This document provides an introduction to financial management. It discusses key topics like the meaning and scope of financial management, the goals of profit maximization versus wealth maximization, finance functions, and organizational structure. It also covers the relationship between finance and accounting, interfaces with other functions, and different forms of business organization. The overall summary is that financial management involves acquiring and using funds to achieve organizational goals in the most profitable way by making decisions around investing, financing, and dividends.

1. Introduction to Financial Management

2. CONTENTS
 Meaning and Scope of Financial Management
 Goals/Objectives of Financial Management – Profit
Maximization vs. Wealth Maximization
 Finance Functions
 Place of Finance Function in the Organizational
Structure
Relation of Finance with Economics
 Relation to Accounting
 Interface with other Functions
 Supplementary Noteworthy Aspects Related to
Financial Management
 Methods and Tools of Financial Management
 Forms of Business Organization

3. Financial Management
Finance can be defined as the art and science
of managing money.
Financial management is concerned with
raising financial resources and their effective
utilization towards achieving the
organization goals.
In simple meanings, “To utilization money
and to make profitability is called financial
management.”

4. Scope of Financial Management
Financial Analysis, Planning and
Control
Profit planning
Financial forecasting
Financial control

5. Goals/Objectives of Financial Management –
Profit Maximization
• Profit maximization concept should be
considered in relation to risks involved. There
is a direct relationship between risk and profit.
Many risky propositions yield high profit.
• Higher the risk, higher is the possibility of
profits. If profit maximization is the only goal,
then risk factor is altogether ignored.
• Profit maximization, as an objective does not
take into account time pattern of return.

6. Modern Approach – Wealth Maximization
• The alternative to profit maximization is wealth
maximization. This is also known as Value
maximization or Net Present Worth
maximization. Value is represented by the market
price of the company's equity shares.
• The share market prices of a company's shares do
reflect the value, which the various parties put on
a company. Normally, the value is a function of
two factors:
• 1. The likely rate of Earnings Per Share
(EPS) of a company and
• 2. The capitalization rate

7. • EPS are calculated by dividing the periods total earnings
available for the firm's common shares by the number of
shares of common shares outstanding. The likely rate of
earnings per share
• (EPS) depends on the assessment as to how profitably a
company is going to operate in the future.
• The capitalization rate – capitalization rate is used
to estimate the investor’s potential return on his or her
investment.
• This is done by dividing the income the property will
generate by the total value of the property.
• Capitalization rate = yearly income/ Total value.
Modern Approach – WealthMaximization

8. • Stakeholders - Stakeholders are groups such as
employees, customers, suppliers, creditors,
owners and others who have a direct economic
link to the firm.
• Role of Ethics - Ethics is standards of conduct
or moral judgment. Today, the business
community in general and the financial
community in particular are developing and
enforcing ethical standards, purpose being to
motivate business and market participants.
• It is necessary for achieving the firms goal of
owner wealth maximization.
Modern Approach – WealthMaximization

9. Finance Functions
• Financial Management is indeed, the key to
successful business operations. Without proper
administration and effective utilization of finance,
no business enterprise can utilize its potentials
for growth and expansion.
• In the contents of modern approach, the
discussions on financial management can be
divided into three major decisions viz.,
(1)Investing; (2) Financing; and
(3) Dividend decision.

10. Finance Functions
• Investing
(a) Management of current assets (cash, marketable
securities, receivables and inventories)
(b) Capital budgeting (identification, selection and
implementation of capital projects)
(c) Managing of mergers, reorganizations and
divestments
• Financing
(a) Identification of sources of finance and
determination of financing mix
(b) Cultivating sources of funds and raising funds

11. Finance Functions
• Dividend Decision
• This is the third financial decision, which
relates to dividend policy. Dividend is a part of
profits, that are available for distribution, to
equity shareholders. Payment of dividends
should be analyzed in relation to the financial
decision of a firm. There

12. Organizational Chart of Finance Function

13. Relation to Accounting
• The firm's finance (treasurer) and accounting (controller)
activities are closely related and generally overlapped.
• Normally, managerial finance and accounting are not often
easily distinguishable.
• In small firms, the controller often carries out the finance
function and in large firms many accountants are also
involved in various finance activities.
• There are two basic differences between finance
and accounting:
• Emphasis on cash flows
• Relating to decision-making

14. Relatingto decision-making
• Emphasis on cash flows: The accountant's primary
function is to develop and report data for measuring the
performance of the firm, assuming its financial position
and paying taxes using certain standardized and generally
accepted principles. The accountant prepares financial
statements based on accrual basis.
• Relating to decision-making: Accountants devote
most of their operation to the collection and
presentation of financial data. The primary activities of
the financial manager in addition to ongoing involvement
in financial analysis and planning are making investment
decisions and making financing decisions.

15. Interface with other Functions
 Manufacturing Finance
a) Manufacturing function necessitates a large investment.
Productive use of resources ensures a cost advantage for the firm.
b) Optimum investment in inventories improves profit margin.
c) Many parameters of the production cost having effect on
production cost are possible to control through internal
management thus improving profits.
 Marketing Finance
a) Many aspects of marketing management have financial
implications e.g., hold inventories to provide off the shelf service
to customers and thus increase sales; extension of credit facility to
customers to increase sales.
b) Marketing strategies to increase sales have additional cost
impact, which needs to be weighed carefully against incremental
revenue.

16. Interface with other Functions
Personnel Finance
• In the global competitive scenario, business
firms are moving to leaner and flat
organizations.
• Investments in Human Resource Development
are also bound to increase.

17. Forms of Business Organization
Sole Proprietorship
• A sole proprietorship is a business owned by one
person who runs for his own profit. Majority of the
business firms are sole proprietorships. The typical sole
proprietorship is a small business
• Example: bakeshop, personal trainer or plumber.
Partnership
• A partnership firm is a business run by two or more
persons for profit. Partnership accounts for the next
majority of business and they are typically larger than
sole proprietorship. Finance, legal and real estate firms
often have large number of partners.

18. Forms of Business Organization
Company Form
• A company form of business is a legal entity,
separated from the owners, with perpetual
succession.
• Just like an individual, the company can sue and
be sued, make and be party to contracts and
acquire property in its own name.
• The company form of organization is the
dominant form of business organization in terms
of receipts and profits.

19. Strengths and Weaknesses of the Common Forms of Business
Organizations

20. Strengths and Weaknesses of the CommonForms of Business
Organizations

21. Summary
 Financial Management is broadly concerned with the acquisition and use
of funds by a business firm.
 It has been traditionally argued that the objective of a company is to earn
profit. This means that the finance manager has to make decision in a
manner that the profit is maximized.
 The alternative to profit maximization is wealth maximization. This is also
known as Value maximization or Net Present Worth maximization.
 The important aspects of the finance function have to be carried on by the
top management i.e., the Managing Director and the Board of Directors.
 Finance is defined as the lifeblood of an organization. It is a common
thread, which binds all the organizational functions as each function when
carried out creates financial implications.
 The three most common forms of business organization are sole
proprietorship, partnership and the company.
 In the area of financing, funds are procured from long-term sources as
well as short-term sources.

22. Presentedby
Sksingh
Nexusbusiness school
+91-9709907045