Professional Documents
Culture Documents
AUTHORS:
H.KENT BAKER
BRIGHAM
Chapter No 1
INTRODUCTION TO
FINANCIAL MANAGEMENT
INTRODUCTION
Financial Management is that managerial activity which is
concerned with the planning and controlling of the firm's
financial resources. It was a branch of economics till 1890
and as a separate discipline, it is of recent origin.
Finance may be defined as the provision of money at the
time when it is required.
Finance refers to the management of flows of money
through an organization. It concerns with the application of
skills in the manipulation, use and control of money.
Evolution of Financial
Management
Traditional Phase: In the traditional phase the focus of financial
management was on certain events which required funds e.g. major
expansion, merger, reorganization etc. It is also characterized by a heavy
emphasis on legal and procedural aspects as at that point of time the
functioning of companies was regulated by a plethora of legislation.
Transitional Phase: During the transitional phase the nature of financial
management was the same but more emphasis was laid on problems faced
by finance managers in the areas of fund analysis, planning and control.
Modern Phase: The modern phase is characterized by the application of
economic theories and the application of quantitative methods of analysis.
Objectives of Finance
The management of finance is to achieve financial objectives. The
following are the main objectives of finance
Scope of Finance
What is finance? What are a firm's financial activities? How are they related to the
firm's other activities? Firms create manufacturing capacities for production of
goods;
some provide services to customers. They sell their goods or services to earn profit.
They raise funds to acquire manufacturing and other facilities. Thus, the three most
important activities of a business firm are:
Production
Marketing
Finance
A firm secures whatever capital it needs and employs it (finance activity) in
activities, which generate returns on invested capital (production and marketing
activities).
Investment Decision
Finance Decision
Dividend Decision
Liquidity Decision
Funds Raising
Funds Allocation
Profit Planning
Understanding Capital Markets
Agency Theory
Jensen
Agency Theory
Principals
Social Responsibility
Wealth maximization does not preclude the
firm from being socially responsible.
responsible
Assume we view the firm as producing both
private and social goods.
Then shareholder wealth maximization
remains the appropriate goal in governing the
firm.
Corporate Governance
Corporate governance: represents the system
by which corporations are managed and
controlled.
Includes shareholders, board of directors,
and senior management.
Then shareholder wealth maximization
remains the appropriate goal in governing the
firm.
Board of Directors
Typical responsibilities:
VP of
Finance
Vice President
Marketing
VP of Finance
Treasurer
Controller
Capital Budgeting
Cash Management
Credit Management
Dividend Disbursement
Fin Analysis/Planning
Pension Management
Insurance/Risk Mngmt
Tax Analysis/Planning
Cost Accounting
Cost Management
Data Processing
General Ledger
Government Reporting
Internal Control
Preparing Fin Stmts
Preparing Budgets
Preparing Forecasts
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