Intro IM Pandey
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Transcript of Intro IM Pandey
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Nature of FinancialManagement
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2Financial Management, Ninth Edition I M Pandey
Vikas Publishing House Pvt. Ltd.
Business Activities
Production
Marketing
Finance
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3Financial Management, Ninth Edition I M Pandey
Vikas Publishing House Pvt. Ltd.
Finance Functions
Investment or Long Term Asset MixDecision
Financing or Capital Mix DecisionDividend or Profit Allocation Decision
Liquidity or Short Term Asset Mix
Decision
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5Financial Management, Ninth Edition I M Pandey
Vikas Publishing House Pvt. Ltd.
Financial Goals
Profit maximization (profit after tax)
Maximizing Earnings per Share
Shareholders Wealth Maximization
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6Financial Management, Ninth Edition I M Pandey
Vikas Publishing House Pvt. Ltd.
Profit Maximization
Maximizing the Rupee Income ofFirm
Resources are efficiently utilizedAppropriate measure of firm
performance
Serves interest of society also
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7Financial Management, Ninth Edition I M Pandey
Vikas Publishing House Pvt. Ltd.
Objections to Profit Maximization
It is Vague It Ignores the Timing of Returns It Ignores RiskAssumes Perfect Competition In new business environment profit
maximization is regarded as
UnrealisticDifficult Inappropriate Immoral.
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8Financial Management, Ninth Edition I M Pandey
Vikas Publishing House Pvt. Ltd.
Maximizing EPS
Ignores timing and risk of theexpected benefit
Market value is not a function of EPS.Hence maximizing EPS will not resultin highest price for company's shares
Maximizing EPS implies that the firm
should make no dividend payment solong as funds can be invested atpositive rate ofreturnsuch a policymay not always work
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9Financial Management, Ninth Edition I M Pandey
Vikas Publishing House Pvt. Ltd.
Shareholders Wealth
MaximizationMaximizes the net present value of a
course of action to shareholders.
Accounts for the timing and risk ofthe expected benefits.
Benefits are measured in terms ofcash flows.
Fundamental objectivemaximizethe market value of the firms
shares.
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10Financial Management, Ninth Edition I M Pandey
Vikas Publishing House Pvt. Ltd.
Risk-return Trade-offRisk and expected return move in
tandem; the greater the risk, thegreater the expected return.
Financial decisions of the firm areguided by the risk-return trade-off.
The return and risk relationship:Return = Risk-free rate + Riskpremium
Risk-free rate is a compensation fortime and risk premium for risk.
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11Financial Management, Ninth Edition I M Pandey
Vikas Publishing House Pvt. Ltd.
Organisation of the Finance
FunctionsReason for placing the finance
functions in the hands of top
management Financial decisions are crucial for the
survival of the firm. The financial actions determine
solvency of the firm Centralisation of the finance functions
can result in a number of economies tothe firm.
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12Financial Management, Ninth Edition I M Pandey
Vikas Publishing House Pvt. Ltd.
Status and Duties of Finance
ExecutivesThe exact organisation structure for
financial management will differ
across firms.The financial officer may be known
as the financial manager in someorganisations, while in others as thevice-president of finance or thedirector of finance or the financialcontroller.
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13Financial Management, Ninth Edition I M Pandey
Vikas Publishing House Pvt Ltd
Role of Treasurer and
ControllerTwo more officersthe treasurer and
the controllermay be appointed
under the direct supervision of CFOto assist him or her.
The treasurers function is to raise
and manage company funds whilethe controller oversees whetherfunds are correctly applied.