1. FINANCIAL MANAGEMENT- BASIC CONCEPT
Financial Management is that managerial activity
which is concerned with the planning and controlling
of firm’s financial resources.
BUSINESS FUNCTIONS OF A FIRM
Three basic functions of any business enterprise
are:
Production
Marketing
Finance

2. BASIC BUSINESS FUNCTION
PRODUCTION MARKETING
TO BRIDGE THE TIME GAP
FINANCE

3. What is Financial Management?
Financial Management is basically the application of
general management principles to the areas of financial decision making.
Financial Management, thus, is concerned with the answering of the following basic questions:
Where to invest? i.e. Investment Decision
From where to raise fund? i.e. Financing Decision
How much of the earnings to be retained and how much to be distributed? i.e. Dividend Decision
to manage liquidity? i.e. Working Capital Management.

4. Wealth of a company = f(I,F,D,W)
Thus,
Wealth of a company = f(I,F,D,W)
KEY ELEMENTS OF FINANCIAL MANAGEMENT:
Planning
Reporting
Resource Allocation
Managing performance
& Resources

5. BASIC FUNCTIONS OF FINANCIAL MANAGEMENT
Basic functions of Financial Management are :
Investment Decision
Financing Decision
Dividend Decision
Liquidity Decision

6. OBJECTIVES OF FINANCIAL MANAGEMENT
Objectives of Financial Management are two-fold which runs also with some contradiction. Thus basic objectives are
Profit Maximisation
Wealth Maximisation
PROFIT MAXIMISATION: profit maximisation implies maximising the rupee income of the firm. The arguments run in favour of profit maximisation are:
Resources are efficiently utilised.
It is an appropriate measure of firm’s performance.
It serves interest of society to some extent.

7. Objections against Profit Maximisation
Though primarily profit maximisation is considered as objectives of the Financial Management, but it runs with the following objections:
The concept of profit is vague
The concept does not consider Time value of money.
It ignores risk and uncertainty attached.
It assumes perfect competition.

8. WEALTH MAXIMISATION
Since the criteria of profit maximisation runs with some ambiguities, hence wealth maximisation is considered as primary objective of Financial Management. By wealth maximisation we mean maximisation of the NET PRESENT VALUE of a course of action i.e. investment. Thus, A1 A2 An Wealth(W) = C0 (1+k) (1+k)2 (1+k)n

9. Thus,The wealth of owners of a company is reflected by the market value of company’s shares in the long run. Therefore, Owner’s Wealth = Market price of the share x No of Shares

10. Time value of money
If an individual behaves rationally, he would not value the opportunity to receive a specific amount of money now equally with the opportunity to have the same amount at some future date. Thus, time value of money refers to an individual’s preference for possession of a given amount of cash now rather than the same amount at some future time. Simply, the relationship that exists between present value and future value of money is Value of money = Value of money + Time Value of money receivable at receivable at future present

11. Reasons for considering Time Value of Money
Investment opportunity
Preference for consumption
Risk