Financial Management

-Prof Dimple Pandey

Objective of Financial Management

Objective- To understand the need and importance of FM. Importance of time

value of money

earning outcome- !tudents "no# the reason to study FM

Objective of Financial Management

Introduction to subject

$elevance

$elation of finance #ith economics and accounting

%hy this subject is there after studying economics and accounting

&oal of firms-caselet

Importance of time value of money

'ompounding( discounting

Objective of Financial Management

FINANCE THEORY RESTS ON THE PREMISE THAT MANAGERS

SHOULD MANAGE THEIR FIRMs RESOURCES WITH THE
OBJECTIVE OF ENHANCING THE FIRMs MARKET VALUE.

SHAREHOLDER ORIENTATION IN INDIA

In the !"e #$ %&'e(!%&)!t&#n* +%#'!%&)!t&#n* !n, &nst&t-t&#n!%&)!t&#n #$ the

.!/&t!% 0!("et* the(e &s ! +(e!te( &n.ent&1e t# $#.-s #n .(e!t&n+ 1!%-e $#(
sh!(eh#%,e(s. The $#%%#&n+ #'se(1!t&#ns !(e .%e!( &n,&.!t&#ns.

Dh&(-'!& A0'!n& 2 In e1e(3th&n+ th!t e ,#* e h!1e #n%3 #ne s-/(e0e

+#!%* th!t &s t# 0!4&0&)e 3#-( e!%th !s In,&!5s %!(+est &n1est#( $!0&%3.

An!n, M!h&n,(! 2 A%% #$ -s !(e 'e+&nn&n+ t# %##" !t .#0/!n&es !s #ne,

'3 sh!(eh#%,e(s. The "e3 &s t# (!&se sh!(eh#%,e( (et-(ns

Objective of Financial Management

RELATIONSHIP OF FINANCE TO ECONOMICS

M!.(#e.#n#0&. en1&(#n0ent ,e$&nes the sett&n+ &th&n h&.h the $&(0

#/e(!tes. GDP +(#th (!te* &nte(est (!tes* &n$%!t&#n (!te* e4.h!n+e (!tes* t!4
(!tes* !n, s# #n h!1e !n &0/!.t #n the $&(0

M&.(#e.#n#0&.s ,e!%s &th the e.#n#0&. ,e.&s&#ns #$ &n,&1&,-!% $&(0s !n,

!&0s !t /(#$&t 0!4&0&s!t&#n.

F&n!n.e* &n essen.e* &s !//%&e, 0&.(#e.#n#0&.s

Objective of Financial Management

RELATIONSHIP OF FINANCE TO ACCOUNTING

A..#-nt&n+ &s .#n.e(ne, &th s.#(e "ee/&n+* he(e!s $&n!n.e &s !&0e, !t
1!%-e 0!4&0&)&n+.

The !..#-nt!nt /(e/!(es the !..#-nt&n+ (e/#(ts '!se, #n the !..(-!%

0eth#,. The $#.-s #$ the $&n!n.&!% 0!n!+e( &s #n .!sh $%#s.

A..#-nt&n+ ,e!%s /(&0!(&%3 &th the /!st. F&n!n.e &s .#n.e(ne, 0!&n%3
&th the $-t-(e.

Objective of Financial Management

THE FUNDAMENTAL PRINCIPLE OF FINANCE

A '-s&ness /(#/#s!%6(e+!(,%ess #$ hethe( &t &s ! ne &n1est0ent #(

!.7-&s&t&#n #$ !n#the( .#0/!n3 #( ! (est(-.t-(&n+ &n&t&!t&1e 8(!&ses the
1!%-e #$ the $&(0 #n%3 &$ the /(esent 1!%-e #$ the $-t-(e st(e!0 #$ net .!sh
'ene$&ts e4/e.te, $(#0 the /(#/#s!% &s +(e!te( th!n the &n&t&!% .!sh #-t%!3
(e7-&(e, t# &0/%e0ent the /(#/#s!%.

In1est#(s /(#1&,e the &n&t&!% .!sh (e7-&(e, t# $&n!n.e the '-s&ness /(#/#s!%

The /(#/#s!% +ene(!tes .!sh (et-(ns t# &n1est#(s

Time value of money

Objective- To "no# the importance of time value of money. Introduction to

compunding and discounting techni)ues and their applications using numericals.

earning outcome- !tudent should be able to understand the importance of time

value of money( be able to calculate present and future values of investment.

Time value of money

It is the value of money at different time intervals as the value of money

changes over a period of time.

*alue of money received today is more than its value received at a later date.

Methods of calculating time value of money+

'ompounding- Future value

Doubling period

$ule of ,-

$ule of ./

Future value of an 0nnuity-periodic flo#s of e)ual amounts

!in"ing fund- Fi1ed payments each period to accumulate to a future sum after
specified period.

Discounting- Present value

Present value of perpetuity- 0nnuity for an infinite time period

'apital recovery factor- amount of installment