What is Finance? Meaning & Definition of Financial management Goals of Financial Management Key decisions of Financial management Case study Factors / Determinants of Financial Management Organizational structure

1. BY,
ANIL KUMAR KY
Asst professor SIMS
FINANCIAL MANAGEMENT
III SEM BCOM
UNIT 1
INTRODUCTION
TO
FINANCIAL MANAGEMENT
(PART 1 OF 2)

2. Overview
 What is Finance?
 Meaning & Definition of Financial management
 Goals of Financial Management
 Key decisions of Financial management
 Case study
 Factors / Determinants of Financial Management
 Organizational structure

3. What is Finance?
Finance is the lifeblood of business organization.
Without finance there is no organization.
The term Finance refers to “all activities related
to obtaining money and its effective use”.

4. Meaning and Definition of
Financial Management
Meaning :
In simple words Financial Management means Managing the
Finance.
The financial Management defines as acquisition of funds
and their effective utilization to achieve overall objectives
of the firm.

5. Meaning and Definition of
Financial Management
Definition :
“ Financial Management is the operational activity of a
business that is responsible for obtaining and effectively
utilization of funds for efficient operation”.
- Joseph & Massie

6. Goals of Financial Management
Specific objectives
Goals of Financial management
General Objectives

7. Goals of Financial Management
Specific objectives:
(1) Profit Maximization
(2) Wealth Maximization
(1)Profit Maximization:
The primary objective of any business is to maximize its
profits. Profit is a parameter of measuring the efficiency
level of the business concern. The survival of the firm
depends upon its ability to earn profit. Maximization of
profits is necessary for the companies to pay dividends to
the shareholders, to meet the obligations of the business,
to pay salaries and wages to workers etc…

8. Goals of Financial Management
Advantages of profit Maximization
1. Parameter for measuring the efficiency level of a business.

9. Goals of Financial Management
Advantages of profit Maximization
.
2. Maximum welfare to shareholders, employees, and creditors
3. Helps to expansion and diversification programmes of a
company.
4. Attract the investors to invest their funds.

10. Goals of Financial Management
Advantages of profit Maximization
.
5. helps to overcome the unforeseen situations like
changes in prices, competition, changes in government
polices, market fluctuations etc..

11. Disadvantages of profit maximization

12. Goals of Financial Management
Disadvantages of profit Maximization
1. profit is not a clear term
2. ignores time value of money
3. it leads to exploitation of workers and consumers
4. it encourages corrupt practices to increase the profits
5. ignores risk factors
6. attracts cut throat competition
7. huge amount of profit attracts government intervention
8. huge amount of profit invites problems from workers

13. Goals of Financial Management
(2) Wealth Maximization
Wealth maximization is process of increasing shareholders
wealth by way of maximizing the market value of the
shares of a company
The concept of wealth maximization refers to the gradual
growth of the value of assets of the firms in terms of
benefit it can produce.

14. Goals of Financial Management
Advantages of wealth Maximization
1. Protection of interest of shareholders
2. Security to financial lenders
3. Protection of interest of the employees
4. Survival of management
5. It consider the time value of money
6. It consider the impact of risk factor

15. Goals of Financial Management
Disadvantages of wealth Maximization
• 1. The concept of increasing the wealth of the
shareholders differs from one entity to another business
entity.
2. It also leads to confusion and misrepresentation of
financial policy because yardsticks may be used by
different interest in a company.
3. Only shareholders wealth maximization does not lead
to firm’s wealth maximization.
4. The objective of wealth maximization is endangered
when ownership and management are separated.

16. Goals of Financial Management
General Objectives:
1. Balances asset structure:
Proper balance b/w fixed assets and current assets
2. liquidity:
Availability of cash
3. Proper planning of funds
4. Efficiency in business operation
5. Financial discipline
6. Growth and expansion
7. Maximum return to equity shareholders

17. Key decisions of financial
management
financial decisions
investment decisions finacing decisions dividend decions
Working capital management
decision

18. Key decisions of financial
management
1. Investment decision
Investment decisions concerned with where to invest funds
and in what amount. In other words investment decisions
relates to the selection of assets, in which funds will be
invested.

19. Key decisions of financial
management
2. Financial decision
Financing decisions concerned with where to raise funds and
in what amount. It relates to selecting the sources of fund.
The company can raise funds by issue of shares, debentures
or by taking loans and advances.

20. Key decisions of financial
management
3. Dividend decision
Dividend decision concerned with distribution of surplus
funds or profits.
Under dividend decision speaks about how much amount to
be distributed as dividends and how much amount to be
retained by business for future growth and expansion.

21. Key decisions of financial
management
4. working capital management decision
The company should have adequate amount of working
capital to meet the day to day expenditure of business. So
the company should maintain proper balance between
current assets and current liabilities.

22. SAHARA VS SEBI

23. Case study: what went wrong with
SAHARA’S Financing Decision
1. The Sahara group one of the biggest corporate establishment in
India
2. faced a severe blow from the supreme court’s judgment on raising
immense funds via public share.
3. Sahara group stating that they raised funds through non public
offering but SEBI argues that a huge amount close to 40000 cr
cannot fall under the purview of private offering.
4. Supreme court passed an order dated 23rd June 2011 directing the
Sahara company to refund the money collected from investors
with15% interest
Conclusion: select proper source of funds.

24. Factors / determinants of financial
management
1. Determination of financial needs/requirements
2. Determination of sources of funds
3. Investments of funds
4. Financial analysis
5. Optimum capital structure
6. Cost volume profit analysis
7. Profit planning
8. Capital budgeting
9. Fixed asset management
10. Working capital management
11. Dividend decision
12. Corporate taxation

25. Factors / determinants of financial
management
1. Determination of financial needs/requirements

26. Factors / determinants of financial
management
2. Determination of sources of funds

27. Factors / determinants of financial
management
3. Investment of funds

28. Factors / determinants of financial
management
4. Financial analysis

29. Factors / determinants of financial
management
5. Optimum capital structure
Deciding proper debt – equity mix

30. Factors / determinants of financial
management
6. Cost volume profits analysis

31. Factors / determinants of financial
management
7. profits planning

32. Factors / determinants of financial
management
8. Fixed asset management

33. Factors / determinants of financial
management
9. Working capital management

34. Factors / determinants of financial
management
10. Dividend decision

35. Factors / determinants of financial
management
11. Corporate taxation

36. Factors / determinants of financial
management
12. Capital budgeting
Technique used to evaluate the investment proposals.

37. Organizational Structure Of Finance
Department
share holders
board of directors
chairman
Managing director
CEO
General manager

38. Organizational Structure Of Finance
Department
General manager
Production HR Finance Marketing
Asst manger Asst manger finance committee Asst manager
Supervisor Supervisor Treasurer controller supervisor
Workers workers workers

39. Tresurer
1. Tresurer
a. Cash mangement
b. Investments
c. Tax and insurance
d. Credit collection
e. Relationship with bankers and FI’s

40. Controller
1. Controller
a. Financial planning
b. Investment decision
c. Cost reduction techniques
d. Preparation of annual reports
e. Internal audit
f. Tax administration
g. Protection of assets
h. Custody of records

41. BIBLIOGRAPHY
 Mohammed Umar (2016) “ financial management” published by
SKYWARD
 Reddy and Appannaiah (2016) “financial management” published
by HPH
 K Ramachandra and others (2016) “financial management”
published by HPH
 Ashwath narayana and others (2016) “financial management”
published by Vision book house
 www.investopedia.com
 www.managementnote.com
 www.publishyourarticles.net

42. THANK YOU