Introduction

The term finance, or financial management, can be

defined as the management of flows (both inflow and
outflow) of money through an organization.
In the early years of its evolution, it was treated
synonymously with the raising of funds.
Recently, efficient use of resources is also
recognized.
Different tools help managers determine which
sources offer the lowest cost of funds and which
activities will provide the greatest return on invested
capital.
FINANCE AND RELATED DISCIPLINE:
Finance and Economics
--banking systems, money and capital
market, financial intermediaries, fiscal
policy, taxation policy, etc

Finance and Accounting
--Treatment of funds
--Decision making
Finance and marketing
Finance and Quantitative Method

SCOPE OF FINANCIAL MANAGEMENT
I) Traditional Approach: it was concerned
only with raising of funds.
--capital market institutions
--Instruments
--Practices
ii) Modern Approach:
--Investment Decision
capital budgeting/WC management
--Financing Decision
--Dividend Policy Decision

OBJECTIVE OF FINANCIAL MANAGEMENT:
i) Profit Maximization Approach:
--Actions that increase profits should be
undertaken and those that decrease profits
are to be avoided.
Profit is a test of economic efficiency
It leads to efficient allocation of resources
It ensures maximum social welfare.
Criticisms:
--Ambiguity


--Timing of benefits


Alternative A Alternative B
Period I 50,000 --
Period II 100,000 100,000
Period III 50,000 100,000
Total 200,000 200,000
Quality of Benefit
State of
Economy
Alternative A Alternative B
Recession 9,000 0
Normal 10,000 10,000
Boom 11,000 20,000
Total 30,000 30,000
ii) Wealth Maximization Approach:
--Value maximization/Net present value
W=V-C
Where, W=Net Present Worth
V=Gross Present Worth
C=Investment required to acquire
the asset or to purchase the course of
action