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Scope of Financial Management

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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