Financial management involves planning, organizing, and controlling financial resources. The document outlines key financial management concepts like the objectives of financial management to ensure adequate funding and returns. It also discusses functions such as estimating capital needs, determining sources of funds, and managing cash flows. Other concepts covered include financial statements like the balance sheet, which lists assets/liabilities, and profit and loss statement, which outlines revenues/expenses.

1. • Financial Management -
Meaning, Objectives and
Functions

2. Financial Management
• Financial Management means planning,
organizing, directing and controlling the
financial activities such as procurement
and utilization of funds of the enterprise. It
means applying general management
principles to financial resources of the
enterprise.

3. • Scope/Elements/ Financial Decision
• Financial decisions - They relate to the
raising of finance from various
resources which will depend upon
decision on type of source, time period of
financing, cost of financing and the returns
thereby.
• Investment decisions includes investment
in fixed assets (called as capital
budgeting). Investment in current assets
are also a part of investment decisions
called as working capital decisions.

4. • Dividend decision - The finance manager
has to take decision with regards to the net
profit distribution. Net profits are generally
divided into two:
–Dividend for shareholders
–Dividend and the rate of it has to be
decided.
–Retained profits
–Amount of retained profits has to be
finalized which will depend upon
expansion and diversification plans of the
enterprise.

5. Objectives of Financial Management
• To ensure regular and adequate supply of funds to
the concern.
• To ensure adequate returns to the shareholders
which will depend upon the earning capacity,
market price of the share, expectations of the
shareholders.
• To ensure optimum funds utilization.
• To ensure safety on investment, i.e., funds should
be invested in safe ventures so that adequate rate of
return can be achieved.
• To plan a sound capital structure-There should be
sound and fair composition of capital so that a
balance is maintained between debt and equity
capital.

6. Functions of Financial Management
Estimation of capital requirements: A finance manager
has to make estimation with regards to capital
requirements of the company. This will depend upon
expected costs and profits and future programmes and
policies of a concern. Estimations have to be made in a
manner which increases earning capacity of enterprise.
Determination of capital composition: Once the
estimation have been made, the capital structure have to
be decided. This involves short- term and long- term
debt equity analysis. This will depend upon the
proportion of equity capital a company is possessing and
additional funds which have to be raised from outside
parties.

7. Choice of sources of funds: For additional funds to be
procured, a company has many choices like-
Issue of shares and debentures
Loans to be taken from banks and financial
institutions
Public deposits to be drawn like in form of bonds.
Choice of factor will depend on relative merits and
demerits of each source and period of financing.
Investment of funds: The finance manager has to
decide to allocate funds into profitable ventures so
that there is safety on investment and regular
returns is possible.

8. Disposal of surplus: The net profits decision have to be
made by the finance manager. This can be done in two
ways:
Dividend declaration - It includes identifying the rate of
dividends and other benefits like bonus.
Retained profits - The volume has to be decided which
will depend upon expansional, innovational,
diversification plans of the company.
Management of cash: Finance manager has to make
decisions with regards to cash management for many
purposes like payment of wages and salaries, payment of
electricity and water bills, payment to creditors, meeting
current liabilities, maintenance of enough stock, purchase
of raw materials, etc.
Financial controls: The finance manager has not only to
plan, procure and utilize the funds but he also has to
exercise control over finances. This can be done through
many techniques like ratio analysis, financial forecasting,
cost and profit control, etc.

9. Profit and Loss Statement (P&L)
• The profit and loss (P&L) statement is a
financial statement that summarizes the
revenues, costs and expenses incurred during a
specified period, usually a fiscal quarter or
year. The P&L statement is synonymous with
the income statement. These records provide
information about a company's ability or
inability to generate profit by increasing
revenue, reducing costs or both. The P&L is
also known as a statement
of earnings, statement of operations,
or statement of income.

10. • The profit & loss (P&L) statement is one of
the three primary financial statements used to
assess a company’s performance and financial
position (the two others being the balance
sheet and the cash flow statement).
• The basic equation on which a P&L is based
is:
• Revenues – Expenses = Net Income

12. Let's assume grocery store XYZ sold $100,000 worth of food for the year. It
would record these sales as revenue on the very top of its income
statement (as shown below).

13. BALANCE SHEET:
One of the important elements of financial
statement analysis is the balance sheet. The
balance sheet shows your assets or what you
own, your liabilities or what you owe, and your
owner’s equity, which is yours and your
partners' investment in the small business.
First, you'll need to determine the financial
statements that you or your financial professional
will generate for your business. These financial
statements will help you determine your firm's
financial position at a point in time and over a
period of time, as well as your cash position.

14. • Below is a guide for preparing a balance sheet.
• Assets
• Line 1 is the firm’s cash account. Business
firms need to keep cash on hand for
emergencies and to take advantage of any
bargains they might find in the marketplace.
• Line 2, accounts receivable, represents what
your credit customers owe you if your firm
extends credit.
• The value of the firm’s inventory is stated on
Line 3. Inventory is simply the products the
firm has for sale.
• The last asset on the sample balance sheet is
fixed assets. This asset is stated on Line 4.
Fixed assets include any equipment and
vehicles you own and any land and buildings
you own.
• The value of the asset accounts is totaled and
stated on Line 5. Total assets are the value of
everything your firm owns.
XYZ Company Balance Sheet
December 31,2009
Assets
1.Cash $ 40,000
2.Accts Receivable 200,000
3.Inventory 180,000
4.Fixed Assets 400,000
5.Total Assets 820,000
Liabilities and Equity
6.Accts Payable $180,000
7.LT Bank Loans 240,000
8.Owner's Capital 400,000
9.Total Liab & Equity 820,000

15. • Liabilities and Equity
• Line 6 lists accounts payable, which are the short-
term credit accounts that you owe your suppliers.
• Line 7 shows any long-term bank loans
or loans from other sources that you’ve taken out
with a maturity of more than a year.
• Line 8 shows the amount of owner’s capital that
has been invested in the firm. This is the money
that the owner and any other investors have put in
the firm.
• The last line, line 9, totals the number of liabilities
and equity. This is the total amount the firm owes
plus the owners’ investment in the firm. The total
of the liabilities and equity must equal total assets
as the firm can’t own more than it owes.

16. XYZ Company Balance Sheet
December 31,2009
Assets
1.Cash $ 40,000
2.Accts Receivable 200,000
3.Inventory 180,000
4.Fixed Assets 400,000
5.Total Assets 820,000
Liabilities and Equity
6.Accts Payable $ 180,000
7.LT Bank Loans 240,000
8.Owner's Capital 400,000
9.Total Liab & Equity
820,000

17. Cash Flow Statement
• Cash flow statement is
a financial statement that provides aggregate data
regarding all cash inflows a company receives
from its ongoing operations and external
investment sources, as well as all cash outflows
that pay for business activities and investments
during a given period.
• Cash flow statement is a critical tool for
companies. Even profitable companies can fail to
adequately manage cash flow. The cash flow
statement is broken down into three different
business activities: operations, investing and
financing.

18. BREAK-EVENANALYSIS
Break-even analysis is a business tool widely used
across all industries to evaluate business
performance in terms of costs and the number of
units that need to be sold in order to cover the cost
or make a profit.
• Simply put, break-even point can be determined
by calculating the point at which revenue
received equals the total costs associated with
the production of the goods or services.
• Break-even Point = Fixed Costs/ (Unit Selling
Price – Variable Costs)

20. Time Value of Money
• TVM refers to that amount of money you have in
hand at the moment is worth more than the same
amount you ‘may’ get in future. One reason for this
is inflation and another is possible earning capacity.
1-Present Value and Future Value
Present Value is the same as Time Value as
elaborated above. It is the money you have
currently that is equal to a future one-time
disbursal or several part-payments – discounted by
a suitable rate of interest.
Future Value is the sum of money that any saving
scheme with a compounded interest will build to by
a pre-decided future rate. It applies to both
lumpsum as well as recurring investments like SIP.

21. • F.V.= P.V. x (1+r/100)n
Where,
FV is Future value of money,
PV is Present value of money,
r is the interest rate,
n is the number of years in the tenure.
• For instance, if you invest Rs. 1 lakh for 5
years at 10% interest, the future value of this
one lakh will be Rs. 161,051 as per the
formula. This formula can help you to analyze
different investments over different time
periods, enabling you to make optimal and
informed financial decisions.

22. 2-Capital Budgeting
Capital budgeting (or investment appraisal) is the process of
determining the viability to long-term investments on
purchase or replacement of property plant and equipment,
new product or other projects.
Capital budgeting consists of various techniques used by
managers such as:
 Payback Period
 Discounted Payback Period
 Net Present Value
 Accounting Rate of Return
 Internal Rate of Return
 Profitability Index
• All of the above techniques are based on the comparison of
cash inflows and outflow of a project however they are
substantially different in their approach.
• A brief introduction to the above methods is given below:

23. Payback Period is the time in which the initial
outlay of an investment is expected to be
recovered through the cash inflows generated by
the investment. Lower payback period is
preferred.
• The formula to calculate the payback period of an
investment depends on whether the periodic cash
inflows from the project are even or uneven.

24. If the cash inflows are even, the formula to calculate
payback period is:
Payback Period =Initial Investment/Net Cash Flow per
Period
Example 1: Even Cash Flows
Company C is planning to undertake a project requiring
initial investment of $105 million. The project is expected
to generate $25 million per year in net cash flows for 7
years. Calculate the payback period of the project.
Payback Period = Initial Investment ÷ Annual Cash Flow
= $105M ÷ $25M
= 4.2 years

25. When cash inflows are uneven, we need to
calculate the cumulative net cash flow for each
period and then use the following formula:
Payback Period = A + B/C Where,
A is the last period number with a negative
cumulative cash flow;
B is the absolute value (i.e. Last value with
negative sign) of cumulative net cash flow at the
end of the period A; and
C is the total cash inflow during the period
following period A

26. Example 2: Uneven Cash Flows
Company C is planning to undertake another project
requiring initial investment of $50 million and is
expected to generate $10 million net cash flow in Year
1, $13 million in Year 2, $16 million in year 3, $19
million in Year 4 and $22 million in Year 5. Calculate
the payback value of the project.

27. • Net Present Value (NPV): Net present
value (NPV) is a method used to determine the
current value of all future cash flows generated
by a project, including the initial capital
investment.
The Formula for NPV
NPV=Cash flow/(1+i)t−initial investment
where: i=Required return or discount rate
t=Number of time periods​

28. • For example, imagine a project that costs $1,000
and will provide three cash flows of $500, $300,
and $800 over the next three years. Assume there
is no salvage value at the end of the project and
the required rate of return is 8%. The NPV of the
project is calculated as follows:
NPV = $500/(1+0.08)^1 + $300/(1+0.08)^2 +
$800/(1+0.08)^3 - $1000
= $800​−$1000
= $355.23​

29. • Accounting Rate of Return (ARR) is the
profitability of the project calculated as projected
total net income divided by initial or average
investment. Net income is not discounted.
• Internal Rate of Return (IRR) is the discount
rate at which net present value of the project
becomes zero. Higher IRR should be preferred.
• Profitability Index (PI) is the ratio of present
value of future cash flows of a project to initial
investment required for the project.

30. MATERIAL MANAGEMENT
Definition
It is concerned with planning, organizing and
controlling the flow of materials from their initial
purchase through internal operations to the service
point through distribution.
OR
Material management is a scientific technique,
concerned with Planning, Organizing &Control of
flow of materials, from their initial purchase to
destination.

31. AIM OF MATERIAL MANAGEMENT
To get
1. The Right quality
2. Right quantity of supplies
3. At the Right time
4. At the Right place
5. For the Right cost

32. PURPOSE OF MATERIAL
MANAGEMENT
•To gain economy in purchasing
•To satisfy the demand during period of
replenishment
•To carry reserve stock to avoid stock out
•To minimize fluctuations in consumption
•To provide reasonable level of client services

33. Primary
•Right price
•High turnover
•Low procurement
•& storage cost
•Continuity of supply
•Consistency in quality
•Good supplier relations
•Development of
personnel
•Good information
system
Objective of material management
Secondary
•Forecasting
•Inter-departmental
harmony
•Product improvement
•Standardization
•Make or buy decision
•New materials &
products
•Favorable reciprocal
relationships

34. Four basic needs of Material management
1.To have adequate materials on hand when
needed.
2.To pay the lowest possible prices, consistent
with quality and value requirement for
purchased materials.
3.To minimize the inventory investment.
4.To operate efficiently and effectively.

35. Basic principles of material management
1. Effective management & supervision
2. Sound purchasing methods
3. Skillful negotiations
4. Effective purchase system
5. Should be simple .
6. Must not increase other costs
7. Simple inventory control programme

36. Inventory Management
Inventory management refers to the process of
ordering, storing and using a company's
inventory: raw materials, components and
finished products, efficiently.
Appropriate inventory management strategies
vary depending on the industry. An oil depot is
able to store large amounts of inventory for
extended periods of time, allowing it to wait for
demand to pick up. While a food industry or the
medicines have to consume during a proper
given time period.

37. Inventory control
It means stocking adequate number and kind of
stores, so that the materials are available
whenever required and wherever required.
Scientific inventory control results in optimal
balance.

38. • The Economic Order Quantity (EOQ)
model is used in inventory management by
calculating the number of units a company
should add to its inventory with each batch in
order to reduce the total costs of its inventory.
The costs of its inventory include holding and
setup costs.
• The EOQ model seeks to ensure that the right
amount of inventory is ordered per batch so a
company does not have to make orders too
frequently and there is not an excess of
inventory sitting on hand.

40. Just-in-Time
Just-in-time (JIT) manufacturing originated in Japan in the
1960s and 1970s; Toyota Motor Corp. (TM). The method
allows companies to save significant amounts of money
and reduce waste by keeping only the inventory they need
to produce and sell products. This approach reduces storage
and insurance costs, as well as the cost of liquidating or
discarding excess inventory.
JIT inventory management can be risky. If demand
unexpectedly spikes, the manufacturer may not be able to
source the inventory it needs to meet that demand,
damaging its reputation with customers and driving
business towards competitors. Even the smallest delays can
be problematic; if a key input does not arrive "just in time.

41. • Materials Requirements Planning (MRP)
• Materials requirements planning (MRP) is one
of the first software-based integrated
information systems designed to
improve productivity for businesses. A
materials requirements planning information
system is a sales forecast-based system used
to schedule raw material deliveries and
quantities, given assumptions of machine and
labor units required to fulfill a sales forecast.

42. • Types of Data Considered by Materials Requirements
Planning
• The final product being created. This is sometimes called
independent demand, or Level "0" on BOM. (Bills of
materials: Details of the materials, components and sub-
assemblies required to make each product.)
• How much is required at a time.
• When the quantities are required to meet demand.
• Shelf life of stored materials.
• Inventory status records of net materials available for use
already in stock (on hand) and materials on order from
suppliers.
• Planning data: This includes all the restraints and
directions to produce such items as: routing, labor and
machine standards, quality and testing standards.

43. • ERP (Enterprise Resource Planning) is an
integrated, real-time, cross-functional enterprise
application, an enterprise-wide transaction
framework that supports all the internal business
processes of a company.
• It supports all core business processes such as
sales/ purchase order processing, inventory
management and control, production and
distribution planning, and finance.

44. • Why ERP?
• Business integration and automated data
update
• Linkage between all core business processes
and easy flow of integration
• Flexibility in business operations.
• Better analysis and planning capabilities
• Critical decision-making
• Competitive advantage
• Use of latest technologies

46. • Scope of ERP
Finance: Financial accounting, Managerial accounting,
treasury management, asset management, budget control,
costing, and enterprise control.
Logistics: Production planning, material management,
plant maintenance, project management, events
management, etc.
Human resource: Personnel management, training and
development, etc.
Supply Chain: Inventory control, purchase and order
control, supplier scheduling, planning, etc.
Work flow: Integrate the entire organization with the
flexible assignment of tasks and responsibility to
locations, position, jobs, etc.

47. VED Analysis:
• VED Analysis attempts to classify the items used into
three broad categories, namely Vital, Essential, and
Desirable. The analysis classifies items on the basis of
their criticality for the industry or company.
• Vital: Vital category items are those items without
which the production activities or any other activity of
the company, would come to a halt, or at least be
drastically affected.
• Essential: Essential items are those items whose
stock – out cost is very high for the company.
• Desirable: Desirable items are those items whose
stock-out or shortage causes only a minor disruption
for a short duration in the production schedule. The
cost incurred is very nominal.
47

48. • VED Analysis is very useful to categorize items
of spare parts and components. In fact, in the
inventory control of spare parts and components
it is advisable, for the organization to use a
combination of ABC and VED Analysis. Such
control system would be found to be more
effective and meaningful.
48

49. ABC Analysis
• The ABC analysis provides a mechanism for
identifying items that will have a significant
impact on overall inventory cost, while also
providing a mechanism for identifying
different categories of stock that will require
different management and controls.
49

50. • The ABC analysis suggests that inventories of an
organization are not of equal value. Thus, the
inventory is grouped into three categories (A, B,
and C) in order of their estimated importance.
• 'A' items are very important for an organization.
Because of the high value of these 'A' items,
frequent value analysis is required. In addition to
that, an organization needs to choose an
appropriate order pattern (e.g. ‘Just- in- time’) to
avoid excess capacity. 'B' items are important, but
of course less important than 'A' items and more
important than 'C' items. Therefore, 'B' items are
intergroup items. 'C' items are marginally
important.
50

51. 51

52. CONCEPTUAL MODEL OF SUPPLY
CHAIN MANAGEMENT
Supply chain acts as a connecting chain Of
materials from the suppliers S to the
manufacturer to the distributor to the retailer R to
the ultimate customers. In a supply chain the flow
of demand information is in a direction opposite
to the flow of materials .Thus, the information
flow on demand is from the customer to the
retailer to the distributor to the manufacturer to
the supplier .It may be noted that the supply chain
is not a linear chain but takes the form of a
network.

53. Supply Chain Management
Supply Chain
• A supply chain is a network of facilities and
distribution options that performs the functions
of procurement of materials, transformation of
these materials into intermediate and finished
products, and the distribution of these finished
products to customers – Ganeshan and
Harrison.

54. …Supply Chain Management
• The systematic, strategic coordination of the
traditional business functions and the tactics
across theses business functions within a
particular company and across businesses
within the supply chain, for the purposes of
improving the long-term performance of
individual companies and the supply chain as a
whole – Mentzer, Dewitt, et al.

55. It consists of a network of facilities and
distribution options that perform the functions of
procurement of materials, transformation of these
materials into intermediate and finished products,
and the distribution of these finished products to
customers in the right time and of the right quantity
and quality .

57. 57
Strategic Advantages of Supply Chain
• Supply chain management facilitates supply, storage,
and movement of materials, information, personnel,
equipment, and finished goods within the organization
and between its environment.
• Goal of supply chain management is to integrate the
entire process of satisfying the customer’s needs all
along the supply chain.
• Supply chain costs often represent 50% or more of total
operating costs, thus the firms that have implemented
supply chain management
– Have 45% supply chain cost advantage
– 50% lower inventory
– 17% faster delivery of final product and
– Larger market shares and higher customer loyalty

58. 58
Logistics
• Planning and controlling efficient, effective
flows of goods, services, and information from
one point to another.
Logistics vs SCM
• Logistics refers to activities that occur within the
boundaries of a single organization and supply
chains refer to networks of companies that work
together and coordinate their actions to deliver a
product to market.
• SCM acknowledges all of traditional logistics
and also includes activities such as marketing,
new product development, finance, and customer
service.

59. Business Process Reengineering
What is reengineering?
“Reengineering is the fundamental rethinking and
radical redesign of business processes to achieve
dramatic improvements in measures of
performance such as cost, quality, service and
speed”.
THUS Business Process Reengineering (BPR)
advocates that enterprises go back to the basics
and reexamine their vary roots. It doesn’t believe
in small improvements. Rather it aims at total
reinvention.
BPR focuses on processes and not on tasks, jobs or
people.

60. 60
companies are on the lookout for new solutions for
their business problems through Business Process
Reengineering (BPR). The recent examples,
“Wal-Mart reduces restocking time from six weeks
to thirty-six hours.”
Process for BPR
Activity #1: Prepare for Reengineering:
“If you fail to plan, you plan to fail”. Planning and
Preparation are vital factors for any activity or
event to be successful, and reengineering is no
exception. Before attempting reengineering, the
question ‘Is BPR necessary?’ should be asked?

61. Activity #2: Map and Analyze As-Is Process :
Before the reengineering team can proceed to
redesign the process, they should understand the
existing process.
Activity #3: Design To-Be process . The objective
of this phase is to produce one or more
alternatives to the current situation, which satisfy
the strategic goals of the enterprise.
Activity #4:Implement Reengineered Process: The
implementation stage is where reengineering
efforts meet the most resistance and hence it is by
far the most difficult one.

62. Activity #5: Improve Process Continuously: A
process cannot be reengineered overnight. very
vital part in the success of every reengineering
effort lies in improving the reengineered
process continuously. Two things have to be
monitored – the progress of action and the
results.

63. The total cost function and derivation of EOQ
formula
 The single-item EOQ formula finds the minimum point
of the following cost function:
 Total Cost = purchase cost or production cost +
ordering cost + holding cost
 Where:
 Purchase cost: This is the variable cost of goods:
purchase unit price × annual demand quantity. This is P
× D
 Ordering cost: This is the cost of placing orders: each
order has a fixed cost S, and we need to order D/Q
times per year. This is S × D/Q
 Holding cost: the average quantity in stock (between
fully replenished and empty) is Q/2, so this cost is H ×
Q/2

64. T = P D + S D/ Q + H Q/ 2.
To determine the minimum point of the total
cost curve, calculate the derivative of the total
cost with respect to Q (assume all other
variables are constant) and set it equal to 0:
0 = − D S/ Q2 + H /2
Solving for Q gives Q* (the optimal order
quantity):
Q*2 = 2 D S/H Therefore:
Economic Order Quantity Q ∗ = 2 D S/H
Q* is independent of P; it is a function of only
K, D, h.

65. ALL THE BEST FOR MID
TERM II