1 SCOPE AND OBJECTIVES OF FINANCIAL MANAGEMENT

8
PROCUREMENT OF FUNDS

EFFECTIVE UTILIZATION OF FUND

3 PHASES

DIFERENT TASKS

4 ASPECTS TO STUDY

PROFIT MAXIMISATION

WEALTH MAXIMISATION ADVANTAGES & DISADVANTAGES

6 RESPONSIBILITIES

F.M. AND ACCOUNTING

WHAT THEY DO?

F.M. AND OTHER DISCIPLINES

AJVAD SHAIKH

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2 SCOPE AND OBJECTIVES OF FINANCIAL MANAGEMENT

PROCUREMENT OF FUNDS
COMPLEX PROBLEM BECAUSE THERE ARE MANY SOURCES

UTILIZATION OF FUNDS

UTILIZATION FOR FIXED ASSETS. i) INVEST IN A MANNERTHAT COMPANY CAN PRODUCE IT`S OPTIMUM LEVELii)WITH OUT ENDANGERING SOLVENCYiii)BY APPLYING CAPITAL BUDGETING.

OWNERS FUNDS, DEBENTURE & BONDS,H.P.& LEASING,BANKS,ANGEL FINANCING,VENTURE CAP.

NEW INNOVATIVE ,CREATIVE SOURCE E.G.CARBON CREDIT

UTILIZATION OF WORKING CAPITAL. i)KEEP IN VIEW THE NEED OF ADEQUATE WORKING CAPITAL.ii) DO NOT KEEP MUCH FUNDS BLOCKED IN INVENTORIES,BOOK DEBT,CASH.

DIFFERENT CHARECTERISTIS: COST,RISK,CONTROL

COSTMINIMUM,RISKCONTROL-BALANCED,

AJVAD SHAIKH

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3 SCOPE AND OBJECTIVES OF FINANCIAL MANAGEMENT

SOME SOURCES OF FUNDS

DEBENTURES
COST-CHEAPER RISK-VERY HIGH IT ACT-ALLOWED REPAID WHETHER PROFIT OR NOT

EQUITY
COST-WORST RISK-BEST IT ACT-NOT ALLOWED CONTROL-DILUTE THE CONTROL OF EXISTING SHARE HOLDERS

BANKS
SUPPORT IN ROUTINE ACTIVITIES MEETING SHORT TERM AND LONG TERM NEEDS C.C.,O/D,TERM LOANS, WORKING CAP. TERM LOAN, BILLS PURCHASE/DISC.

INTERNATIONAL FUNDING
OPTION TO RAISE CAP. FROM INT. MARKET TWO MAJOUR ROUTES -FDI AND FII ALSO ADR AND GDR MECHANISM OF PROCUREMENT MODIFIED AS PER REQUIREMENTS OF FOREIGN INVESTOR.

AJVAD SHAIKH

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4 SCOPE AND OBJECTIVES OF FINANCIAL MANAGEMENT

THE TRADITIONAL PHASE:

WAS CONSIDERED NECESSARY ONLY FOR OCCASIONAL EVENT SUCH AS MERGER,EXPANTION,ETC. TAKING DECISION NEEDS OF OUTSIDERS WAS KEPT IN MIND.

THE TRANSITIONAL PHASE:

THE DAY TO DAY PROBLEMS WERE GIVEN IMPORTANCE. PROBLEM RELATED TO FUND ANALYSIS ,PLANNING,AND CONTROL WERE GIVEN MORE ATTENTION.

MODERN PHASE:
STILL GOING ON .SCOPE INCREASED GREATLY.IMP. TO CARRY OUT FINANCIAL ANALYSIS FOR COMPANY,HELPFULL IN DE/MAKING.THEORIES DEVELOPED,SUCH AS CAP.BUDG.,OPTION PRISING,VALUATION MODELS.

TASKS IT ENVOLVES
NOT TO OVER INVEST IN FIXED ASSETS. BALANCING CASH OUTFLOW AND INFLOW. SUFFICIENT LEVEL OF SHORT TERM WORKING CAPITAL. SETTING SALES REVENUE TARGETS. INCREASING G.P. BY SELECTING CORRECT PRISE. CONTROLLING EXP. BY COST EFFICIENT WAY IN DAY TO DAY BUSINESS. TAX PLANNING. EXAMPLE OF COTTON TEXTTILES LTD.

AJVAD SHAIKH

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5 SCOPE AND OBJECTIVES OF FINANCIAL MANAGEMENT

DEFINITIONS.. EZRZ SOLOMON`S ASPECTS OF STUDY OF F.M.

DETERMINATION OF SIZE & RATE OF GROWTH.

DETERMINING THE COMPOSITION OF ASSETS.

DETERMINING THE MIX ANALYSIS ,PLANING AND OF FINANCING. CONTROL OF FINANCIAL AFFAIRS. (DEBT-EQUITY)

SCOPE AS PER TIME..3 DE/SEE CHART IN MODULE

PROFIT MAXIMISATION

WEALTH MAXIMISATION

IF PROFIT IS GIVEN UNDUE IMP. THEN PROBLEMS WILL ARISE. i)TERM PROFIT IS VAGUE.

ii) RISK INVOLVED.

iv)TOO NARROW OBJECTIVE.

iii) NO TIME PATTERN.

AJVAD SHAIKH

WEALTH MAXIMISATION

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6 SCOPE AND OBJECTIVES OF FINANCIAL MANAGEMENT

The value of share should ^ or no fund.

see why wealth maxi. Is most imp. Ezra Solomon`s symbol for NPV.

W= V-C

V= E/K

E=G-(M+T+I)

How to measure the value? Market price of company`s Common stock is the index.

VAN HORNE

AJVAD SHAIKH

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7 SCOPE AND OBJECTIVES OF FINANCIAL MANAGEMENT

WHY VALUE MAXIMISATION WORKS???????????

HIGHER GROWTH RATE

EMPLOYEE WELFARE

LARGER MARKET SHARE

CUSTEMER SATISFACTION

LEADERSHIP IN THE MARKET

PRIMARY GOAL OF WEALTH MAXIMISATION IS CRITICAL FOR EXISTENCE.IF THIS IS NOT NO FRUIT CAN BE THERE.

SOCIAL PROBLEMS, COMMUNITY

AJVAD SHAIKH

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8 SCOPE AND OBJECTIVES OF FINANCIAL MANAGEMENT FOR PROFIT MAKERS ONLY

3 DECISION

FINANCING DECISION
INVESTMENT
SELECTION OF ASSESTS IN WHICH FUNDS WILL BE INVESTED.FOR FIXED ASSETS AND CURRENT ASSETS.ASSET MANAGEMENT POLICIES. ACQUIRING THE OPTIMUM FINANCE FOR OBJECTIVES.COST OF FUNDS.DIFFERENCE OF PROFIT-CASHFLOW.NO USE OF PROFIT IF NO CASH IS THERE.EVALUATION OF RISK BY HEDGING.

DIVIDEND
DETERMINATION AS TO HOW MUCH AND HOW FREQUENTLY CASH CAN BE PAID OUT OF PROFIT.TWO WAYS OF REWARD-GROWTH IN CAPITAL AND CASH PAID AS INCOME. TWO ELEMENTS AMT TO BE PAID OUT & RETAINED.IMP FOR SHARE VALUE.

MANAGEMENT

IF GO ONLY FOR PROFIT MAX.

AJVAD SHAIKH

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9 SCOPE AND OBJECTIVES OF FINANCIAL MANAGEMENT BECAUSE OF THIS LIMITATION VALUE MAX.IS A BETTER OBJECTIVE.

ADVANTAGES OF PROFIT MAX.

DISADVANTAGES PROFIT MAX.

EASY TO CALCULATE PROFIT

EMPHASIZE THE SHORT TERM GAIN

EASY TO DETERMINE LINK BETWEEN DECISION AND PROFIT

IGNORES RISK,UNCERTANINTY,TIMING OF RETURNS

REQUIRES IMMEDIATE RESOURCES

ADVANTAGES OF WEALTH MAX.

DISADVANTAGES WEALTH MAX.

EMPHASIZES THE LONG TERM GAINS.

NO CLEAR RELATIONSHIP BETWEEN FINANCIALDECISION AND SHARE PRICE.

RECOGNISES RISK,UNCERTAINTY,THE TIMING OF RETURNS.CONSIDERS SHARE HOLDER`S RETURN.

CAN LEAD MANAGEMENT ANXIETY AND FRUSRATION.

HIS RESPONSIBILITIES NO LIMITS FOR THEM

FINANCIAL ANALYSIS AND PLANNING

INVESTMENT DECISION

FINANCING AND CAPITAL STRUCTURE DECISION

MANAGEMENT OF FINANCIAL RESOURCES

RISK MANAGEMENT

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10 SCOPE AND OBJECTIVES OF FINANCIAL MANAGEMENT

CFO:YESTERDAY AND TODAY

READ MODULE

TREATMENT OF FUND

F.M. AND A/C F.M. AND OTHER DISCIPLINES F.M. AND OTHER DISCIPLINES
DECISION MAKING

FOR DAY TO DAY DECISION MAKING

NOW CFO IS A STRATEGIC PARTNER OF THE CEO. A/C IS INPUT FOR F.M..

AJVAD SHAIKH

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