1. Financial management involves strategic planning, organizing, directing, and controlling financial operations of a company. It aims to apply management principles to maximize shareholder wealth. 2. Financial management helps anticipate capital needs by estimating working capital and fixed capital requirements. It must attain a proper balance between debt and equity to minimize capital costs. 3. Key functions of financial management include capital budgeting, determining optimal capital structure, making sound financial decisions, and properly managing working capital, dividends, and company profits.

1. FINANCIAL MANAGEMENT
UNIT - I

2. MEANING:
Financial management is strategic planning,
organising, directing, and controlling of financial
undertakings in an organisation or an institute. It also
includes applying management principles to the financial
assets of an organisation, while also playing an important part
in fiscal management.

3. Nature of financial management
Financial management helps in anticipation of funds by estimating
working capital and fixed capital requirements for carrying business
activities. Proper balance between debt and equity should be
attained, which minimizes the cost of capital.

4. Scope of Financial Management
1. Capital Budgeting
The company's financial management executives are responsible for making predictions
regarding all the business transactions and costs of operations. Based on this estimate,
they generate the probable estimate of fixed capital and working capital required by the
company in a particular period. Moreover, the financial professionals also have to make
projections for any additional funds the company may receive from investors. Accordingly,
they create a budget for the allocation of those funds.
2. Capital Structure
After projecting the financial budget, the financial management experts must formulate a
plan for structuring this capital. First, they have to control the transactions and divide the
available money into different parts, such as the owner's risk capital, borrowed capital,
and short-term and long-term debt-equity ratio. Subsequently, the executives also have
to consider various financial components like the cost of assembling the capital from
investors and other external sources and the amount of time for which this capital will be
utilized.

5. 3. Financial Decision
Financial decisions include all sorts of choices regarding sources to generate funds,
investment decisions, and cash flow management. The business can raise funds from
different sources like investors, shareholders, banks, public deposits, and other
financial lenders. The financial management department scrutinizes all these sources
and chooses the source with maximum profit and minimum liability. In addition to
generating funds, financial professionals also make plans for wise investment of these
funds to improve the company's return on investment. They carry out capital
budgeting through opportunity cost analysis and make investments while ensuring
the business's safety, liquidity, and profitability.
4. Working Capital Management
Working capital management is an important element of financial management. It
requires three primary tasks to maintain a solid financial position for the company:
First, financial executives record the company's assets and liabilities to ascertain the
cash flow. This cash flow is used to cover short-term operational costs and short-term
liabilities.
The finance department scans different ratios to manage the working capital. These
include the working capital ratio, the collection ratio, and the inventory ratio. The
results obtained after the study help professionals carry out smooth operations in the
business.
Proper working capital management enables cash flow and revenue maintenance,
allowing the organization to utilize its resources in profitable directions

6. 5. Dividend Decision
A company has two options: pay dividends to shareholders or hold on to the
profits. Financial management meaning focuses on the decision between
these two options that will support the company's growth. The main aim of
a financial manager is to optimize the shareholder's wealth as it works in the
company's goodwill. The dividend decision is the essential scope of financial
management. Dividends are payouts to shareholders and are calculated
using Earning Per Share. The distributed amount is directly proportional to
the shareholder's favor and the company's right set of investment
conditions.
6. Profit management
The financial management has to take steps to distribute the company's
revenues and profits appropriately. The company has various debatable
requirements, and the funds must be assembled according to priorities and
returns. Sometimes, companies keep aside some funds as a reserve. This is
taken from the business's earnings. In addition, some amount of funds is
either pulled out or reinvested. The financial department's responsibility is
to draw out the strengths and shortcomings of different sources for using
the company's profits and earnings before coming to a conclusion.

7. Functions of Financial Management
1. Financial Planning and Forecasting
For social and non-profit organizations, the ultimate goal of running a business is the
greater good of society. But most companies have the objective of getting more return
on investment. These profits act as a buffer between the current financial status of the
company and its future standing. An appropriate allocation of funds enables the
financial management to plan and forecast the company's future. It allows them to
make decisions regarding the generated profits, whether an organization will benefit
from pulling out the funds and procuring assets or reinvesting the profits in the
company and improving marketing strategies.
2. Cash Management
The financial department is in control of all the cash flow operations. A company needs
cash for several reasons, such as paying salaries, electricity bills, property bills,
purchasing goods, and maintaining storage space.
3. Estimating Capital Expenses
The financial executive must devise projections for the capital needed to run daily
operations. These projections include cost estimates, profits, future expenses, and a
window for plausible losses. The capital expenses are calculated so that the company's
revenue grows uninterruptedly.

8. 4. Determining Capital Structure
After creating the framework for capital expenses, the financial management creates
a capital structure. The capital structure portrays the debt analysis in the short-term
and long-term future. Therefore, it is directly proportional to the available financial
resources and the potential procurement of funds.
5. Procurement of Funds
The following function of financial management is to devise strategies to procure
funds for the organization. A business needs credibility in the market to ensure stable
cash fluidity. Thus, a company procures funds with the help of equity or debt
financing.
6. Investment of Funds
Once the organization has acquired funds, it needs to allocate them to efficient
businesses that help grow the business and give profitable returns with a window for
safety.
7. Surplus Disposal
Every company reaches a point where it has a surplus amount of funds after the
allocation and smooth operation. Financial management is responsible for
strategically taking care of the earned and capital surplus

10. 1. Assessing Capital Needs
Financial professionals' duties entail them to get a measure of certain attributes.
These attributes include the cost of current fixed assets, the cost of promotions, the
requirement, and measure of buffer capital, long-term expenses, and human
resource operations. As a result, organizations that constantly develop in the
financial domain have predefined their short-term and long-term finances and
conduct their business according to these estimates.
2. Capital Structure
Suppose a company has a solid capital structure. In that case, it means that there is
sustainable groundwork for financial decision-making, like projections of debt-
equity ratio in the short-term and long-term.
3. Business Survival
According to the exceptionally renowned scientist Charles Darwin, the phrase
'survival of the fittest' warrants adapting to one's surroundings to persist through
life. The same goes for business decisions. A company endures and abides by
market conditions with the help of secure financial management.

11. 4. Balanced Structure
Maintaining a balance is crucial to keep running smoothly under any circumstances.
When pertaining to business, the role of financial executives is to ensure this
structure by fabricating a plausible capital strategy. This is possible after considering
all capital sources and assessing the business's liquidity, current economic
conditions, and financial stability.
5. Effective Financial Policies
Apart from making sound financial decisions, it is also essential for the funds'
manager to create profitable financial policies that administer cash flow and lending
and borrowing procedures.
6. Resource Optimization
The best financial management executives have the skill and efficiency to use all
obtainable financial resources and maximize their ratio. This results in little expense
and an exponential rise in cash flow to produce a greater return on investment.

12. 7. Profit Maximization
Profit maximization is probably one of financial management's most important
and tricky attributes. The company has to frame means to generate profits in the
short-term and long-term. As a result, a financial manager has to focus more on
profit optimization and ensure that all business operations' actions are
sustainable and correct.
8. Proper Mobilization
Mobilizing profits is as critical as maximizing them. One does not simply spend
all their earnings without creating separate criteria for savings. In a business, the
financial management department has to assess and project the allocation and
application of available funds. This is achieved through investment in shares,
new products, or acquiring a portion of small companies. However, there are
various factors to evaluate before coming to these decisions.

13. 9. High Efficiency
The meaning and definition of financial management entail the creation of a
stable work relationship with other company departments. It tries to improve
performance by appropriate allocation of funds to different departments. This
distribution is carried out considering the resources and effort required to amplify
the company's efficiency.
10. Reduce Risks
Along with maintaining the performance, it is also necessary to minimize the risks.
Risks often present themselves in unforeseen circumstances or unexpected
market conditions. Financial managers need to have a foolproof plan against such
situations. In addition, they must calculate potentially risky situations beforehand
with the help of professionals and try to steer clear of those.

14. THERE ARE THREE DECISIONS
Investment Decision
Financing Decision and
Dividend Decision

15. Decision Investment
These are also known as Capital Budgeting Decisions. A company’s assets and
resources are rare and must be put to their utmost utilization. A firm should pick
where to invest in order to gain the highest conceivable returns.This decision
relates to the careful selection of assets in which funds will be invested by the
firms. The firm puts its funds in procuring fixed assets and current assets. When
choice with respect to a fixed asset is taken it is known as capital budgeting
decision.

16. Factors Affecting Investment Decision
•Cash flow of the venture: When an organization starts a venture it invests a huge
capital at the start. Even so, the organization expects at least some form of
income to meet everyday day-to-day expenses. Therefore, there must be some
regular cash flow within the venture to help it sustain.
•Profits: The basic criteria for starting any venture is to generate income but
moreover profits. The most critical criteria in choosing the venture are the rate of
return it will bring for the organization in the nature of profit for, e.g., if venture A is
getting 10% return and venture В is getting 15% return then one must prefer
project B.
•Investment Criteria: Different Capital Budgeting procedures are accessible to
a business that can be utilized to assess different investment propositions. Above
all, these are based on calculations with regards to the amount of investment,
interest rates, cash flows and rate of returns associated with propositions. These
procedures are applied to the investment proposals to choose the best proposal.

17. Financing Decision
Financial decision is important to make wise decisions about when, where and
how should a business acquire fund. Because a firm tends to profit most when
the market estimation of an organization’s share expands and this is not only a
sign of development for the firm but also it boosts investor’s wealth.
Consequently, this relates to the composition of various securities in the capital
structure of the company.

18. Factors affecting Financing Decisions
Cost: Financing decisions are all about allocation of funds and cost-cutting. The
cost of raising funds from various sources differ a lot. The most cost-efficient
source should be selected.
Risk: The dangers of starting a venture with the funds from various sources
differ. Larger risk is linked with the funds which are borrowed, than the equity
funds. This risk assessment is one of the main aspects of financing decisions.
Cash flow position: Cash flow is the regular day-to-day earnings of the company.
Good or bad cash flow position gives confidence or discourages the investors to
invest funds in the company.
Control: In the situation where existing investors need to hold control of the
business then finance can be raised through borrowing money, however, when
they are prepared for diluting control of the business, equity can be utilized for
raising funds. How much control to give up is one of the main financing
decisions.
Condition of the market: The condition of the market matter a lot for the
financing decisions. During boom period issue of equity is in majority but during
a depression, a firm will have to use debt. These decisions are an important part
of financing decisions.

19. Dividend Decision
Dividends decisions relate to the distribution of profits earned by the
organization. The major alternatives are whether to retain the earnings
profit or to distribute to the shareholders.

20. Factors Affecting Dividend Decisions
Earnings: Returns to investors are paid out of the present and past income.
Consequently, earning is a noteworthy determinant of the dividend.
Dependability in Earnings: An organization having higher and stable earnings can
announce higher dividend than an organization with lower income.
Balancing Dividends: For the most part, organizations attempt to balance out
dividends per share. A consistent dividend is given every year. A change is made,
if the organization’s income potential has gone up and not only the income of
the present year.
Development Opportunity: Organizations having great development openings if
they hold more cash out of their income to fund their required investment. The
dividend announced in growing organizations is smaller than that in the non-
development companies.

21. The Time Value of Money is a core principle of valuation that states that
money as of the present date carries more value than the same amount
received in the future.

22. Time Value of Money Formula
Present Value Formula (PV)
The formula for the time value of money, from the perspective of the current
date, is as follows:
Present Value (PV) = FV / [1 +( i / n) ^(n * t)
PV = Present Value
FV = Future Value
i = Annual Rate of Return (Interest Rate)
n = Number of Compounding Periods Each Year
t = Number of Years

23. A share is a unit by which the share capital is
divided. The total capital of company is divided
into small parts and each part is called share
and the value of each part/unit is known as
face value. A share is a small unit of capital of a
company. It facilitates the public to subscribe
to the capital in a smaller amount.

24. Features of Shares:
1) Meaning: Share is the smallest unit in the total share capital of a company.
2) Ownership: The owner of the share is called a shareholder. It shows the ownership of
a shareholder in the company.
3) Distinctive Number: Unless dematerialized, each share has a distinct number for
identification. It is mentioned in the Share Certificate.
4) Evidence of title: A share certificate is issued b a company under its common seal. It is
a document of title of ownership of shares. A share is not any visible thing. It is shown by
share certificate or in the form of Demat share.
5) Value of a Share: Each share has a value expressed in terms of money.
There may be :
(a) Face value: This value is written on the share certificate and mentioned in the
Memorandum of Association.
(b) Issue price: It is the price at which company sells its shares.
(c) Market Value: This value of share is determined by demand and supply forces in the
share market.
6) Rights: A share confers certain rights on its holder such as right to receive dividend,
right to inspect statutory books, right to attend shareholders’ meetings, and right to vote
at such meetings, etc.

25. 7) Income: A shareholder is entitled to get a
share in the net profit of the company. It is
called dividend.
8) Transferability: The shares of a public
limited company are freely transferable in the
manner provided in the Articles of Association.
9) Property of Shareholder: Share is a movable
property of a shareholder.
10) Kinds of Shares: A company can issue two
kinds of shares :
(a) Equity shares.
(b) Preference shares.

36. THANK YOU