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Introduction to

financial management

1
What Is Business
Finance?
Imagine you were to start your own
business.
you would have to answer the following
three questions.
1.What long-term investments should you
take on? That is, what lines of business will
you be in and what sorts of buildings,
machinery, and equipment will you need?
2.Where will you get the long-term financing
to pay for your investment?
3.How will you manage your everyday
financial activities such as collecting from
customers and paying suppliers? 2
These are not the only questions, but
they are among the most important.
Business finance,
broadly speaking, is the study of ways
to answer these three questions. We’ll
be looking at
each of them in the chapters ahead.

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Classifications of financial

Public finance private

1.Government institutions 1. Business


finance
2. central government 2. personal
finance
3. state government 3.Finance of
Non-profit
4. local self government
organization 4
Definitions
Finance management
J.F. Bradlery :-“financial
management is the area of
business management devoted
to a judicious use of capital and a
careful selection of sources of
capital in order to enable a
business firm to move in the
direction of reaching its goals”

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Definition

Business finance
Guthmann and dougall:-”
business finance can be broadly
defined as the activity concerned
with the planning, raising,
controlling and administering the
funds used in the business”.

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Meaning of financial
management

Financial management is
application of principles of
management to the subject
called finance , it involves
planning, controlling decision
making with respect to finance
activity of the business.

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The Four Basic Areas of
finance
•Corporate finance
•Investments
•Financial institutions
•International finance

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Why Study Finance?
Marketing and finance
Budgets, marketing research, marketing
financial products
Accounting and finance
Dual accounting and finance function,
preparation of financial statements
Management and finance
Strategic thinking, job performance and
profitability
you and finance(personal finance)
Budgeting, retirement planning, college
planning, day-to-day cash flow issues 9
The Evolution of Financial Managem

 Early 1900 : instrument, institution, and


procedures of capital market and money
market
 Around 1920 : focus on security and
banking sector, and investment in common
stock
 Around 1930 : focus on liquidity, debt,
regulation, bankruptcy, reorganization
 End of 1950 : capital budgeting, valuation,
and dividend policy
 Around 1960 : development of portfolio
theory
 Around 1970 : CAPM model and APT
model that can be used to value the
financial assets
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Financial Manager
Financial managers is responsible
for managing all the financial
obligations of the firm.
The top financial manager within
a firm is usually the Chief Financial
Officer (CFO)
◦ Treasurer – oversees cash
management, credit management,
capital expenditures and financial
planning
◦ Controller – oversees taxes, cost 11
Organization structure
of finance

12
Nature of financial
management
FM is an area of decision making in
finance function of the business.
It is descriptive/ theoretical/
statistical/ historical and analytical
in nature.
It involves application of
management principles to the
finance function.
It is applicable to every
organization irrespective of its size,
nature, place. 13
Continued…
It deals with accumulation and
utilization of financial
resources(business resources).
It is directed towards achieving
business objectives.

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Scope of financial
management.
1.Estimating financial requirements
2.Deciding capital structure
3.Selecting source of finance
4.Selecting pattern of investment
5.Cash management
6.Profit management
7.Ensuring liquidity
8. Meeting statuary requirement.
9. Generation and mobilization of
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Financial Management
Decisions

Investment decision

Financial decision

Dividend decision

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Objectives of financial
management

1) Profit Maximization

2)Wealth Maximization

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1) Profit maximization
When profit-earning is the main aim
then its maximization should be
obvious.
Profitability is a barometer for
measuring efficiency and economic
prosperity of a business enterprise.
Profits fuel business growth. So
business should maximize profit to
ensure strong growth.
Business risks are unavoidable as
well as uncertain.
All other business goals (social goals
can be meat only with adequate
profits)so it should be maximized. 18
Criticisms of profit
maximization
 Profit maximization ignores time value of
money.
 Profit maximization does not take into
account the risk involved in prospective
earnings.
 It would lead to inequalities and loss of
human values which are essential to a
society.
 Today's market is characterized by
imperfect competition in this scenario,
profit maximization can not be the
obvious objective of the business.
 The term profit itself is not precisely
defined, it can be short term/long term or 19
2) Wealth
maximization

Wealth maximization means


maximizing share/stock holders wealth.

symbolically

share holder’s = no of sharesCurrent


x ×
stock
wealth owned price per
share

20
Factors in favor of wealth
maximization
It serves the interests of creditors,
employs, shareholders and society.
Wealth maximization adds to
productivity and efficiency of the
firm.
It minimizes the conflict between
share holders and management of
the company.
Wealth maximization takes into
account time value of money.
 the objective helps in increasing 21
Criticisms of wealth
maximization
It is prescriptive idea. It is not
descriptive of what firms actually
do.
Wealth maximization is not
necessarily socially desirable.
There is some controversy as to
whether the objective is to
maximize shareholders wealth or
firms wealth(since debenture
holders, preferential holders also 22
The End of
Session 1

But not end of


presentation
Brain
storming

Sessions...
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1.What is the goal/objective
of financial management?
A. Profit maximization and wealth
maximization

B. Business expansion and asset


management

C. Investments and share market


analysis
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A. Profit maximization
and wealth maximization

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2. What are the four basic
areas of finance?
A. Business finance, share
market, domestic finance and
investments.

B. Corporate finance,
investments, financial
institutions and international
finance.

C. Public finance, private 27


B. Corporate finance,
investments, financial
institutions and
international finance.

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3. What are the three
types of financial
management decisions
A. Capital budgeting, capital
structure and working capital
management.

B. Profit management, cash


management and deciding capital
structure.

C. Capital budgeting, deciding 29


A. Capital budgeting, capital
structure and working
capital management.

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4. Who is the present CFO
of JS BANK LTD
A. Naveed Qazi

B. Yousaf Ammanullah
C. Khalil ur Rehman

D. kamil yaqoob

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B. Yousaf Ammanullah

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5. Name any five
financial institutions.

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1) JS BANK LTD
2) HSBC
3) HBFC
4) Meezan Bank LTD
5) Bank Alfalah
6. Who is the present
finance minister of
PAKISTAN
A. Shaukat Tareen

B. Naveed Qamar

C. Hina Rabbani Khar

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A. Shaukat Tareen

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THANK YOU…..
FARAZ AHMAD
JS BANK LTD

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