FINANCIAL MANAGEMENT

FINANCE
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Supply of funds or capital to the business. To raise money through the issuance and sale of debt and/or equity. Finance deals with matters related to money and the markets.

CORPORATE FINANCE
It is the specific area of finance dealing with the financial decisions corporations make, and the tools and analysis used to make the decisions. y It can be divided between long term capital investment decisions , and short term working capital management. y Corporate Finance is closely related to managerial finance, which is slightly broader in scope, describing the financial techniques available to all forms of business enterprise, corporate or not.
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FUNCTIONS OF CORPORATE FINANCE

Financing (Capital Raising) y Capital Budgeting y Financial Management y Corporate Governance y Risk Management
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FINANCIAL MANAGMENT
It can be defined as the management of the finances of a business or organization in order to achieve financial objectives. y It is planning, directing, monitoring, organizing, and controlling of the monetary resources of an organization. y It is that specialized function of general management which is related to the procurement of finance and its effective utilization for the achievement of common goal of the organization. y Financial management is concerned with the managerial decisions that result in the acquisition and financing of short term and long term credits for the firm.
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SCOPE OF FINANCIAL MANAGEMENT

Capital Investment decisions y Liquidity Decisions y Financing decisions y Dividend decisions
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OBJECTIVES OF FINANCIAL MANAGEMENT

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Important Objectives:
Profit Maximization Return Maximization Wealth Maximization

Other Objectives:
Ensuring adequate and regular supply of finances in the organization. Ensuring proper safety of investments. Planning a sound Capital Structure.

FUNCTIONS OF FINANCIAL MANAGEMENT

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Estimation of capital requirements Determination of capital composition Choice of sources of funds Investment of funds Disposal of surplus Management of cash Financial controls

FINANCIAL SYSTEM
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It is the system that allows the transfer of money between investors and borrowers. A financial system can operate on a global, regional or firm specific level. A firm's financial system is the set of implemented procedures that track the financial activities of the company. On a regional scale, the financial system is the system that enables lenders and borrowers to exchange funds.

The global financial system is basically a broader regional system that encompasses all financial institutions, borrowers and lenders within the global economy.
Flow of funds (savings)

Seekers of funds (mainly business firms and government)

Flow of Financial Services

Suppliers of funds (mainly households)

Income and financial claims

FUNCTIONS OF FINANCIAL SYSTEM

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It serves as a link between savers and investors. It helps in utilizing the mobilized savings of scattered savers in more efficient and effective manner. It channelizes flow of saving into productive investment. It assists in the selection of the projects to be financed and also reviews the performance of such projects periodically. It provides payment mechanism for exchange of goods and services.

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It provides a mechanism for the transfer of resources across geographic boundaries. It provides a mechanism for managing and controlling the risk involved in mobilizing savings and allocating credit. It promotes the process of capital formation by bringing together the supply of saving and the demand for investible funds. It helps in lowering the cost of transaction and increase returns. Reduced cost motivates people to save more. It provides detailed information to the operators/ players in the market such as individuals, business houses, Governments etc.

COMPONENTS OF FINANCIAL SYSTEM

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There are multiple components making up the financial system of different levels. Within a firm, the financial system encompasses all aspects of finances. For example, it would include accounting measures, revenue and expense schedules, wages and balance sheet verification. Regional financial systems would include banks and other financial institutions, financial markets and financial services.

In a global view, financial systems would include the International Monetary Fund, Central Banks, World Bank and major banks that practice overseas lending.

COMPONENTS OF INDIAN FINANCIAL SYSTEM

Regulators

Financial Institutions Banking Institutions Commercial Banks Public Sector Banks Private Sector Banks Regional Rural Banks Unorganized Financial Institutions Co-operative Banks Non Banking Institutions Money Market

Financial Markets Capital Market Primary Market Secondary Market Derivatives Market

Financial Instruments

Financial Services

SEBI

Term

Type

Fund Based

Fee Based

RBI

Organized Financial Institutions

Call Money Markets

Short Term

Primary Securities Secondary Securities Innovative Instruments

Leasing

Merchant Banking

Ministry of Finance

Treasury Bills

Medium Term

Hire Purchase

Credit Rating

Commercial Bills

Long Term

Factoring

Mergers

Foreign Banks

FINANCIAL FORECASTING
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It is a prediction concerning future business conditions that are likely to affect a company, organization or country. A financial forecast identifies trends in external and internal historical data and projects those trends in order to provide decision makers with information about what the financial status of the company is likely to be at some point in the future.

IMPORTANCE OF FINANCIAL FORECASTING

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Organizations use forecasting to do financial planning, which includes an assessment of their future financial needs. Forecasting is also used by outsiders to value companies and their securities.

FINANCIAL PLANNING
It is the process of estimating the capital required and determining its composition. y It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise. y It is long-term profit planning aimed at generating greater return on assets, growth in market share, and at solving foreseeable problems. y It is process of framing objectives, policies, procedures, programs and budgets regarding the financial activities of a concern.
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OBJECTIVES OF FINANCIAL PLANNING

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Determining capital requirements. Determining capital structure. Framing financial policies with regards to cash control, lending, borrowings, etc. Ensuring that the scarce financial resources are maximally utilized in the best possible manner at least cost in order to get maximum returns on investment.

IMPORTANCE OF FINANCIAL PLANNING

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Ensures availability of adequate funds in the organization. Ensures a reasonable balance between inflow and outflow of the funds. Ensures that the suppliers of funds regularly invests in the business. Helps in making growth and expansion programs for the long run survival of the company. Reduces uncertainties with regards to changing market trends which are a hindrance in the growth of the economy.