Module 1

Financial management Introduction to finance Objectives of financial management Profit maximization and wealth maximization. Changing role of finance managers. Organization of finance function .

1. Define finance and describe its major areas financial management/managerial finance/ corporate finance and financial services

2. Differentiate financial management from the closely-related disciplines of accounting and economics 3. Describe the scope of financial management and identify the key activities of the financial manager
4. Explain why wealth/value maximisation, rather than profit/EPS maximisation, is the goal of financial management 6. Outline the organisation of finance function and the emerging role of finance managers in India

Application of principles of management to finance areas is called Financial Management

Financial management is concerned with the duties of the financial managers in the business firm

Economics Accounting marketing Production Quantitative methods

Investment analysis Working capital management Sources & cost of funds Determination of capital structure Dividend policy Analysis risk & returns

Primary discipline Accounting Macroeconomics Microeconomics Other related disciplines Marketing Production Quantitative methods

Shareholders wealth maximisation

Long term investment : Capital budgeting Short term decision : working capital management

Debt equity composition Capital structure decision Optimum capital structure decision

What to do with surplus money ? Retain or distribute ?????

How to get the money ? What to do with the money ? What to do with the profit ?

Scope : Financing decision Investment decision Dividend policy decision

Profit maximization (profit after tax) Wealth maximization

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Maximizing the rupee income of firm

Resources are efficiently utilized Appropriate measure of firm performance Serves interest of society also

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It is Vague It Ignores the Timing of Returns It Ignores time value of money In new business environment profit
maximization is regarded as
Unrealistic Difficult Inappropriate Immoral

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Maximizing the wealth of the share holder or increasing the market price of shares It considers cash flow instead of profit Takes into account time value of money and quality of benefits W= V- I

W= A1 + A2 -----------A N ____ _____ ______ (1+ K) (1+K)2 (1+ K)

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Organization for finance function

Organization for finance function in a multidivisional company

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The exact organisation structure for financial management will differ across firms. The financial officer may be known as the financial manager in some organisations, while in others as the vice-president of finance or the director of finance or the financial controller.

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Two officersthe treasurer and the controllermay be appointed under the direct supervision of CFO to assist him or her. The treasurers function is to raise and manage company funds while the controller oversees whether funds are correctly applied.

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