FINANCIAL MANAGEMENT An overview Subject: Commerce

Transcript:FINANCIAL MANAGEMENT An overview Subject: Commerce:
FINANCIAL MANAGEMENT An overview Subject: Commerce Title of Paper: Fundamentals of Financial Management Financial Management – The Basic Concept What it is? The meaning of Financial Management is embedded into the interpretation of the two terms: Finance; & Management Finance – The Meaning Finance basically refers to money though it takes different names like Cash, Funds, Capital etc, in different situations with different implications. In a broader sense, finance envisages not only money but all assets which money is converted to and liabilities which are supposed to be met with money. Financial Management refers to the sequential activities of: Procurement of money, Utilization of the procured money i.e. investment i.e. conversion of money into assets and for making expenses to generate income Ensuring pre-determined targeted minimum returns on such investments and expenses; and Allocation of the excess of returns over investments i.e. to retain a part of the excess in the business and to distribute the rest to the owners of the business The Meaning of Financial Management The General Model of Financial Management INVESTORS MONEY BUSINESS HOUSE DEBT EQUITY FIXED / CAPITAL ASSETS CURRENT ASSETS / WORKING CAPITAL RECURRING EXPENSES EXCESS RETURNS OVER INVESTMENT IN ASSETS AND EXPENSES Four Decisions – Quadra Pod of Financial Management INVESTMENT DECISION FINANCING DECISION LIQUIDITY DECISION DIVIDEND DECISION RISK AND RETURN DECISION The Balancing Acts of Financial Management INVESTMENT DECISION FINANCING DECISION LIQUIDITY DECISION RISK-RETURN DECISION DIVIDEND DECISION Determination of amount of money required to be invested Sourcing of money Loan money [Debt] Own money [Equity] Invest in assets Liquid balance Maximize return Minimize risk Pay dividend Retention of profits Debt-Equity Balance Liquidity Profitability Balance Risk Return Balance Payout Retention Balance Salient Features of Financial Management Financial management techniques revolve around two key concepts : The concept of cash flow i.e. the outflow (investment) and cash inflow (returns); and Time value of money The Goal of Financial Management The goal of financial management is to enrich the shareholders by maximizing their wealth. Shareholders’ wealth means returns to shareholders i.e. the owners of the business. Returns to shareholders can be in recurring form i.e. dividends; and in the form of capital appreciation of their investments. The Inter-disciplinary Nature of Financial Management FINANCIAL MANAGEMENT Financial & Management Accounting Economics Auditing Mathematics / Statistics / Operations Research Psychology Taxation Law Financial Institutes & Markets Derivatives & Risk Management Foreign Exchange Management THANK YOU