mona singh a-2 fm of ii-sem.ppt
TRANSCRIPT
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Presentation of Fundamental ofFinancial Management
Presented By:-Mona SinghMBA II SemSection- A2
Presented To:-Prof. Vikas Pathak
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Meaning of FinancialManagement
“Concerns the acquisition, financing, and management of assets with some overalloverall goalgoal in mind.”
FM is a part of overall management Fm is that isthat managerial activity which is
concerned with the planning & controlling of thefirm’s financial recourses. t is helpful in ta!ingimportant decisions of what is invest and how tofinance for it.
"hus, FM is #roadly concerned with acquisition of fund& its proper utili$ation. FM is a process ofmanaging the financial resources, includingaccounting & financial reporting, #udgeting,collecting accounts receiva#le , ris! management &insurance for a #usiness. FM at the #roadest levelcomprises the management of all financial activities
of an organi$ation.
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%efinition
y '.C. (uchhal )*
“Financial Management deals withprocurement of fund & their effectiveutili$ation in #usiness.”
y 'olomon )*
“Financial management is concerned
with the efficient use of an importanteconomic resources, namely capitalfunds.”
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"wo aspect of FM
+rocurement of funds. ffective utili$ation of funds.
Scope of FinancialManagement
The scope of FM may be divided into
following two board categories:• Traditional Approach – Arrangementof funds.•
Modern Approach – !ective
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-ature and characteristics of FM
+art of overall management. Closely related with other disciplines.
Continuous process. %ifferent from accounting. Fast growing. elpful in decision ma!ing. /ider scope. oth science and 0rt.
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1#2ectives of FM
+rofit ma3imi$ation. /ealth ma3imi$ation. 1ther o#2ective)*
4.
+rovide support for decision ma!ing.5. nsure the availa#ility of timely, relevant and
relia#le financial and non 6 financial information.
7. Mange ris!s.
8. 9se resources, efficiently, effectively &economically.
:. 'trengthen accounta#ility.
;. +rovide a supportive control environment.
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'ignificance of FM
4. ssential in all types of organi$ations.5. . For achieving #alance ris! and return.?.
elpful in ta!ing innovative steps.4@. For maintaining optimum level of wor!ing capital.44. +rovide timely information.
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Functions of Financial Manager
nvestment decision)*
"he investment decision are related withselection of assets in which the funds are to #e
invested. "he assets may #e divided into twocategories)*
aA Bong term assets.
#A 'hort term assets. /hat is the optimal firm si$e /hat specific assets should #e acquired /hat assets Dif anyA should #e reduced or
eliminated
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ContEEE
Financing decision)* n finance decision, the financial manager
is required to determine the proportion of
de#t and equity. t is !nown as capitalstructure. t is essential to have a proper#alance #etween de#t and equity to ensurea trade off #etween ris! and return.
/hat is the #est type of financing /hat is the #est financing mi3 /hat is the #est dividend policy De.g.,
dividend*payout ratioA ow will the funds #e physically acquired
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ContEE..
%ividend decision)*
t is a third ma2or financial decision.
"he financial manager decide whetherthe whole amount of profit should #edistri#uted or a portion should #edistri#uted and #alance should #e
retained. %ividend policies should #esuch that ma3imi$es the value ofshares.
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1ther functions of Financial Manager
Biquidity decision.
volution of financial performance.
'upply of funds to all sections of theorgani$ations.
Biaison with financial institutions.
nterpretation of financial data.
Begal o#ligations.
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+rofit Ma3imi$ation
Ma$imi#ation of pro%t is generally considered as animplied ob&ective of %rm. 't is generally held that incase of free competition( businessman not only tries toachieve his personal interest( but he also satis%esinterest of society. A %rm should be guided by the aimof pro%t ma$imi#ation. Those assets and projectssho!d "e se!ected# $hich are pro%ta"!e andthose $hich are not sho!d "e rejected.
Ma$imi#ing a %rm)s earnings after ta$es.
ProblemsProblems
• *ould increase current pro%ts while harming %rm+e.g.( defer maintenance( issue common stoc, to buy
T-bills( etc..
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&riticisms:-• 't is vague .• 't ignores time value of money.• 't ignores ris,.• Too narrow.• 't ignores /uality aspect of
bene%ts.
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Maximization of ShareholderMaximization of Shareholder
Wealth!Wealth! The ob&ectives of wealth ma$imi#ation( as
discussed above( is not only vague but it alsoignores the two basic criteria of %nancialmanagement i.e. ris, 0 time value of money. 'talso ,nown as 1value Ma$imi#ation) or 12et
Present 3alue ma$imi#ation).“Value creation occurs when we maximize theshare price for current shareholders.” Criterion:-•It is based on the concept of cash owgenerated b the decision rather than counting
pro!t. "easuring bene!ts in terms of cash owa#oids the ambiguit associated with accounting
pro!t.
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/hat do mean #y 'ources offinance
'ources of finance means the way wherewe are arranging the capital for effectivelyrun for company.
Finance is said to #e the life #lood of a#usiness. Funds are needed to meet thedifferent types of requirement li!eimplementing a new pro2ect, e3pansion,
moderni$ation, etc. "he #usiness can notrun effectively if it does not have adequatefinance.
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'ources of Finance. 0ccording to +eriod.
Bong term sources, vi$. shares, de#enture, long*term loans, etc 'hort term sources, vi$. advances from commercial #an!s,
pu#lic deposits, advances from customer and trade creditors etc.
. 0ccording to 1wnership.
1wn capital, vi$. share capital, retained earning and surpluses
etc. orrowed capital, vi$. de#enture, pu#lic deposits and loan etc.
. 0ccording to source of eneration.
nternal sources, vi$. retained earning and depreciation fund etc.
3ternal sources, vi$. securities such as share and de#enture,
loan, etc.
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'hort*"erm 'ources of Finance
"rade Credit)
t is an informal arrangement #etween the #uyer andseller. "here is no legal instrument or document forgranting trade credit. t is popularly !nown as G'undry
Creditor’ or G0ccounts paya#le’. na! Finance)
an!s are the main institutional sources of wor!ing capitalfinance in ndia. an! finance is availa#le in differentforms. an! do not provide 4@@H of the credit limit. "hey
deduct margin money to ensure security. For e3ample, ifthe margin requirement is 5@H, #an! will give only >@Hof the value of assets !ept as security.
f b , %
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Types of ban, %nance: Types of ban, %nance:•*ash credit•4verdraft•Purchasing5discounting of the bill•6etter of credit•7or,ing *apital 6oan *ommercial Paper: A commercial paper is a short-termPromissory 2ote issued by a company(negotiable by endorsement and delivery( issuedat such discount on face value as may bedetermined by the issuing company.
Accrued $penses and 8eferred income: 'n addition to trade credit( accrued e$pensesand di!ered income are other spontaneous
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Accrued e$penses are more automatic sourcesince by de%nition they permit the %rm toreceive services before paying for them.
6ong-Term Sources ofFinance*apital mar,et is one of the most important sourcesof long-term %nancing. 't includes a wide variety of
%nancial instrument including shares anddebentures which facilitate 9ow of funds fromsurplus units to de%cit unites. Types of capita!
/uity Share *apital: The amount of raised by the issue of e/uityshares is ,nown as e/uity share capital. Types ofshare capital as follows:•
Authori#ed Share *apital•
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Preference Share: The amount of share capital which is raised by theissue of preference shares is called preference share
capital. Types of Preference shares:•*umulative preference shares•2on cumulative preference shares•Participating preference shares•2on participating preference shares•edeemable preference shares•'rredeemable preference shares•*onvertible preference shares
•2on convertible preference shares
8ebentures : A company has authority( if permitted by
memorandum and article of association( to invitemembers of general public to contribute to its loan
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The loan capital can be raised by a company by theissue of an instrument called 18ebenture).
Types of 8ebentures•Secured or Mortgage 8ebentures•edeemable 8ebentures•Simple or 2a,ed 8ebentures•Perpetual 8ebentures•egistered 8ebentures•;earer 8ebentures•4n the basis of convertibility- -2on-*onvertible 8ebentures -Fully-*onvertible 8ebentures
-Partly-*onvertible 8ebentures
etained arnings: At time of distribution of pro%t company hasretained some amount of pro%t and re invest in
business it)s called retained earning.
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Meaning of udget
udget is a numeric representation of themanager’s plan for specified period of time.t is commonly used #y #usiness firms,government agencies, non profit ma!ing
organi$ation and even households. %efinitiony rown and oward)* “a #udget is a predetermined statement of
management policy during a given periodwhich provides a standard for comparisonswith the results actually achieved.”
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*lassi%cation ofbudgets
4n thebasis oftime
4n the basisof function
4n the basisof 9e$ibility
. *urrent?. olling
. *ost of
production?. Purchase@. *apital
$penditure
. *ashB. PersonnelC. esearchD. Master
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Cash udget
Cash #udget is an estimate of cash receiptand payments. t is prepared after preparingall other functional #udget #ecause financialrequirements of all the #udgets are ta!eninto consideration for preparing cash #udget.
%efinition
y uthmen and %ougal)*
“Cash #udgets is an estimated of cash receiptsand dis#ursement for a future period oftime.”
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Fle3i#le udget
0 fle3i#le #udget is prepared form a range, i.g.for more than one level of activity. "hus, afle3i#le #udget might #e developed that wouldapply to range of production, say :@@@ to 4@@@@
units. 9nder this approach, if actual productionslips to >@@@ units from a pro2ected 4@@@@ units,the manager can use it to determine #udgetedcost at >@@@ units of output.
“0 #udget which #y recogni$ing the difference#etween fi3ed, varia#les and semi varia#lecosts, is designed to change in relation to thelevel of activity attained.”
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Iero ase #udgeting
Iero #ase #udgeting, as the name suggests,e3amines or reviews a program or functionfrom a Gscratch’. "he technique suggeststhat an origination should not only ma!e
decision a#out proposed new programs, #utshould also review the appropriateness ofthe e3isting programs from time to time.'uch a review should #e done of suchresponsi#ility centers where the proportion
of costs is relatively high. No activity orexpense is allowed simply because itwas being allowed or done in the past.
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