This document provides an overview of financial management. It defines finance as the art and science of managing money and financial management as the activity concerned with planning and controlling a firm's financial resources. The document outlines the scope of finance management, including production, marketing, and finance as important business activities. It also describes the objectives of financial management as maximizing shareholders' wealth by accounting for the timing and risk of returns. Overall, the document introduces some key concepts in financial management such as the roles of different financial managers, goals of financial management, and the organization of finance functions within a company.

1. FINANCIAL MANAGEMENT

2. Content
• Introduction to finance and its
management
• Scope of finance
• Importance of Finance Function in an
organization

3. LEARNING OBJECTIVES
 Explain the nature of finance and its interaction
with other management functions
 Review the changing role of the finance
manager and his/her position in the
management hierarchy

4.  Finance may be defined as the art and science of
managing money.
 Financial Management is that managerial activity
which is concerned with planning and controlling of
the firm’s financial resources.
 Financial Management is concerned with duties of
financial managers in business firms.
 Draws heavily on related disciplines.
Financial Management

5. Important Activities of a Business Firm
Production
Marketing
Finance

6. Real And Financial Assets
Real Assets: Can be Tangible or Intangible
• Tangible real assets are physical assets that include
plant, machinery, office, factory, furniture and building.
• Intangible real assets include technical know-how,
technological collaborations, patents and copyrights.
Financial Assets, also called securities, are
financial papers or instruments such as
shares and bonds or debentures.

7. Equity and Borrowed Funds
Shares represent ownership rights of their holders.
Shareholders are legal owners of the company.
Shares can of two types:
• Equity Shares
• Preference Shares
Loans, Bonds or Debts: represent liability of the
firm towards outsiders. Lenders are not owners of
the company. These provide interest tax shield.

8. Equity and Preference Shares
Equity Shares are also known as ordinary
shares.
• Do not have fixed rate of dividend.
• There is no legal obligation to pay dividends to equity
shareholders.
Preference Shares have preference for
dividend payment over ordinary shareholders.
• They get fixed rate of dividends.
• They also have preference of repayment at the time of
liquidation.

9. Finance and Management
Functions
All business activities involve acquisition and use
of funds.
Finance function makes money available to meet
the costs of production and marketing operations.
Financial policies are devised to fit production
and marketing decisions of a firm in practice.

10. • Financial management mainly focuses
on
a) Efficient management of every business
b) Arrangement of funds
c) All elements of acquiring and using
means of financial resources for financial
activities

11. Finance Functions
Finance functions or decisions can be divided
as:
 Long-term financial decisions
Long-term asset-mix, or investment decision, or
capital budgeting decisions.
Capital-mix or financing decision or capital
structure and leverage decisions.
Profit allocation or dividend decision
o Short-term financial decisions
oShort-term asset-mix or liquidity decision or
working capital management.

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• https://www.youtube.com/watch?v=zO0b-
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13. Financial Procedures and Systems
• For effective finance function some routine
functions have to be performed. Some of these are:
• Supervision of receipts and payments and
safeguarding of cash balances
• Custody and safeguarding of securities,
insurance policies and other valuable
papers
• Taking care of the mechanical details of
new outside financing
• Record keeping and reporting

14. Poll Question
• Finance Function comprises of
a) Safe custody of funds only
b) Expenditure of funds only
c) Procurement of finance only
d) Procurement & effective use of funds

15. Financial Manager’s Role
• Raising of Funds (Traditional Approach)
• Allocation of Funds
• Profit Planning
• Understanding Capital Markets

16. • Financial management process deals
with
a) Investments
b) Financing decisions
c) Both a and b
d) None of the above

17. Goals of Financial Management
• Profit maximization (profit after tax)
• Maximizing earnings per share
• Wealth maximization

18. Profit Maximization
• Maximizing the rupee income of the firm
So that resources are efficiently utilized
It is an appropriate measure of the firm’s
performance
To include interest of the society as well

19. Objections to Profit Maximization
• It is vague
• It ignores the timing of returns
• It ignores risk
• In new business environment profit
maximization is regarded as
– Unrealistic
– Difficult
– Inappropriate
– Immoral

20. Maximizing Profit after Taxes or EPS
Maximizing PAT or EPS does not maximize the economic
welfare of the owners.
Ignores timing and risk of the expected benefit
Market value is not a function of EPS.
Maximizing EPS implies that the firm should make no dividend
payment so long as funds can be invested at positive rate of
return—such a policy may not always work.

21. • Also known as value maximization/net present
worth maximization
• Maximizes the net present value of a course of
action to shareholders.
• Benefits are measured in terms of cash flows.
• Accounts for the timing and risk of the expected
benefits.
• Fundamental objective—maximize the market
value of the firm’s shares.
Shareholders’ Wealth Maximization
21

22. • SWM requires a valuation model.
• The financial manager must know,
– How much should a particular share be
worth?
– Upon what factor or factors should its value
depend?
Need for a Valuation
Approach
22

23. Poll Question
• The objective of wealth maximization
takes into account
a) Amount of returns expected
b) Timing of anticipated returns
c) Risk associated with uncertainty of
returns
d) All of the above

24. • Financial decisions of the firm are guided
by the risk-return trade-off.
• The return and risk relationship:
Return = Risk-free rate + Risk premium
• Risk-free rate is a compensation for time
and risk premium for risk.
Risk-return Trade-off
24

25. Risk Return Trade-off
25
Risk and expected return move in tandem; the greater the risk, the greater
the expected return.

26. Overview of Financial
Management
26

27. Poll Question
• The only feasible purpose of financial
management is
a) Wealth Maximization
b) Sales Maximization
c) Profit Maximization
d) Assets maximization

28. Organization of Finance Functions
Reason for placing finance functions
in the hands of top management
• Financial decisions are crucial for the
survival of the firm.
• Financial actions determine solvency of the
firm.
• Centralization of the finance functions can
result in a number of economies to the firm.

29. Organization of Finance Functions
(Contd.)
Financial organization of a large
company
Organization of finance functions
in a multidivisional company

30. Status and Duties of Finance Executives
• The exact organizational structure for
financial management differs across firms.
• The financial officer may be known as the
financial manager in some organizations,
while in others as the vice-president of
finance or the director of finance or the
financial controller.

31. Role of Treasurer and Controller
• Two officers—the treasurer and the
controller—may be appointed under the
direct supervision of CFO to assist him or
her.
• The treasurer’s function is to raise and
manage company funds while the
controller oversees whether funds are
applied correctly.

32. THANK YOU
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