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Principles of Finance (Fin-101) : 1/15/2015 Prepared by - Mr. Jewel Kumar Roy Mobile No. 01924337923
Principles of Finance (Fin-101) : 1/15/2015 Prepared by - Mr. Jewel Kumar Roy Mobile No. 01924337923
Overdraft
Bank term loans
Asset-based finance
• Types? Receivables Finance
Invoice discounting
Angel funding
Venture capital
Personal resources
a. Investment Decision
b. Financial Decision
• Functions?
c. Dividend Decision
d. Liquidity Decision
Finance Department
• Calculating fund’s requirement of organization – Means how much money we require to run the business
• Finding sources of finance – It means to check from where we can raise money & out of that which source
of finance is suitable for our organization
• Utilization of funds – It means utilization of profits which a company earns during a financial year
In medium-to-large-size firm
Financial
Separate department, vice-president of finance (CFO),
Manager
Treasurer, Controller
The officer responsible for the firm’s financial activities: financial The officer responsible for the firm accounting
planning and fund raising, managing cash, making capital expenditure activities: tax management, data processing, and
decision, managing credit activities and managing the investment cost and financial accounting
portfolio
Relationship to Economics
The Financial Manager must understand the economic framework, and be alert to the
consequences of varying levels of economic activity and changes in economic policy
Must be able to use economic theories as guidelines for efficient busineness operation
?
Supply-demand analysis Profit-Maximazing strategies Price Theory
Accounting View Financial View The accountant devotes the majority of attention to
the collection and presentation of financial data
Primary Activities
Performing
Performing Financial Analysis and Planning Financial Analysis
and Planning
Determine both the mix and the type of assets found on the firm’s balance sheet
Fixed Long-Term
The left-hand side of the balance sheet Assets Funds
Deals with The right-hand side of the balance sheet and involves two major area:
1. Most appropriate mix of short-term and long-term financing must be established
2. Which individual short-term or long-term sources of financing are the best at given point in time
The Financial Manager are expected to make a major contribution to the firm’s overall
profit
period’s total earnings avaliable for the
For Corporation, profit are commonly measured in terms of Earnings per Share (EPS) firm’s common stock holders
The number of shares of common stock
Earning per share (EPS) (IN BDT) outstanding
Investment year 1 year 2 year 3 total
The chance that actual outcomes may differs
X 1.40 1.00 0.40 2.80 from those expected
Y 0.60 1.00 1.40 3.00 √
Basic primises in managerial finance is that
Profit maximization fails for reason: trade-off exist between return (cash flow)
1. Timing of return and risk
2. Cash flow available to stockholder
3. Risk Return and risk are in fact the key
determinant of share price– which
represents the wealth of the owners in the
Stockholder are risk-averse ?
firm
Risk
Financial decisions and share price
Increase
Financial Financial Decision Return?
Share Yes Acept
Manager Alternative or action Risk?
Price ?
Yes
Reject
In theory In practise