Content:

• Introduction to the subject

• Introduction to Financial Management
• Scope of Financial Management
• Financial Decision and Planning
Introduction to Financial Management:
• Finance is defined as the provision of money at the time when it is
required.
• Finance is said as the lifeblood of an enterprise.
• Financial Management refers to that part of the management activity
which is concerned with the planning and controlling of firm’s
financial resources.
• In the words of Weston and Brigham, “Financial Management is an
area of financial decision making, harmonizing individual motives and
enterprise goals.”
Scope of Financial Management

• Estimating Financial Requirements

• Deciding Capital Structure
• Selecting a Source of Finance
• Selecting a pattern of investment
• Proper Cash Management
• Implementing Financial Controls
• Proper use of Surpluses
 Objectives of Financial Management
• Profit Maximization: Profit earning is the main aim of every economic activity
The arguments in favor of profit maximization are:
• Profit earning is the obvious objective
• Profitability is a barometer for measuring efficiency
• Economic and business conditions do not remain same at all times
• Profits are the main sources of finance for growth of a business
Criticism of profit maximization:
• Ambiguity
• Ignores Time value of money
• Ignores Risk factor
• Dividend policy
Wealth Maximization: It is the appropriate objective of an enterprise.
The arguments in favor of Wealth Maximization are:
• It serves the interest of owners
• It is consistent with the objective of owners economic welfare
• It implies long term survival and growth of the firm
• It takes into consideration risk factor and time value of money
• The effect of dividend policy is also considered
• The goal of wealth maximization leads to value maximization
Criticism of wealth maximization :
• It is perspective idea
• It is not socially desirable
• It may face difficulty when ownership and management are separated.
Financial Decisions
• Financial Decisions are related to maximizing shareholder’s wealth, kind of assets to be acquired,
distribution of firm’s income, etc.
• We can classify Financial Decisions into three types:

Investment
Decisions

Financial
Decision
Dividend s
Financing
Decision
Decisions
s
Risk-Return Trade Off

Investment Decisions:
-Capital Budgeting
-Working Capital
Management
Risk
Financing Decision
Market value of -Capital Structure

the Firm

Dividend Decisions
Return -Dividend Policy
Financial Planning
• A financial plan is a statement estimating the amount of capital and
determining its composition. It depends on the following factors:
• Simplicity
• Defined objective
• Flexibility
• Solvency
• Liquidity
• Cost
• Profitability