1. CHAPTER NO. 1 Nature & Scope of Financial Management

2. INTRODUCTION
Finance
Finance is defined as the provision of money at the time when it is required. Every enterprise, whether big, medium , or small needs finance to carry on its operations and to achieve its targets. So, it is rightly said to be the lifeblood of an enterprise.
Classification of Finance
Finance deals with the requirements, receipts and disbursements of funds in the public institutions as well as in the private institutions. On the basis of these finance is classified in to following two parts.
Traditional classification
Modern classification

3. Classification of Finance in Traditional way
BUSINESS FINANCE
PUBLIC FINANCE
1. GOVERNMENT INSTITUTIONS
2. STATE GOVERNMENTS
3. LOCAL SELF GOVERNMENTS
4. CENTRAL GOVERNMENTS
PRIVATE FINANCE
1. PERSONAL FINANCE
2. BUSINESS FINANCE
3. FINANCE OF NON PROFIT ORGANISATIONS

4. Classification of Finance in Modern way
BUSINESS FINANCE
PARTNERSHIP FINANCE
SOLE-PROPRITORY FINANCE
COMPANY OR CORPORATION FINANCE

5. APPROACHES TO BUSINESS FINANCE
Business finance connotes finance of business activities.
It is composed of two words (I) business( state of being busy related with all creative human activities) (ii) finance (provision of money when it is required) so, business finance concerned with the application of skills in the use and control of money.
Three main approaches to finance indicated in traditional and modern approaches.
Providing of funds
Finance to cash
raising of funds and effective utilization.

6. Financial Management and Definition
Financial Management refers to :-
Part of management activity
Planning and controlling financial resources
Finding out various sources for raising funds
Suitable and economical sources
Proper use of funds
So, Financial management is an area of financial decision making , harmonising individual motives & enterprise goals.
Definition
“The area of the business management devoted to a judicious use of capital and a careful selection of sources of capital in order to enable a spending unit to move in the direction of reaching its goals”
J. F. Bradley

7. EVOLUTION OF FINANCIAL MANAGEMENT
THREE STAGES
INITIAL STAGE (1930)
EMERGENCE as distinct field & FORMATION of large sized business undertakings
1930 economic recession creates difficulties in raising finance & find out improved methods for sound financial structure
IN EARLY 1950
EMPHASIZED on reorganization of industries & selection of sound financial structure
SHIFTING to profitability to liquidity , techniques of analyzing capital investment & widened the scope of financial management
MODERN PHASE AFTER 1960
DISCIPLINE of financial management become more analytical & development of theory , methods, models like CAPM, OPTION PRICING THEORY.
NEW sources of finance like PCD’s, FCD’s, PD’S etc.

8. IMPORTANCE OF FINANCIAL MANAGEMENT#
FOR FINANCIAL PLANNING & SUCCESSFUL PROMOTION
ACQUISITION OF FUNDS AT MINIMUM COST
SOUND FINANCIAL DECISION
IMPROVING PROFITABILITY
PROPER USE AND ALLOCATION OF FUNDS
INCREASING THE WEALTH OF INVESTORS & NATION

9. 1. Acquiring sufficient funds 2. Proper utilization of funds
AIMS OF FINANCE FUNCTION
SCOPE OF FINANCE FUNCTION
1. Acquiring sufficient funds
2. Proper utilization of funds
3. Increasing profitability
4. Maximizing firm value
# Estimating financial requirements # Deciding capital structure # Selecting a source of finance # Selecting a pattern of investment # proper cash management #Implementing financial controls # proper use of surpluses

10. RELATIONSHIP OF FINANCE WITH OTHER BUSINESS FUNCTIONS
DISTRIBUTION FUNCTION
ACCOUNTIONG FUNCTION
PRODUCTION FUNCTION
PURCHASE FUNCTION
PRESONNEL FUNCTION
RESARCH AND DEVELOPMENT FUNCTION

11. OBJECTIVES OF FINANCIAL MANAGEMENT
1. OBJECTIVE PROFIT MAXIMISATION
Arguments in favour
# Profit maximization is the obvious objectives when profit s the main aim.
# Profitability is a barometer for measuring efficiency & prosperity of a business
# To survive In unfavorable situation
# For the expansion and diversification
# For fulfilling social goals
Arguments in against
$ Ambiguity
$ Ignores time value of money
$ Ignores risk factors
$ Dividend policy

12. 2.OBJECTIVE WEALTH MAXIMISATION
Arguments in favour
@ It serves the interest of all shareholders
@ Owners economic welfare
@ Long run survival and growth
@ Consider risk factors and the time value of money
@Increase the market value of the shares
@Value maximization of equity shareholders by increasing price per share
Arguments in against
* Objective is not descriptive
* Not socially desirable
* Controversial point that it increases firm’s value or shareholder wealth
* Wealth maximization is difficult when ownership and management are separated

13. MEASURING SHAREHOLDERS VALUE CREATION
Economic value added
EVA is a measure of performance evaluation employed by Stewart & Co. It is now used to measure the surplus value created by an investment or a portfolio of investments.
EVA = Net profit after tax – Cost of capital x Capital invested
Market value added
MVA is the sum total of all the present values of future economic value added. It can also defined as
MVA = Current market value of the firm – Book value of capital employed

14. FINANCIAL DECISIONS & INTER RELATION OF FINANCIAL DECISIONS
1. Investment decision
2. Financing decision
3. Dividend decision
INTER RELATION OF
FINANCIAL DECISION----
INVESTMENT DECISION
DIVIDEND DECISION
FINANCING DECISION
FINANCIAL MANAGEMENT CONCERNED WITH
1. FINANCING DECISION
2. INVESTMENT DECISION
3. DIVIDEND DECISION
ANALYSIS
RISK
RETURN RELATIONSHIP
TO ACHIEVE THE GOALS OF WEALTH MAXIMISATION

15. FACTORS INFLUENCING FINANCIAL DECISION
INTERNAL FACTORS
EXTERNAL FACTORS
Nature and size of business
Expected return, cost, risk
Composition of assets
Structure of ownership
Trend of earnings
Age of the firm
Liquidity position
Working capital requirements
Conditions of debt agreements
State of economy
Structure of capital and money markets
Requirements of investors
Government policy
Taxation policy
Lending policy of financial institutions

16. RISK RETURN TRADE OFF RISK MARKET VALUE OF THE FIRM RETURN
INVESTMENT DECISION
1. CAPITAL BUDGETING
2. WORKING CAPITAL MANAGEMENT
RISK
FINANCING DECISION
# CAPITAL STRUCTURE
MARKET VALUE OF THE FIRM
DIVIDEND DECISION
* DIVIDEND POLICY
RETURN

17. Financial forecasting and Planning Acquisition of funds
FUNCTIONAL AREAS OF FM
FUNCTIONS OF A FINANCE MANAGER
∞ Determining financial needs ∞ Selecting the sources of funds ∞Financial analysis and interpretation ∞Cost-Volume-Profit analysis ∞Capital budgeting ∞Working capital management ∞Profit planning and control ∞Dividend policy
Financial forecasting and Planning
Acquisition of funds
Investment of funds
Helping in valuation decisions
Maintain proper liquidity

18. FINANCIAL ENGINEERING
Designing and developing new financial instruments
# Formulating new processes
$ Formulating creative solutions to financial problems.

19. ORGANISATION OF THE FINANCE FUNCTION
Board of Directors
Managing Director
Vice President Production
Vice President Finance
Financial Controller
Planning & Control
Annual Reports
Budgeting
Additional Funds
Cash Management
Audit
Protect Funds & Securities
Relation with Banks & Financial Institutions
Profit Analysis
Accounting Payroll
Treasures
Vice President Sales

20. The Financial Controller Vs. Treasurer1
Provision of capital
Accounting 2
Relation with banks and other financial institutions
Preparation of financial reports 3
Cash management
Reporting and interpreting 4
Receivables management
Planning and control 5
Protect funds and securities
Internal audit 6
Investors relations
Tax administration 7
audit
Reporting to government

21. THANKS