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We are working together SECTION - G AIMS FINANCIAL MANAGEMENT: FINANCIAL MANAGEMENT Presented by- ( Group-01 ) Shweta Sinha - G-45 Jaya Prasad G-36 Gaurav Khandewal G-22 Govind Sharma G-31 Ashish Kumar G-60 Kaushal kumar yadav G-39 Introduction : Introduction It is the management activity related with planning and controlling of the firms resources. Why?: Why? For decision making Analyze the things /entries/and information Difference b/w financial management and financial accounting: Difference b/w financial management and financial accounting Financial accounting related to book keeping of firms records whereas financial management deals with firms decision making. Importance : Importance Money: most important and scare resources in a firm and there are many functions which needs investment like— Research and development Marketing Material management etc.. PowerPoint Presentation: Therefore, financial manager is important in all the decisions taking by a firm. PowerPoint Presentation: Financial management provides a conceptual and analytical framework for financial decision making. It covers not only acquisition of funds but also their effective utilization in the business as well. It is an analytical way of viewing the financial problem of the firm. It is concerned with the solution of the three major problem relating to the financial operation of the firm. Scope of Financial Management PowerPoint Presentation: It is concerned with the solution of the three major problem relating to the financial operation of the firm. The finance function includes decision about whether company should increase or hold investment in various assets or not. Conti---- PowerPoint Presentation: Investment Decision (a) long term assets (b) short term or current assets Capital Budgeting Decision financing Decision Dividend Decision Decision of Financial Management DIVIDEND OR PROFIT ALLOCATION DECISION: DIVIDEND OR PROFIT ALLOCATION DECISION Objective:-.To make a optimum dividend policy to max share holders wealth maximization. To determine the amount of profit to be distributed to share holders and to be retain in the firm. Decision in two situation 1.Firm’s Need for Fund: 2.Shareholder’s Need for income:- 1.Firm’s Need for Fund: 1.Firm’s Need for Fund Div. decision is treated as a financial decision because Profit (earning) of the firm consider as a source of long term fund. Div. will be paid only when firm doesn’t have any profitable investment opportunities. If firm have any profitable project than distribution of cash Div. cause a reduction in internal funds, firm will find any other costly source of financing of project. Thus firm may retain their earning as a long term financing decision 2.Shareholder’s Need for income: 2. Shareholder’s Need for income They may prefer near Div.to the future Div.& capital gains because of the market imperfection. Higher Div.may increase the value of shares Lower Div.may decrease the value of shares In order to max.wealth in uncertainty firm should pay enough div. to satisfy investor. Profit Earning Contains two terms: Profit Earning Contains two terms Div.or payout Ratio: which is div.as a percentage of earning Retention Ratio:100%- payout percentage Growth Rate=ROE x Retention Ratio LIQUIDITY OR SHORT TERM ASSET DECISION: LIQUIDITY OR SHORT TERM ASSET DECISION Objective:- This function mainly monitoring the use of fund & financial control. Credit Monitoring Optimum Level of Inventory Profitability Liquidity:- Asset that are readily convertible into money without decreasing in value. Two dimension: 1.Time 2.degree of certainty Why Firm Need Cash?: Why Firm Need Cash? 1.Transaction Motive 2.Precautionary Motive 3.Speculative Motive Credit Monitoring:- INVENTORY MANAGEMENT: INVENTORY MANAGEMENT Inventories are assets of the firms require investment &hence involve the commitment of firms resources. Not as idle assets. Three types: Raw material Work in progress Finish good Investment decision: Investment decision It involves capital expenditure. It referred as capital budgeting. Cut off rate. Cut off rate of required rate on return on investment if the opportunity cost of capital. Financial decision : Financial decision When,where,why,how to acquire funds to meet the firm’s investment needs. Firms Capital structure (the mix of debt and equity). Conti---: Conti--- Financial leverage. The change in the shareholder’s return caused by the change in the profits is called as financial leverage. Profit maximization: Profit maximization Profit maximization is the process by which a firm determines the price and output level that returns the greatest profit . Maximizing the Rupee income of firm. Appropriate measure of firm performance. Serves interest of society also. Objection of profit maximization: Objection of profit maximization It is vague. It ignores the timing of returns. It ignores risk . Assumes perfect competition. Profit maximization fails to account for differences in the level of cash flows (as opposed to profits), the timing of these cash flows, and the risk of these cash flows. Maximizing EPS: Maximizing EPS Ignores timing and risk of the expected benefit . Market value is not a function of EPS .hence maximizing EPS will not result in highest price for company, share. Maximizing EPS implies that the firm should make no dividend payment so long as funds can be invested at positive rate of return such a policy may not always work. Shareholders wealth maximization: Shareholders wealth maximization Wealth maximization principle implies that the fundamental objective of a firm is to maximize the market value of its shares. Maximizes the net present value of a course of action to shareholders. Accounts for the timing and risk of the expected benefits. Benefits are measure in terms of cash flow Fundamental objective – maximize the market value of the firm's share. REASON FOR AGENCY PROBLEM: REASON FOR AGENCY PROBLEM In large companies there is a divorce between management and ownership. Owners want to maximize their own wealth whereas managers want to pursue their own personal goals (high salaries, perks etc.) at the cost of shareholders which eventually leads to Agency Problem. AGENCY PROBLEM: AGENCY PROBLEM The conflict between the interests of shareholders and managers is referred to as agency problem. The agency problem results into agency costs. Agency costs include the less than optimum share value for shareholders and costs incurred by them to monitor the actions of managers and control their behavior. WAYS TO MITIGATE AGENCY PROBLEM: WAYS TO MITIGATE AGENCY PROBLEM 1.Giving ownership rights through stock options to managers. 2.Shareholders can also offer attractive monetary and non-monetary incentives to managers to act in their interests. 3.A close monitoring by the stakeholders, board of Directors and outside analysts can help in reducing Agency Problem. 4.Takeovers and acquisitions are used as means of disciplining managers. .: . . Conclusion PowerPoint Presentation: THANK YOU You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.