Financial Management

Outline of Presentation

 Corporate Finance
 Evolution of Corporate Finance
 Corporate Structure
 Goals
 Activities
 Balance Sheet Model of the Firm
 Financial Manager
 Performance Measures
Financial Management

 To learn the

Financial Terms, Financial Principles,

Financial Techniques & Strategies

 How to manage financial decision
making
Financial Management

 Corporate Finance
 Managerial Finance
Corporate Finance

 What it means?

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Corporate Finance

 Efficient and Effective use of Funds

Corporate Finance

 What it deals?

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Corporate Finance

Deals with

Sources of Funds
&
Uses of Funds
Corporate Finance

Deals with

Acquisition of Funds
&
Application of Funds
Evolution of Financial Management

Traditional Phase(1900-1940)

Transitional Phase (1941-1950)

Modern Phase (After 1950)

Corporate Structure

Sole Proprietorships
Unlimited Liability
Personal tax on profits
Partnerships

Limited Liability

Corporations Corporate tax on profits +

Personal tax on dividends
Business

 An economic unit
 Aims to sell goods and services to
customers
 At prices that will provide an adequate
return to its owners
Goals of the Corporate Firm

 Maximize

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Goals of the Corporate Firm

Major r

 Maximisation of Wealth of Equity

Shareholders
 Goals of the Corporate Firm

 Justification

Shareholders provide
 Savings for shares (Trade off)

 Venture (Risk) Capital

Goals of the Corporate Firm

Alternate
 Maximise the profit

 Maximise the EPS

 Maximise ROE
Goals of the Corporate Firm

Other Concern
Growth
Market Share
Leadership in Business
Employee welfare
Customers’ satisfaction
Social obligation
Corporate Activities

 Financing activities

 Investing activities

 Operating activities
Financing Activities

 Activities associated with obtaining adequate funds

to begin and continue operations
 Issuing shares
 Paying dividends to shares holders
 Obtaining loans from creditors
 Repaying amounts to creditors, plus interest

 Payments of dividends and interest are associated

with financing activities
Investing Activities

 Activities associated with spending funds to

begin and continue operations
 Buying resources such as land, buildings,
and equipment needed in the operation
of the business
 Selling these resources when no longer needed
 Selling land, buildings, and equipment is
associated with investing activities
Operating Activities

 Involve activities associated with the course of

running a business
 Employing managers and workers
 Buying goods and services
 Selling goods and services
 Paying taxes

Working capital management

Balance Sheet Model of the Firm

Value of Assets: Firm Value to Investors:

Current
Liabilities
Current
Assets Long-Term
Debt

Fixed Assets
1 Tangible Shareholders’
2 Intangible Equity
Balance Sheet Model of the Firm

Capital Budgeting Decision

Current
Liabilities
Current
Assets Long-Term
Debt

What long-
Fixed Assets
term
1 Tangible investments
should the Shareholders’
2 Intangible firm engage Equity
in?
Balance Sheet Model of the Firm

Capital Structure Decision

Current
Liabilities
Current
Assets Long-Term
How can the firm Debt
raise the money
for the required
Fixed Assets
investments?
1 Tangible Shareholders’
2 Intangible Equity
Balance Sheet Model of the Firm

Working Capital Decision

Current
Liabilities
Current
Net
Assets Working Long-Term
Capital Debt

How much short-

Fixed Assets
term cash flow
1 Tangible does a company
need to pay its Shareholders’
2 Intangible bills? Equity
Financial Managers

 Budget
 Invest

 Buy / Sell

 Get funds

 Find the lowest cost way to do all the

above
 Financial Manager

Chief Financial Officer

Treasurer Comptroller
Role of The Financial Manager

2 1

Firm's Financial Financial

4a
operations manager markets

3 4b

1. Cash raised from investors

2. Cash invested in firm
3. Cash generated by operations
4.a Cash reinvested
4.b Cash returned to investors
Performance Measures

 Indicators
 Income Earned

 Cash Flow

 Ratio of Expenses to Revenue

 Ratio of Money Owed to Total Resources

 Achieving their business goals?

 Activities well-managed?
 Review

 Corporate Finance

 Corporate Structure

 Goals

 Activities
Thank You