SCHOOL OF BUSINESS AND MANAGEMENT

Financial Management( FM)- Module -1

Overview Of Financial Management
Welcome to Regular Course- 2021-23 Batch
Faculty: Dr.Nisha Shankar

MISSION VISION CORE VALUES

CHRIST is a nurturing ground for an individual’s holistic development to Excellence and Service Faith in God | Moral Uprightness
make effective contribution to the society in a dynamic environment Love of Fellow Beings
Social Responsibility | Pursuit of Excellence
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Course Delivery
● Synchronous mode ● Asynchronous mode

● Sessions of 75 mins each ● After each session

● Online mode asynchronous learning

materials/activities will be
● WebEx platform
given
● Attendance will be taken
● The same will be posted in
● Quizzes and polls during the
google classroom too
sessions
● It will include reading
materials, videos, quizzes etc.

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An Overview of Financial Management

● Forms of Business Organization
● Balancing Shareholder Value and Society Interest
● Intrinsic Values, Stock Prices, and Managerial Incentives
● Important Business Trends
● Conflicts Between Managers, Stockholders, and
Bondholders

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Finance Within the Organization

Board of Directors

Chief Executive Officer (CEO)

Chief Operating Officer (COO) Chief Financial Officer (CFO)

Marketing, Production, Human Resources, Accounting, Treasury, Credit, Legal, Capital

and Other Operating Departments Budgeting, and Investor Relations

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Financial Management & Accounting

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FM Decisions

● Investment Decision/Capital Budgeting Decision - Long Term Decision

- Actual Rate of Return of the Project & Expected Rate of Return, Investment Outlay
● Financing Decision - Long Term Decision
- Various Sources of Finance
- Leverage
- Capital Structure : Debt & Equity
● Dividend Decision - Long Term Decision
- Dividend Policy
● Working Capital Decision/ Liquidity Decision - Short Term Decision
- Operating Cycle
- Estimation Of Working Capital

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Goals Of FM

● Profit Maximization
- The term “Profit “ is vague
- Risk & Returns is not considered
- Present value not considered
● EPS Maximization
● Wealth Maximization/Value Maximization
- Risk & Returns are Considered
- Present Value concept is considered

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Balancing Shareholder Value and Society Interests

• The primary financial goal of management is shareholder wealth maximization, which

translates to maximizing stock price.
– Value of any asset is present value of cash flow stream to owners.
– Most significant decisions are evaluated in terms of their financial consequences.
– Stock prices change over time as conditions change and as investors obtain new information about a company’s
prospects.
• Managers recognize that being socially responsible is not inconsistent with maximizing
shareholder value.

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Stock Prices and Intrinsic Value

• In equilibrium, a stock’s price should equal its “true” or intrinsic value.

• Intrinsic value is a long-run concept.
• To the extent that investor perceptions are incorrect, a stock’s price in the short run may deviate
from its intrinsic value.
• Ideally, managers should avoid actions that reduce intrinsic value, even if those decisions
increase the stock price in the short run.

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Determinants of Intrinsic Values and Stock Prices

Managerial Actions, the Economic Environment, Taxes, and

the Political Climate

“True” Investor Cash “Perceived” Investor Cash

“True” Risk “Perceived” Risk
Flows Flows

Stock’s Stock’s
Intrinsic Value Market Price

Market Equilibrium:
Intrinsic Value = Stock Price

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Some Important Business Trends

• Corporate scandals have reinforced the importance of business ethics, and have spurred
additional regulations and corporate oversight.
• Increased globalization of business.
• The effects of ever-improving information technology have had a profound effect on all aspects
of business finance.
• Stockholders now have more control of corporate governance.

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Corporate Governance

● Corporate Governance in India is a set on internal controls, policy and procedures which form
the framework of a company’s operations and its dealings with various stakeholders such as
customers, management, employees, government and industry bodies.

● The framework of such policies should be such as to uphold the principles of transparency,
integrity, ethics and honesty. Corporate Governance is the soul of an organization and must be
adhered to while indulging in any business practices.

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Conflicts Between Managers and Stockholders

• Managers are naturally inclined to act in their own best interests (which are not always the
same as the interest of stockholders).
• But the following factors affect managerial behavior:
– Managerial compensation packages
– Direct intervention by shareholders
– The threat of firing
– The threat of takeover

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Conflicts Between Stockholders and Bondholders

• Stockholders are more likely to prefer riskier projects, because they receive more of the upside
if the project succeeds. By contrast, bondholders receive fixed payments and are more
interested in limiting risk.
• Bondholders are particularly concerned about the use of additional debt.
• Bondholders attempt to protect themselves by including covenants in bond agreements that
limit the use of additional debt and constrain managers’ actions.

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VISHAL SIKKA - Case on Agency Problem

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Thank You
Q&A

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