RVS IMSR I MBA Financial Management Intro CONTENTS

RVS IMSR I MBA Financial Management Intro….

CONTENTS n Unit I: Finance – Approaches - Financial Management - Objectives, functions and decisions – Sources of Finance – Long term Sources: Shares, Debentures or Bonds, Retained Earnings – Short-term loans and Credits – Innovative sources of Finance. Time value of money concepts.

n Unit II: Cost of Capital – Computation for each source of finance and weighted average cost of capital –Leverages. Operating Leverage – Financial Leverage (problems).

n Unit III: Capital Budgeting – Nature of capital budgeting – methods of appraisal -, Evaluation Techniques, Payback, Accounting rate of return, Net Present Value, Internal Rate of Return and Profitability Index (Problems) - Risk analysis in Capital Budgeting.

n Unit IV: Capital Structure Theory – Net Income Approach – Net Operating Income Approach – MM Approach – Dividend – Forms of Dividend – Dividend Policy – Types of Divided Policy – Determinants of Dividend Policy – Dividend Theories – Stability of Dividend.

n Unit V: Working Capital Management – Definition, Objectives and Need - Factors affecting Working Capital requirements Forecasting Working Capital requirements (problems) - Cash Management Receivables Management and Inventory Management

DEFINITION OF FINANCE n According to Khan and Jain, “Finance is the art and science of managing money”. n According to Oxford dictionary, the word ‘finance’ connotes ‘management of money’.

n Webster’s Ninth New Collegiate Dictionary defines finance as “the Science on study of the management of funds’ and the management of fund as the system that includes the circulation of money, the granting of credit, the making of investments, and the provision of banking facilities.

DEFINITION OF BUSINESS FINANCE According to the Wheeler, “Business finance is that business activity which concerns with the acquisition and conversation of capital funds in meeting financial needs and overall objectives of a business enterprise”. n

n According to the Guthumann and Dougall, “Business finance can broadly be defined as the activity concerned with planning, raising, controlling, administering of the funds used in the business”.

DEFINITION OF FINANCIAL MANAGEMENT n n According to the Solomon, “It is concerned with the efficient use of an important economic resource namely, capital funds”. According to the S. C. Kuchal is that “Financial Management deals with procurement of funds and their effective utilization in the business”.

n n Howard and Upton : Financial management “as an application of general managerial principles to the area of financial decision-making. Weston and Brigham : Financial management “is an area of financial decision-making, harmonizing individual motives and enterprise goals”.

n Joshep and Massie : Financial management “is the operational activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient operations.

APPROACHES TO FINANCIAL MANAGEMENT n Theoretical points of view, financial management approach may be broadly divided into two major parts n n Traditional Approach Modern approach

Traditional Approach n n Main part of the traditional approach is rising of funds for the business concern. Arrangement of funds from lending body. Arrangement of funds through various financial instruments. Finding out the various sources of funds.

Modern Approach n n n Estimating the total requirements of funds for a given period. Raising funds through various sources, both national and international, keeping in mind the cost effectiveness; Investing the funds in both long term as well as short term capital needs;

n n n Funding day-to-day working capital requirements of business; Collecting on time from debtors and paying to creditors on time; Managing funds and treasury operations; Ensuring a satisfactory return to all the stake holders; Paying interest on borrowings;

n n Repaying lenders on due dates; Maximizing the wealth of the shareholders over the long term. Interfacing with the capital markets; Awareness to all the latest developments in the financial markets;

n n n Increasing the firm’s competitive financial strength in the market & Adhering to the requirements of corporate governance. In general, modern approach considers the three basic management decisions. i. e. , Investment decisions, financing decisions and dividend decisions within the scope of finance function.

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