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Topics Covered
What Is A Corporation?
The Role of The Financial Manager
Who Is The Financial Manager?
Separation of Ownership and
Management
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Corporate Structure
Sole Proprietorships
Corporations
Partnerships
Limited Liability
Corporate tax on profits +
Personal tax on dividends
(dividend distribution tax as
of now in India)
Unlimited Liability
Personal tax on profits
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Role of The Financial
Manager
Financial
manager
Firm's
operations
Financial
markets
(1) Cash raised from investors
(1)
(2) Cash invested in firm
(2)
(3) Cash generated by operations
(3)
(4a) Cash reinvested
(4a)
(4b) Cash returned to investors
(4b)
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The 6 As
Anticipating financial needs
Acquiring financial resources
Allocating funds in business
Administrating the allocation of funds
Analyzing the performance of funds
Accounting and reporting to management

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Role of The Financial
Manager
Common Finance Terminology
Real assets
Financial assets / Securities
Capital markets and financial
markets
Investment / capital budgeting
Financing
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Who is The Financial Manager?
Chief Financial Officer
Controller
Treasurer
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3 Broad decisions of FM
Investment decisions

Finance decisions

Dividend decisions
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INVESTMENT DECISIONS
Ascertainment of funds the firm can commit

Appraisal & selection of Capital Investment
Proposals

Measurement of risk & uncertainty in the
investment proposals

Prioritization of investment decisions

Determination of fixed assets to be
acquired..
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Determination of level of investment in the
Current Assets

Buy or lease decisions

Asset Replacement decisions

Restructuring, Mergers & Acquisitions

Security Analysis & Portfolio management
contd.
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FINANCE DECISIONS
Determination of the financing mix for long-term,
medium-term & short-term investments

Raising funds through issue of financial
instruments

Arrangement of funds from banks, Fis

..contd
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..contd
Strategies to reduce Tax liability of the firm
Various modes of improving the EPS & the
market value of the share
Consideration of Cost of Capital & WACC
Optimization of financing mix to improve returns to
shareholders
Considering impact of over/under capitalization on
firms profitability
Impact of economic conditions of the country on
modes of financing

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DIVIDEND DECISIONS
Determination of dividend & retention
policies of the company

Consideration of impact of levels of
dividend and retention of earnings on the
market value of the share & future
earnings of the company
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Leads to agency problem

Managers (agents)are supposed to act on
behalf of the shareholders(principal)
Conflict of interests
Mismanagement of funds
Burden of agency costs
Separation of Ownership from
Management
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AGENCY COSTS
Costs to the shareholders of managers making
decision that are not in the shareholders
interests.

Expenditure to minimise dishonesty
Expenditure to monitor managements actions
by internal audits
Expenditure to protect owners from mischief of
managers
Opportunity cost of lost profits

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Solutions

Value maximization
Accountability of Directors
Monitoring
Motivation through incentives (ESOPs)
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INTERNATIONAL FINANCE
How to source it ?? How to manage it.. ??!!!!!!
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Regulatory changes GAAP to IFRS

M&As leading to complex operating models

Financial risk management

Prioritizing capital investments

Managing taxes

Key Challenges for CFOs
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FINANCE & ACCOUNTING
Accounting info acts as input to the
finance function
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