FINANCIAL MANAGEMENT

Managing funds is Financial Management

Long term funds
Short term Funds
Functions:
Mobilization of funds
Deployment of funds
Control over funds
Risk return Trade-off
Dividend function
Important factors to be considered while managing
finance
1. Cost of funds – less
2. Risk – minimum
3. Return - more

Hence Finance manager needs to know:

• Capital market and money market

• Macro economic environment
• Regulatory framework
• Financial management techniques.
INTERFACE WITH OTHER SUBJECTS.

HRM

FM MM

BOD

POM IT&S
 OBJECTIVES OF THE FIRM /FM

Profit maximization Vs Wealth maximization

Profit maximization
• Maximizing Rupee income
• Maximum production-maximum price, maximum profit
• Maximum use of resources
Objections:
• unnecessary production
• Inequality of income
• Impossible due to market imperfection
• Unrealistic in oligopoly and monopolistic competition
• neglects the interest of other interested parties
• profit ambiguity
 Wealth maximisation
•Maximizes shareholder’s wealth
•Creating positive NPV]
•Careful deployment of funds
•Wealth means good profits, market return, dividends, capital gain
•Careful selection of socially and economically viable projects
•Products and services that meets customer needs
•Value creation-employment, CSR, Debt servicing etc

Class exercise
•Note on various types of business organisations
•Distinguish Private Ltd Co and Public Ltd Co
 INDUSTRIAL ENVIRONMENT

PRIVATE
LICENCING
PLAYERS

INDUSTRIALISATION

STATE
POLICIES
 INDUSTRIAL POLICY 1948
• Industrial policy 1948
-emphasis on development of PSUs
-Nehruvian model of mixed economy
-Emphasis on SSIs
• Industrial policy 1956
-Schedule I – State
-Schedule II – compulsory licensing
-Schedule III – SSIs and ancillary units
Emphasis on balanced regional development
Foreign participation and joint sectors
Licensing exemption -10 lakhs and 100 workers
 Industrial Policy 1970
• Development of core sectors
• Schedule I continues
• Identified SME (1-5)
• Identified heavy investment sector 5 crore and above
• This sector was open for private and foreign players
• Licensing exemption raised from 10 lakhs to 5 crore subjected to
restriction
Industrial policy 1977
• SSI was key objective-cottage-tiny(1 lakh)-SSIs (10 -15 lakhs)
• SSIs development measures –items reserved 180 to 800. DICs and
SIDBI was formed –Khadi and village Industries Commission-
Improvising productivity
• Areas identified for large industries are – basic industries –capital
goods-high tech etc
• PSU dominance continues
 INDUSTRIAL POLICY 1980
• Socio economic objectives
• Redefined SSIs : tiny 2 lakhs, SSIs upto 20 lakhs,
ancillary upto 25
INDUSTRIAL POLICY 1991
• Delicencing
• Free economy
• MRTP Act amended
• Public sector policy was changed
• Foreign investment encouraged
• New foreign tech policy
 DELICENSING
• Licensing for social and strategic concerns
• Automatic clearances for imported capital goods
• Delicensing to encourage investment in semi urban area (1 million )
• Additional investment to expand capacity
• New product introduction
• FOREIGN INVESTMENT
• Foregn equity to meet Forex
• Investment up to 51%
• Imports of components/ RM/tech know how etc will be guided by a
general policy – dividend payment to be monitored by RBI
• Export orientation
• Automatic clearances for foreign tech agreements
• No restriction for foreign technicians
 PUBLIC SECTOR
• Revised the list
• IDENTIFIED SICK psuS
• BIFR Was formed
• MRTP was amended
Threshold limits on assets were removed
M&As were encouraged
Focus only on unfair practice
Elimination of entry restrictions
Share transfer and acquisition restrictions removed
 FEMA 2000
• To facilitate external trade / payments
• To promote orderly maintenance of Forex market in India
• Features
Freedom to transfer movable and immovable proprties
Investment in shares and securities
Reporting to RBI for Export procedures
Any person can indulge in foreign transaction