Apna Sapna Money-Money I. M. Pandey, Financial Management, 9th ed., Vikas.

Nature of Financial Management By-Rahul Jain Nature of Financial Management

COURSE GUIDELINES Introduction and Basics of Financial Management Sources of funds Capital budgeting & structure Marginal cost analysis Ratio analysis Budgeting & Financial Planning

Aim of the Module identify different sources of raising funds for an enterprise and methods of deploying them understand how capital structure is planned and executed To Know about the viability of project.

Our Strategy for achieving these Objectives? Concepts, Cases and Class Discussion Punctuality, Participation and Preparation (Its compulsory to bring your own calculators, Pen, Stationary, Registers, Prescribed Book, Printouts of the Intranet documents- Otherwise necessary disciplinary action will be taken) Judgment challenge Learning to communicate ideas Learning from each other Learning through discovery

What is “Good” Participation? Quality, not quantity. Analyzing and discussing course material. Questioning the analysis of others. Seeking clarification. Summarizing / synthesizing. Adherence to guidelines for professional conduct.

Some Important rules Switch off your Mobiles Attendance rules will be strictly applied Non completion of Assignment will lead to strict disciplinary measures Students can gather additional bonus points by being a “Star Performer” in the whole course. Students falling in the “Improvement category” would be penalized. If Attendance less than 75% then one grade will be reduced in respective Viva/Exam/Log Process.

Learning objectives: What is financial management? Difference between financial management and financial accounting The goals of financial management !

Business Activities Production Marketing Finance

Meaning Financial management is a systematic process that provides the necessary financial information to help a business produce and distribute goods and services in a way that will maximize wealth. It also provides feedback about how well the organization is doing.

Overview of Financial Management Dev: A Finance Manager has many responsibilities. He has to manage all the incomes and expenses related to the company. He has to see that resources are not wasted anywhere. He has to negotiate with the suppliers. And see that all departments get the money to meet their expenses. Ajay: Please tell me more… Dev: Just as the Purchase Manager needs money to buy the raw materials, the Production Manager also has to maintain his machinery so that the production goes on smoothly. This maintenance also requires money. If Ranjeet does not give the required funds to either of them, the production will stop. What will ABC sell, if no textile is manufactured? Financial management involves several functions, especially in bigger companies.

Overview of Financial Management Dev: Matching the income and expenditure is not the only job. Ranjeet has to allocate the cash, but at the same time, he has to see that equipment, workers, supplies, etc. are also being used properly. Wastage of any of these resources will affect the cash balances of ABC. Using resources efficiently will help ABC to reduce the costs of operations. At the same time, if resources are used efficiently, it will generate additional resources for the company. Ranjeet also has to analyze ABC’s financial performance. If the company is not able to make profits, he has to find out the reasons for it.

Finance Functions Investment or Long Term Asset Mix Decision Financing or Capital Mix Decision Dividend or Profit Allocation Decision Liquidity or Short Term Asset Mix Decision

Financial accounting and Financial Management Financial accounting gives the financial status of the company to people outside the company. It is recording and reporting the activities and events that lead to cash inflow and outflow. Financial management means efficiently managing the various resources of the company.

Financial accounting and Financial Management Financial accounting aims at maintaining a clear record of the financial condition of the firm. Accounting measures the performance of the firm so that the situation of the company can be measured in financial terms. Financial management is concerned with value maximization. Management’s efforts are for increasing the value of the company for the shareholders. This requires investing in projects that are likely to provide positive returns to the company.

Financial accounting and Financial Management Certainty Accounting is maintenance of financial records. So, it deals with what has already occurred. This makes it more certain. A finance manager is concerned with what is going to happen in the future. He takes critical decisions that will affect the future of the company. These are based on various calculations and assessments. This is not easy because there are many uncertainties in financial management.

Finance Manager’s Role Raising of Funds Allocation of Funds Profit Planning Understanding Capital Markets

Financial Goals Profit maximization (profit after tax) Shareholder’s Wealth Maximization

Profit Maximization Maximizing the Rupee Income of Firm Resources are efficiently utilized Appropriate measure of firm performance Serves interest of society also

Objections to Profit Maximization It is Vague It Ignores the Timing of Returns It Ignores Risk In new business environment profit maximization is regarded as Inappropriate and Immoral.

Shareholders’ Wealth Maximization Maximizes the cash flow. Accounts for the timing and risk of the expected benefits. Fundamental objective—maximize the market value of the firm’s shares.

Risk-return Trade-off Risk and expected return move in tandem; the greater the risk, the greater the expected return. Financial decisions of the firm are guided by the risk-return trade-off. The return and risk relationship: Return = Risk-free rate + Risk premium Risk-free rate is a compensation for time and risk premium for risk.

Managers Versus Shareholders’ Goals A company has stakeholders such as employees, debt-holders, consumers, suppliers, government and society. Managers may perceive their role as reconciling conflicting objectives of stakeholders. This stakeholders’ view of managers’ role may compromise with the objective of SWM. Managers may pursue their own personal goals at the cost of shareholders, or may play safe and create satisfactory wealth for shareholders than the maximum. Managers may avoid taking high investment and financing risks that may otherwise be needed to maximize shareholders’ wealth. Such “satisfying” behaviour of managers will frustrate the objective of SWM as a normative guide.

Financial Goals and Firm’s Mission and Objectives Firms’ primary objective is maximizing the welfare of owners, but, in operational terms, they focus on the satisfaction of its customers through the production of goods and services needed by them Firms state their vision, mission and values in broad terms Wealth maximization is more appropriately a decision criterion, rather than an objective or a goal. Goals or objectives are missions or basic purposes of a firm’s existence

Financial Goals and Firm’s Mission and Objectives The shareholders’ wealth maximization is the second-level criterion ensuring that the decision meets the minimum standard of the economic performance. In the final decision-making, the judgement of management plays the crucial role. The wealth maximization criterion would simply indicate whether an action is economically viable or not.

Interview Exercise Meet Owner/Manager of an Organization: Find following: About the Organization and its USP. Important financial decisions that his organization is taking. Challenges faced. Sources of Revenues and Top three costs. Future Plans of Expansion.

Learning Tools Website Text Book: www.learningfinancialmanagement.pbworks.com Phone: 9811228852 Email: rahulkjain16@yahoo.co.in Text Book: Financial Management , I.M. Pandey, Vikas Publications

Assignment Prepare an individual file having : a) Key learnings of Class-1 b) Summary of any Fashion Business News Read Chapter 1 of the Book. (I.M. Pandey)