity
offers
Lending service
Non Fund based
Guarantee
Letter of
Credit
Fund based
Term
Loans
Working
capital
advances
Bill/
Purchase/
discounting
Cash/
Credit Overdraft

4. Scope of Finance management: Financial
decisions
Finance lies at the root of economic activity. Financial decisions play a
significant role in management operations.
Nature of Financial Decisions (functions)
 Long tern investment decisions or capital budgeting
 Working capital decisions
 Financing decisions
 Dividend decisions
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5. Financial Decisions
Long tern investment decisions or capital budgeting
Selection of long term investment proposals and investment of funds. Preferably the
proposals are considered on the basis of risk adjusted returns compared to returns expected.
 Working capital decisions
Takes into account the management of current assets and current liabilities.
oSmall size current assets may increase profitability however danger or illiquidity looms large.
oLarge size current assets may ensure liquidity but profitability declines
oOperating cycle refers to the period in which cash investment takes form of cash again after
moving through inventory and account receivables. Profitability may be increased by
shortening the operating cycle.
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6. Financial Decisions
Financing decisions
Concerned with raising of funds that finance assets . Financing decision should ensure
optimum capitalization.
Funds should be adequate to finance assets. Excess fund will not add to the output
but adds to financing cost thereby eroding profitability.
Different forms of capital carry varying cost, so proportion mix of different form of
capital should aim to minimize weighted average cost of capital
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7. Financial Decisions
Dividend decisions
A part of profit is distributed as dividend and rest is retained with the firm for purpose
of investment.
There are divergent views on how much portion of profit should be given as dividend
o Investors are indifferent towards dividend and capital gains. So profits should be
first reinvested and dividend is passive residual.
o Paying dividend as much as possible is preferred as it has positive effect on
capitalization.
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8. Goals of Finance Management
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Typical goals of the firm include
stockholder wealth maximization
profit maximization
managerial reward maximization
social responsibility.
Modern managerial finance theory operates on the assumption that the primary goal
of the firm is to maximize the wealth of its stockholders, which translates into
maximizing the price of the firm’s common stock.
The other goals mentioned above also influence a firm’s policy but are less important
than stock price maximization. The traditional goal of profit maximization is not
sufficient for most firms today

9. Goals of Finance Management
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Profit maximization is basically a single-period or, at the most, a short-term goal.
It is interpreted to mean the maximization of profits within a given period of time.
A firm may maximize its short-term profits at the expense of its long-term
profitability and still realize this goal.
In contrast, stockholder wealth maximization is a long-term goal, since stockholders
are interested in future as well as present profits.
Wealth maximization is generally preferred because it considers
wealth for the long term;
risk or uncertainty;
the timing of returns
the stockholders’ return.