Introduction to

Financial Management
 Financial Management
 FinancialManagement is that
managerial activity which is
concerned with planning and
controlling of the firm’s financial
resources so that organizational
objectives can be achieved.
 DEFINITION OF FINANCIAL
MANAGEMENT
 FinancialManagement is the
management of fund in such a way
that funds are procured at minimum
cost and they are utilized in best
opportunities
 Financial Decisions
 Financing Decisions
(Capital Structure Decision)
 Long term Investment Decision

(Capital Budgeting Decision)

 Short Term Investment Decision

( Liquidity Decision )
 Dividend Decision

(Distribution Decision)
 Function/ Role of a Finance
Manager
 Funds Raising
 Funds Allocation

 Profit Planning

 Understanding Capital Market & Business

environment
 Objectives of Financial
Management
 Profitmaximization (profit after tax)
 Maximizing earnings per share

 Wealth maximization

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 Profit Maximization
 Maximizing the rupee income of firm
 Resources are efficiently utilized
 Appropriate measure of firm performance
 Serves interest of society also

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 Objections to Profit
Maximization
It is Vague
It Ignores the Timing of Returns
It Ignores Risk
In new business environment profit
maximization is regarded as
– Unrealistic
– Difficult
– Inappropriate
– Immoral

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 EPS Maximization
 Maximising EPS means maximizing
profit ( earning ) per share

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 Objections to EPS Maximization
 Maximising EPS does not maximise
the economic welfare of the
ownersMarket value is not a function
of EPS.
 Ignores timing and risk of the
expected benefit.

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 Shareholders’ Wealth
Maximization
 Maximizes the net present value of a
course of action to shareholders.
 Accounts for the timing and risk of the
expected benefits.
 Benefits are measured in terms of
cash flows.
 Fundamental objective—maximize
the market value of the firm’s
shares.
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 Agency Cost
(Managers Vs. Shareholders Goals)
 The decision taking authority in large
companies lie in the hands of managers.
 Shareholders as owners of the company
are the principals and managers are
their agents.
 In theory, managers should act in the
best interest of shareholders; that is
their actions and decisions should lead
to Shareholder's wealth Maximization.
 In practice, managers may not necessarily
act in the best interest of shareholders, and
they may pursue their own personal goals at
the cost of shareholders.
 Further, a company is a complex organization
consisting of multiple stakeholders such as
employees, debt holders, consumers,
suppliers, government and society.
 Managers in practice may, thus , perceive
their role as reconciling conflicting objectives
of stakeholders.
 This stakeholders' view of managers role may
compromise with the objective of SWM.
 Overview of Financial
Management

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INTERFACE (RELATION) BETWEEN
FINANCE AND OTHER FUNCTION
 MARKETING- FINANCE INTERFACE
 PRODUCTION- FINANCE INTERFACE

 PERSONNEL –FINANCE INTERFACE

 TOP MANAGEMENT- FINANCE INTERFACE

Thanks