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Financial management is an application of planning and controlling function of firms financial resources
Investment Decision
Importance:
Growth Risk Funding Irreversibility
Financing Decision
Deals about capital projects to be financed (when, where and how) To determine the proportion of equity and debt To decide about sources of finance
Equity/Ordinary/Common shares
Equity capital is also a ownership capital. Equity shareholders enjoys the profit of the firm on one hand and bears the risk on the other hand. Features: a. Claim on income b. Claim on assets c. Right to control d. Voting rights e. Pre emptive rights f. Limited liability
Generally the preference shares means shares which fulfills the following conditions: 1.During the continuance of the company it must have assured preferential dividend before any thing is paid to ordinary shareholders,. 2.On the winding up of the company it usually carry a preferential right to be paid, that is, the amount paid up on preference shares must be paid back before any thing is paid to the ordinary shareholders. 3.Generally such shares do not carry voting rights
Features
Prior claim on income/asset Fixed Dividend Cumulative dividend Redemption Participation feature Convertibility
III Debentures
Debentures / bond is a debt instrument indicating that a company has borrowed certain sum of money and promises to repay if future under clearly defined terms. Debenture holders are the long term creditors of the organization and are eligible to get stipulated amount of interest and re-payment on the maturity.
Features
Interest rate Maturity Redemption Security Yield
Dividend Decision
The Financial manager must decide dividend policy. Optimum dividend policy is the one which maximizes the market value of the firms shares.
Liquidity Decision
Financing Decisions
Retur n
Trade - Off
Risk
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