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FM Unit 1
FM Unit 1
Unit 1
Definition of Finance
1. Providing of funds
2. Raising of funds and their effective utilisation
Approaches of Finance Function
Financial Management
Concerned with
Analyses
1. Investment decision
2. Financing decision
3. Dividend policy decision
Objective of Financial Management
Functions of Financial Management
Factors influencing Financial Decisions
I. External Factor
State of Economy
Structure of capital and money markets
Government policy
Taxation policy
Lending policy of financial institutions
Investment Decisions
- Capital Budgeting
- Working Capital Management
Risk
Feedback
2. Medium-Term Finance
Medium term finance is raised for a period between 1 year to 5 year.
1. Borrowing from Commercial Bank or Financial Institutions,
2. Debenture issue
3. Acceptance of public deposit
1. Equity Shares
2. Preference Shares
Equity Shares
They have the voting rights and part of decision- making process.
I. Advantages to Investors
1. Capital profit
2. Interest in the company’s Activities
3. Best for Investment
4. Right to interfere in Management
II. Advantages to Company
1. No Fixed Burden of Dividend
2.Bear the Risk
3. Availability of Fixed capital
Disadvantage of Equity Shares
I. Disadvantages to Investors
1. Uncertainty of Income
2. Irregular Income
3. Capital Loss
4. Not the Best Alternative
II. Disadvantages to Company
1. Difficult to Remove Over-Capitalisation
2. Centralisation of Control
3. Change in Management Policy
PREFERENCE SHARES
1. Maturity
2. Claims on Income
3. Claims on Assets
4. Control
5. Hybrid form of security