EVOLUTION OF FINANCE

469 BC-399 BC Baker and Malott- 1936

RECENT EVENTS- JAN 2016
GRAB A PEN AND PAPER!
 WE UNDERSTAND FINANCE AS..

Decisions and processes that allocate money for their

most productive use (ie) getting and spending money
to achieve underlying goals.

USED IN DIFFERENT CONTEXTS

Personal: taking a loan, credit card, planning for
retirement.
Corporate : ideas to invest in projects- manage money
Govt: spending and borrowing.
FUNCTIONS OF FINANCIAL MANAGEMENT

TRADITIONAL MODERN

EXTERNAL FREQUENCY NATURE

RAISING OF
FUNDS
EXECUTIVE
EPISODIC
LONG TERM RECURRING NON-REC

ONLY CORP INCIDENTAL

 FUNCTIONS
TRADITIONAL

MODERN- ON THE BASIS OF FREQUENCY.

1. RECURRING NON RECURRING

a. Planning Episodic Events
b. Raising
c. Allocation
d. Appropriation
e. Control
 INCIDENTAL FINANCE FUNCTIONS

Supervision over the receipt and payment of

cash.
Safeguarding of cash balance.
Custody and safeguarding of securities,
insurance policies and other valuable
documents.
Record keeping
Reporting.
 SCOPE OF FINANCIAL MANAGEMENT

FINANCING DECISIONS

INVESTMENT DECISIONS

DIVIDEND DECISIONS.
WE WANT LARGEST SHARE OF THE PROFIT PIE!
MAXIMIZE PROFITS AND SATISFY EVERYONE
 PROFIT MAXIMISATION

1. Vague
2. Risk factor
3. Time value of money
4. Ignores dividend policy.
 WHAT SHOULD THE FINANCIAL DECISIONS BE
BASED ON??

Decisions judged on the basis of: by how much

can the share price be increased and how
quickly a fall in the price can be stopped.
 PROBLEM OF AGENCY

Managers may use their powers to further their own

interests.
Shareholders if not restricted contractually, may
increase stock prices by transferring wealth from the
lenders.
Firms may provide misleading or fraudulent info to
the markets.
Firms may create costs for society by pursuing the
objective of WM.
 WHEN CAN WM BE THE SOLE OBJECTIVE?

Mr.Utkarsh who is the CEO at Caruti ltd, was

responsible for turning the co. around and making
millions for the shareholders. He argues that firms
should solely focus on maximizing stock prices and
the actions taken in this regard enrich society as well.

Under what conditions will this argument hold true and

when will it break down?
CASE STUDY
 ASSESSING THE GOALS OF SPORTS PRODUCTS

What should the management of Sports Products, Inc.,

pursue as its overriding goal? Why?
Does the firm appear to have an agency problem?
Explain.
Evaluate the firms approach to pollution control. Does
it seem to be ethical? Why might incurring the expense
to control pollution be in the best interests of the firms
owners despite its negative effect on profits?
Does the firm appear to have an effective corporate
governance structure? Explain any shortcomings.
On the basis of the information provided, what specific
recommendations would you offer the firm?