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Scope of Financial Management

Scope of Financial Management. Financial Management involves the application of general management principles to particular financial operation. Objectives of Financial Management. Maximization of shareholders wealth. Financial Management Decisions. Financing Investment Dividend

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Scope of Financial Management

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  1. Scope of Financial Management Financial Management involves the application of general management principles to particular financial operation

  2. Objectives of Financial Management • Maximization of shareholders wealth

  3. Financial Management Decisions • Financing • Investment • Dividend • Working capital management

  4. Difficulties • Measurement problems • Uncertainty • Temporal spread

  5. Investment decisions-Capital Expenditure decisions Importance • Long term effects • Irreversibility • Substantial outlays

  6. Investment decisions-Capital Expenditure decisions Difficulties • Measurement problems • Uncertainty • Temporal spread

  7. Phases of capital budgeting • Planning • Analysis • Selection • Implementation • Review

  8. SELECTION

  9. Various facets of project Analysis • Market analysis • Technical analysis • Financial analysis • Economic analysis • Ecological analysis

  10. Sources of finance Permanent sources • Share capital • Retained profits Long term sources • Redeemable preference shares • Debentures • Long term loans • Seed capital / venture capital

  11. Sources of finance Medium term sources • Medium term loans • Deferred credit • Public deposits • Working capital term loans

  12. Sources of finance Short term sources • Cash credit • Overdraft • Bills discounting • Commercial paper • Trade credit

  13. Study of financial Statements: • Financial Statements means Balance Sheet, P & L A/c and sources and uses of funds statement

  14. Basic concepts underlying financial Accounting • Entity concept • Money measurement concept • Stable monetary unit concept • Going concern concept • Cost concept • Conservatism concept • Dual aspect concept

  15. Finance topics- Balance Sheet

  16. Finance topics- Balance Sheet

  17. Basics of Financial Statement analysis • Horizontal analysis- analysis involves the computation of amount changes and percentage changes • Vertical Analysis- uses percentages to show the relationship of the different items to the total in a single statement. Sets a total figure equal to 100 % and compute the percentage of each component of that figure

  18. Basics of Financial Statement analysis • Trend Analysis :Percentage changes are calculated for several successive years instead of between two years. • Ratio Analysis: Represent meaningful relationship between two numbers

  19. Common size statements • The numbers are brought to common base i.e. per cent. • Make comparisons of business enterprises of different sizes more meaningful • It can be prepared in vertical analysis format or horizontal analysis format

  20. A CASH FLOW EXAMPLE

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