FINANCIAL MANAGEMAENT Dr. SHASHIDAR PATIL SIR .

BY, KRISHNA M WELCOME

MODEL 1: INTRODUCTION OF FINANACIAL MANAGEMAEN INTRODUCTION: In our present economy finance is defined as the provision of money at the time when it is required every entreprice whether week , medium or small need finance to carry on its operation and to achieve it’s targets.

Definition of financial management: According to Joseph ‘it is the operational activity of business that is responsible for obtaining and effectively utilizing the funds necessary for efficient operation’. Objectives of financial management: 1) Profit maximization / EPS Approach: A business firm is a profit seeking organization i.e. Every business whether manufacturing have profit motive .

Advantage/Arguments In Favor Of Profit Maximization: 1)It is rational as well as natural objectives. 2)It helps for proper utilization of resource. 3)it helps for growth and development of organization. 4) Maximizing social welfare.

Disadvantage of profit maximization: 1) Ignore time value of money . 2) Ignore risk factor. 3) Dividend policy. 2) WEALTH MAXIMIZATION OBJECTIVES: It is the main objective of financial management and it was introduced to remove the limitation of profit maximization.

Hence wealth maximization is usually called shareholder’s wealth maximization it can be calculated with the formula. SUM = no of shares owned x market price per share. Factors effecting wealth maximization or steps for wealth maximization: 1) Avoid high level risk. 2) Pay dividends. 3) Maintain growth in sales.

Advantage of wealth maximization: 1) Avoiding the ambiguity (confusion). 2) Time value of money. 3) It promotes the economic welfare of the shareholder’s. 4) It helps for achieving the other objectives. 5) Payment of regular dividend. Disadvantage: 1) Government restriction. 2) Reduce the profit ability. 3) Most of the shares are held by few people. 4) Firm wealth is not consider. 5) Wealth maximization is a prescriptive idea.

Scope Of Financial Management: 1) Anticipation. 2) Allocation Scope Of Financial Management: 1) Anticipation. 2) Allocation. 3) Acquisition. 4) Appropriation. 5) Assessment. 6) Estimating financial required. 7) Deciding capital structure. 8) Selecting the source of finance. 9) Selecting the pattern of investment. 10) Proper cash management.

Function of financial management: 1) Estimation of capital requirement Function of financial management: 1) Estimation of capital requirement. 2) Determination of capital composition. 3) Choice of source of funds. 4) Investment of funds. 5) Disposal and surplus. Ethics of Financial Management: 1) Conduct. 2) Disclosure. 3) Compliance. 4) Reporting. 5) Accountability.

Multiple flows and Annuity: The function value of an annuity is calculated at the end of the period in which the last annuity payment occurs. Fvat = Pmt [ ( 1 + r) t – 1] r Fvat = The present value of annuity. Pmt = The annuity payment. r = The interest of discount rate t = The number of year

Module – 5 DIVIDEND DECISION Meaning of Dividend: The term dividend refers to that part of profit of a company which is distributed by the company among its shareholder’s. Meaning of dividend decision: The dividend decision is one of the three basic decisions financial manager may be required to take the other two decisions are investment decision and financial decision.

Kinds Of Dividend Policy 1) Regular dividend policy. 2) Stable dividend policy. 3) Irregular dividend policy. 4) No dividend policy.

Determinants Of Dividend Policy: 1) Legal restriction . 2) Magnitude and trend of earnings. 3) Desire and type of shareholder’s. 4) Naturey of industry. 5) Age of company. 6) Future financial requirements. 7) Government economic policy. 8) Taxation policy. 9) Control objectives. 10) Requirements of institutional investors.

Dividend Decision And Valuation Of Firm: The value of the firm an be maximized if the shareholder’s wealth maximized. There are conflicting views regarding the impact of dividend decision on the valuation of firm, we have discussed below the various of 2 schools of thought under two groups . 1) The irrelevance concept of dividend or the theory of irrelevance. 2) The relevance concept of dividend or theory of relevance.

Walter Model Approach: Prof. Walter’s approach support the doctrine that dividend decisions are relevant and affect the value of the firm Assumptions Of Walter’s Model: 1) The investments of the firm are financed retained earnings only and the firm does not use external sources of funds. 2)the internal rate of return and cost of capital of the firm are constant. 3)Earnings and dividends do not change while determining the value . 4)The firm has the very long life. P = D + r/ke (E – D) ke

Gordon’s Model Approach According to Gordon, market value of a share is equal to the present value of future stream of dividends Assumption: The firm is an all equity firm No external financing is available or used. The retain ratio once decided upon is constant . The rate of return on the firms investment is constant. Corporate taxes do not exist. P = E (1 - b ) Ke - g

Modigliani & Miller Approach: Modigliani & Miller agree that the dividend policy has no effect on the market price of the earning capacity of the firm. Assumptions: 1) There are perfect capital markets. 2) Investors behave rationally. 3) There are no flotation and transaction cost. 4) No large investor is large enough to affect the market price of shares.

THANK YOU ONE AND ALL