Financial Management

Contents of Financial Management

Introduction Capital Budgeting Working Capital Capital Structure Cost of Capital Dividend Policy

Introduction
What do you mean by Finance? Why is it Important? How it Function? Is it apply to all the sectors?

Introduction
Finance: It is the management of money and

all valuable items which can be converted into cash. Management: it is the art of Planning, Organizing and Controlling.
Thus, Financial Management is the function

of planning,organising and controlling of finance

Introduction (Approaches)
Traditionally

, It relates Procurement of funds

with

only

But Modern Concept says it is not only the

Procurement of funds but also the Utilization of funds.

Thus, Financial Management relates with the Procurement and Utilization of Funds.

Introduction
Evolution of Finance: It includes the three

different phases of finance : 1. Upto1940 (Traditional Phase ) 2. After 1940 (Transitional Phase) 3. After 1950 (An Integrated view) Evolution appeared due to two factors : 1. Continuous growth & Diversity in Business 2. Growth of new financial analytical tools

Evolution of Finance:
Different Phases of Finance: Traditional Phase up to 1940: 1. Finance was not the regular part of managerial operations 2. It is concerned with only procuring of funds 3. The Focus of attention was only on Long term resources. Thus , the concept of working capital was virtually non existent

Evolution of Finance:
4. Treatment of different aspects of finance was more of descriptive nature rather than analytical. 5. In order to finance business growth, there was an emergence of institutional financing and institutional banking giving rise to finance industry. 6.In sort , we can say the role of Finance manager was very limited and Manager was called upon only in special and particular cases .

Evolution of Finance:
Transitional Phase i.e. after 1940:

1. Scope of finance function widened and day to day problems were incorporated. 2. Funds analysis and control on regular basis. Thus this phase was an extension of traditional phase and scope of finance function started expanding

Evolution of Finance:
After 1950: an integrated view of Finance:

With the increase in competition and growth in business, finance function has become analytical and decision oriented. 1. It is not only concerned with procurement but also the utilization of funds 2. The finance manager involved with capital funds to be raised by firm along with the allocation of these funds in different project so that desired return can be obtained.

Evolution of Finance:
Thus, Finance manager deals with the variety

of situations and these are: 1. Theory of Portfolio Management: developed by Harry Markowitz which deals with the risk, return and portfolio selection. 2. Theory of leverage and Valuation of Firm: Developed by Modigliani and Miller which is oriented towards maximization of value of firms and Shareholders wealth

Types of Decisions
How funds can be obtained?
Is it suitable for organization? What will be its Cost? What will be its Return? How & Where funds can be invested so that it

gives you the desired results?

Types of Decisions

Financing Decision

Investment Decision

Dividend Decision

Financing Decision
It relates with the Decisions like : Sources of funds

Short Term

Long Term

Investment Decision
It relates with the Decisions like :

Dividend Decision
It relates with the Decisions like : Distribution of Profits among the

shareholders Retaining of Profits

 Spontaneous finance: Finance which naturally arisesin the course of business is called as

spontaneousfinancing.Trade creditors, credit from employees, credit fromsuppliers of services etc are the examples of spontaneous financing. Negotiated financing: Financing which has to benegotiated with lenders, say commercial banks,financial institutions, general public are called asnegotiated financing.This financing may be short term in nature or long term. 5

 I t is rightly said that finance is the life-blood

of business. No Business can be carried on without source of finance . The financial manager ismainly responsible for raising the requiredfinance for the business. There are severalsources of Finance and as such the finance hasto be raised from the right kind of source

http://www.scribd.com/doc/33966931/Sourcesof-Finance-Ppt