Financial Management

Financial Management

 Overview of Finance
 Introduction to Financial Management
 Functions and Goals of Financial Management
Overview of Finance

Finance is a body of facts, principles, and theories relating

to raising and using money by individuals, businesses, and
governments.

Finance is a study of how individuals, institutions and

businesses acquire, spend, and manage money and other
financial resources.

Finance has its origins in economics and accounting.

Three Interrelated Areas of Finance

 Money and Capital Markets – deals with securities market

and financial institutions

 Investments – focuses on the decisions made by both

individual and institutional investors as they choose
securities for their investment portfolios

 Financial management – also called business finance,

involves decisions within firms
Introduction to Financial Management

 Nature
 Scope
 Types of Financial decisions
 Significance
 Relationship between financial management, accounting
and economics
Nature of Financial Management

 Financial Management, also referred to as managerial

finance, corporate finance, and business finance, is a
decision making process concerned with planning,
acquiring and utilizing funds in a manner that achieves the
firm’s desired goals

 Financial Management deals with the application of

Finance within a business firm.
Scope of Financial Management
 Traditional

 Procurement of short-term as well as long-term funds

from financial institutions

 Mobilization of funds through financial instruments

such as equity shares, preference shares, debentures,
bonds, notes, and so forth

 Compliance with regulatory provisions relating to funds

procurement, use and distribution as well as
coordination of the finance function with the
accounting function
 Modern
 Determination of the total funds requirements of the
firm

 Determination of the assets or resources to be acquired

 Determination of the best pattern of financing the

assets
Types of Financial Decisions
 Investment
 Financing
 Dividend

Significance of Financial Management

 Broad applicability
 Reduction of Chances of Failure
 Measurement of Return on Investment
Relationship Between FM and Accounting; FM
and Economics
 Financial Management and Accounting
 FM uses accounting information in the analysis and review of
the firm’s business position in decision making.

 Uses tools and techniques to accounting data in making

decisions to maximize the value of the firm’s wealth and
value of the owner’s wealth

 Likeaccounting function, FM function can also be

decentralized as far as routine finance matters are
concerned, depending on the attitude of the top level
management
 Financial Management and Economics
 Microeconomics
- Helps the finance manager in decisions like pricing, taxation,
determination of capacity and operating levels, break even analysis,
volume-cost-profit analysis, capital structure decisions, dividend
distribution decisions, profitable product mix decisions, fixation of levels
of inventory, setting the optimum cash balance, pricing of warrants and
options, interest rate structure, present value of cash flows, and so forth

 Macroeconomics
- A firm is operating within the institutional framework, which operates on
the macroeconomic theories. Money and capital markets, government’s
fiscal and monetary policies, inflation, trade cycles, level of economic
activity, etc., affect and influence strategic financial planning