Tapen Gupta

Financial ManagementTapen GuptaHIM Kala Amb


Financial Management

Financial +Management
(Finance)
Finance
Provision of money at the time when it is required
Public & Private
Public : Govt , State , Central
Private : Personal Finance
Business Finance
Non Profit Org.
Corporation
Acc to chief justice marshall
" It is an artificial being , invisible , intangible & existing only in contemplation of the law. Being a mere creation of law it possess only the properties which the charter of its creation confers upon its either expressly or as incidentally to its very existence "
Corporation finance / Financial Management
It is a process of raising , providing & administering of all money / funds
Corporation finance / Financial Management
" It is acquiring & utilising funds by business" By R.C. Osborn
" The activity concerned with the planning , raising , controlling & administering the funds used in the business" By Guthman & Dougall
" It is the area of finance decision making harmonizing individual motive & enterprise goal"
By Weston & Brigham
" Activity which is concerned with the acquisition & conservation of capital funds in meeting the financial need & overall objective of business enterprises" By Wheelers
Corporation finance / Financial Management
In simple words
Financial Management as practiced by corporate firms can be called corporation finance
Evolution of corporate finance
Early part of this century , emphasis on study of sources
In 1930 economic recession difficulties in finance
World war II Reorganization of industries & need of selecting financial structure
In 1950 Profitability to liquidity & Institutional finance to day to day operation of finance
Mid fifties modern phase concept of FM become more analytical
In 1960 witnessed advances in the theory of portfolio
In 1980 role of taxation in personal & corporate Finance
Importance of corp. finance
Life blood & nerve centre of business
Universal lubricant
Academician
Developing stage
Crucial decision
Inc. in size , wide distribution of corporate ownership
Window dressing ( to investor , bankers)
Approaches to finance function
Traditional Approach
Modern Approach
Traditional Approach
1920 – 1930 (corporate finance)
Procure & administer fund for the corporation
Institutional source of finance
Issue of financial instrument
Legal & accounting relationship
Limitations
One sided approach (raising of funds)
More emphasis on the financial problem of corporation
More concerned about special event
Non emphasis on day to day operation
Modern Approach
1950’s
Technological improvement
Inc. size of business enterprises
Broader analytical viewpoint
Procurement of funds as well as administering funds
Investment decision
Financing decision
Dividend decision
Features of FM
More emphasis on financial decision
Continuous function
Broader view / wide scope
Less descriptive & more analytical
Different from accounting function
Accounting generates information
Finance data analysis & decision making
Measurement of performance
Applicable to all types of org.
Aim of finance function
Acquiring sufficient funds
Proper utilization of funds
Increase profitability
Maximizing firm value
Scope of finance function / FM
Estimating financial requirement
Deciding capital structure
Selecting source of finance
Selecting pattern of investment
Proper cash management
Proper use of surplus
Objectives / goals
Concrete framework within which optimum financial decision can be made
Profit maximization
Include the profit activities
Avoided dec. profit activities
Favor
Profit is a test economic efficiency
Leads to efficient allocation & utilization of scare resources
Profitability *(social goals)
Major source of finance
Limitations
Ambiguity
Time value of money
Risk factor
Wealth maximization approach
Net present worth / value
Worth of asset is measured in terms of benefits rewind from its uses less cost of acqauation cost
w= A1 + A2 + A3 + ----------An – c
1+k (1+k)2 (1+k)3 (1+k)n
Criticism
Prescriptive idea
Obj. is not necessarily socially desirable
Maximise the stock holder or wealth of the firm
Difficulties in ownership & Management
Functional area of FM
Determining the financial need
Selecting sources of fund
Financial analysis
Capital budgeting
Working capital mangement
Profit planning & control
Dividend policy
Importance of FM
Acquiring sufficient fund
Proper utilization of resources
Proper cash management
Proper use of profits
Maximization of wealth
Useful for shareholder
Useful for investor
Function of FM
Financial planning
Financial decision
Investment decision
Dividend decision
Financial control
Incidental function
Function of financial manager
Financial planning
Procurement of funds
Coordination
Control
Business forecasting
As an treasurer
Provision of finance
Banking function
Custody
Cash management
Investment
As an controller
Planning
Accounting
Auditing
Reports
Govt. reporting
Tax administration
Economic appraisal