INTRODUCTION TO FINANCIAL MANAGEMENT  dividend policy decision/functions

Finance- art and science of managing money and -deciding the dividend payout ratio considering the
lifeblood of business. benefit of shareholders and firm
-should be analyzed in relation to the financing
FINANCE decisions of the firm.
Financial Service Financial Management
Advisory services Management of finance DUTIES/ROLES/RESPONSIBILITIES OF FINANCIAL
department MANAGER
Designing financial Financial/Non-financial/  Performing financial analysis- transforming
products public/private/ NGO financial data into form which can be used for
Investments, real Budgeting, forecasting, decision making.
estate and insurance cash and credit mgt -determining need for additional funds
invst analysis  Making investment decisions
Personal financial -determine the mix of current assets and fixed
planning assets to be held by a firm.
-determine the type of assets in each category.
FINANCIAL MANAGEMENT  Making financial decisions
-it is concerned with the efficient use of an important -determining mix of short and long term financing
economic resources viz capital funds. (Ezra Solamn) -indepth analysis of available financing alternatives,
-means planning, organizing, directing and controlling their cost and long term implications.
the financial activities.  Risk return trade-off
-it is an operational activity, which is accountable for the -amount of return=amount of risk undertaken
effective utilization of funds necessary to operations. -amount of loss is more ephocal (events that are
-its primary objective is to maintain enough money to important) than the amount of gain.
meet the necessary current and capital expenditure, -risk averse instrument have high demand raising
apart from maximizing the profits. the price and lowering returns.
Nature of Financial Management -risk premium is the higher return gained over risk
-concerned with the proper management of funds. free returns.
-it must see that the funds are procured in a manner that
there is risk, cost and control considerations are properly FUNCTION OF FINANCE
balanced in a given situation. -it involves the task of procurement of funds needed by
the enterprise and its effective utilization.
Financial Management Process
 Asses Current Financial Position CHALLENGES FOR FINANCIAL MANAGERS IN CHANGING
 Define and Prioritizing Goals ECNOMIC ENVIRONMENT
 Financial and Investment Plan -regulations -stakeholders management
 Implementation of the Plan -globalization -strategy
 Monitor, Evaluate and Adjust Performance -technology -reporting
-risk -talent and capability
Scope of Financial Management -transformation
-it covers both acquisition and utilization of funds
(efficient and wise allocation of funds to various uses) ORGANIZATION OF FINANCE FUNCTION
-Providing solutions for major financial operations of a BOARD OF DIRECTORS
firm Managing Director/Chairman
 investment decisions
-selection of assets in which funds will be invested VP/Director(Finance) Chief Finance Officer
by a firm.
-investment in fixed and long term assets and Treasurer Controller
projects is called capital budgeting (volume of
investment, risk and returns, cost of capital.) -cash manager -cost acct mgr
 financing decisions -credit manager -tax manager
-concerned with the capital structure decisions of a -foreign exchange manager -fin.acct mgr
firm. -financial planning and -data processing
-creating proper mix between debt and fund raising manager mgr
equity-optimum capital structure. -capital budgeting manager -internal auditor
-trade off between risk and return. -production manager
FUNCTIONS OF A TREASURER products, diversification of existing lines to satisfy
-mainly responsible for financing and investment customers
activities. -physical distribution of goods
-obtaining finance  Finance and Personnel
-investor relationship -finance in personnel is required for recruitment,
-short term financing selection, training and promotion schemes.
-cash and credit manager  Finance and Research and Development
-investment and insurance -finance in r&d is used for innovation, technological up
FUNCTIONS OF CONTROLLER gradation
-concerned with accounting and control -to meet and cater the demands of changing needs and
-financial accounting preferences of customers
-internal auditor
Taxation FUNCTIONAL AREAS OF FINANCE
Management accounting and control  Personal Finance
-budgeting and planning -financial position
-adequate protection
OBJECTIVES OF FINANCIAL MANAGEMENT -tax planning
a. Financial objectives -investment and accumulation goals
b. Non-financial objectives -retirement planning
-estate planning
A. FINANCIAL OBJECTIVES/FINANCIAL GOALS  Corporate Finance
 Profit maximization -balancing risk and profitability
-maximizing the Rupee income of firm -maximizing entity’s wealth and stock value
-resources are efficiently used -managing working capital
-appropriate measure of firm performance -measure the performance of portfolio
-serves interest of society  Public Finance
OBJECTIONS TO PROFIT MAXIMIZATION -related to sovereign states and itd entities
-It is vague -identification of required expenditure
-it ignores the timing of return -sources if that entities reveneue
-it ignores quality of benefits -debt issuance for public work projects
 Maximizing earning per share
-ignores timing and risk of expected benefit AGNECY PROBLEMS
-it will not result in highest price for company’s -refers to a conflict of interest between a
share. company’s management and the company’s stakeholder.
 Wealth maximization Manager as the ‘agent’ who is supposed to make
-maximizes the net present value decisions that maximize shareholder’s wealth.
-” “the market value of the film’s share
B. NON-FINANCIAL OBJECTIVES
-general welfare of the employees
-general welfare of the society
-fulfillment of responsibilities towards customers,
suppliers, etc.
-leadership in R&D
-effective utilization of funds

INTERFACE OF FINANCIAL MANAGEMENT WITH OTHER

FUNCTIONAL AREAS OF MANAGEMENT
 Finance and Production
-finance is the basis of production and is needed at every
stage of production.
-planning and projection of project report
-acquiring raw materials, plan and machinery, tools and
spares, technological
-hold stocks of RM,WIP and FG.
 Finance and Marketing
-finance is needed in all vital areas of marketing such as
sales promotion and advertising -introduction of new