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Management
Meaning of Finance:
Arrangement and Management of
funds required for organization
It is blood of organization
Art and Science of Managing Money
What is Financial
Management?
1.Concerns the acquisition,
financing, and management of
assets with some overall goal in
mind.
2.Procurement of Finance and its
Effective utilization for
achievement of common goal
Differences Between
Accounting and Finance
Financial accounting involves recording and
classifying financial information.
Completion of accounting cycle
Compilation of financial statements
Managerial accounting applies tools to
financial information to generate new
information.
Ratio analysis
Breakeven analysis
Differences Between
Accounting and Finance
Financial management involves a
number of different areas such as:
Stock valuation
Bond valuation
Asset diversification
Property appraisal and valuation
Working capital management
What Is Financial
Management?
1.Investment
Decisions
Most important of the three
decisions.
What is the optimal firm size?
What specific assets should be
acquired?
What assets (if any) should be
reduced or eliminated?
2. Financing
Decisions
Determine how the assets (LHS of
balance sheet) will be financed (RHS
of balance sheet).
What is the best type of financing?
What is the best financing mix?
What is the best dividend policy
How will the funds be physically
acquired?
3. Asset Management
Decisions
How do we manage existing assets
efficiently?
Financial Manager has varying degrees
of operating responsibility over assets.
Greater emphasis on current asset
management than fixed asset
management.
3.Asset Management
Decisions
1.Capital budgeting
What long-term investments or
projects should the business take on?
2. Capital structure
How should we pay for our assets?
Should we use debt or equity?
3.Working capital management
How do we manage the day-to-day
finances of the firm?
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2.Maximization of Shareholder
Wealth!
Financial decision will be taken such a
way that shareholders can get highest
returns
Combination of return and increase of
share price
Shares are traded in capital market
hence true value can analysed
Market price of share shows all future
benefits flows from firm to investors
Function of Financial
Manager
1.
2.
3.
4.
5.
Key Strategies of FM
1. Preparation of Vision Statement
Statement about the companys values, purpose,
and future direction
2. Preparation of Mission Statement
Target customers and markets; main products and
services; geographic domain; core
technologies; commitment to survival, growth.
3.Analysis:
An analysis of the firms business trends, external
opportunities, internal resources.
4. Strategy Formulation:
To formulate a long-term strategy
5.Strategy Implementation and
Management
Modern Corporation
Shareholders
Management
Role of Management
Management acts as an agent
for the owners (shareholders)
of the firm.
An agent is an individual
authorized by another person,
called the principal, to act in the
latters behalf.
Board of Directors
Typical responsibilities:
Set company-wide policy;
Advise the CEO and other senior executives;
Hire, fire, and set the compensation of the
CEO;
Review and approve strategy, significant
investments, and acquisitions; and
Oversee operating plans, capital budgets,
and financial reports to common
shareholders.
Organization of the
Financial Management
Function
Board of Directors
President
(Chief Executive Officer)
Vice President
Operations
VP of
Finance
Vice President
Marketing
Organization of the
Financial Management
Function
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