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Financial Management
organizational excellence.
Financial management pervades the whole
Components of Financial
Management
The five basic components of the Financial
Management Framework are:
Finance function
The finance function relates to three major decisions
which the finance manager has to take:
Investment decisions
Finance decisions
Dividend decisions
Investment Decision
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Capital Budgeting
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OBJECTIVES OF FINANCIAL
MANAGEMENT
The objective provide a framework for
optimum financial decision making. They are
concerned with designing a method of
operating the internal investment and financing
of a firm.
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There are two widely discussed approaches
under this, these are:
Profit Maximisation
Wealth Maximisation
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Profit Maximisation
Profit /EPS maximisation should be undertaken and those
that decrease profits or EPS are to be avoided. Profit is the test of
economic efficiency. It leads to efficient allocation of resources,
as resources tend to be directed to uses which in terms of
profitability are the most desirable. Financial management is
mainly concerned with the efficient economic resources namely
capital. The main technical flaws of this criteria are :
Ambiguity
Timing of benefits
Quality of benefits.
Wealth Maximisation
Wealth maximisation is also known as Value or Net
present worth maximisation. Its operational features satisfy all
the three requirements of the operational of the financial course
of action namely, exactness, quality of benefits, and the time
value of money. Two important issues related to the value/share price
maximisation are:
Incidental functions:
They are performed by low level assistants like
accountants, account assistants etc. They include:
Record keeping and reporting
Preparation of various financial statements
Cash planning and its supervision
Credit management
Custody and safeguarding different financial
securities etc.
Providing top management with information on
current and prospective financial conditions of
the business.
Production-Finance Interface
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In any manufacturing firm, the Production Manager
controls a major part of the investment in the form of
equipment, materials and men.
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He should so organize that the equipments are used
most productively, the inventory of work-in-process or
unfinished goods and stores and spares is optimized
and the idle time and work stoppages are minimized.
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Production manager can hold the cost of the output
under control and thereby help in maximizing profits.
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Similarly, he would have to make decisions regarding
make or buy, buy or lease etc. for which he has to
evaluate the financial implications before arriving at a
decision.
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Financial institutions
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Financial Markets
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Financial Markets
Capital Market:
Capital market is the market for long term debt
instruments and equity instruments.
Capital market consists of Primary market and
Financial Instruments
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Another important constituent of financial system is
financial instruments.
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They represent a claim against the future income and
wealth of others. It will be a claim against a person or
institutions, for the payment of the some of the money
at a specified future date.
Financial Services:
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Efficiency of emerging financial system largely depends
upon the quality and variety of financial services
provided by financial intermediaries.
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The term financial services can be defined as "activites,
benefits and satisfaction connected with sale of money
that offers to users and customers, financial related
value".
Primary Market
It is a Market where securities offered to the public for the first
time so also called as new issue market.
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In other words Market which deals with rising of fresh capital by
companies through issue of securities like shares and
debentures.
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In this market, the flow of funds is from savers(households) to
borrowers (industries), hence, it helps directly in the capital
formation of the country.
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Features of primary market are:
l It Is Related With New Issues
l It Has No Particular Place
l Primary markets are used by companies for the purpose of
setting up new ventures/ business or for expanding or
modernizing the existing business
l Basis for secondary market
l Various Methods Of Floating Capital are:
i) Public issue, ii) Private Placement, iv) Right Issue v)
offer for sale.
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Public issue
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Bonus Issue:
The company issues new shares to its existing shareholders.
As the new shares are issued out of the companys reserves
(accumulated profits), shareholders need not pay any money to
the company for receiving the new shares.
For e..g. In a bonus issue of 5:1 ratio, the investor will receive five
new shares of the company for each share the investor held
Private Placement
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Secondary Market
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It Creates Liquidity
It Comes After Primary Market
It Has A Particular Place
It Encourage New Investments
Aids in financing the industry
Ensures safe & fair Dealing
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primary market
secondary market
In primary markets,
securities are bought by
way of public issue
directly from the company.
New issue are available in
primary market.
The primary is a
middlemen.
New issue of common
stock;bonds and preferred
stock are sold by
companies.
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Capital market
Capital Market
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Commodity market
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Foreign exchange(FOREX)
Market
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Thank you
Presented by:
Prof lokesh K N