FOUNDATIONS

OF FINANCE

Presenter Name
Dr. Aparna Pavani
Siddhabattula
9/3/20XX

PRESENTATION TITLE

AGENDA
Meaning & Definition of
Finance
Financial Management –
Scope, Objectives
FM – Approaches &
Importance
 PRESENTATION TITLE

Introduction
Meaning: The system or study of creating, circulating &
managing money.
Definition:
The Encyclopaedia Britannica defines Finance as” the act
of providing the means of payment. It is a medium of
exchange”.

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TYPES OF
FINANCE
PRESENTATION TITLE
 FINANCIAL
MANAGEMENT
Scope & Objectives
Financial Management
• Financial Management means planning, organizing, directing and controlling the financial
activities such as procurement and utilization of funds of the enterprise. It means applying general
management principles to financial resources of the enterprise.
• Finance is the managerial activity which is concerned with planning and controlling of the firms
Financial Resources.
• Finance is needed to promote or establish business, acquire fixed assets, make necessary
investigations, develop product keep man and machines at work ,encourage management to make
progress and create values.
• According to Solomon “Financial Management is concerned with the efficient use of an important
economic resource, namely capital funds.”
• “Financial management is the application of planning and control function of the finance
function”- Howard and Upton
Scope of FM
• Traditional Approach – Before 1950’s –
Raising of Funds.
• Modern Approach – After 1950’s –
Scope has been enlarged to Investment,
Financing & Dividend decisions.
• Globalisation Approach – During 1970’s
new milestones like introduction of
IPO’s, ADR’s, GDR’s, FDI, FPI,
Derivatives, Asset & Portfolio
Management, SEBI, Financial
Restructuring, International Benchmarks
and the like.
Scope of FM (Contd.,)
• The nature of financial decisions would be clear when we try to understand the operation of a firm. At
the very outset, the promoters makes an appraisal of various investment proposals and selects one or
more of them ,depending upon the net benefits derived from each as well as on the availability of funds.
• Investment Decisions - What assets should the company hold? This determines the left-hand side of the
balance sheet. these decision are concerned with the effective utilization of funds in one activity or the
other. The investment decision can be classified under two groups- (i) Long term investment decision (ii)
Short term investment decision
• Financing Decisions - How should the company pay for the investments it makes? This determines the
right-hand side of the balance sheet. it is also known as capital structure decision. It involves the
choosing the best source of raising funds and deciding optimal mix of various source of finance.
• Dividend decisions - What should be done with the profits of the business? The dividend decision is
concerned with determining how much part of the earning should be distributed among the share holders
by way of dividend and how much should be retained in the business for meeting the future needs of
funds internally.
Objectives of Financial Management
Maximization of Maximization of
profits wealth
• Profit earning is the main aim of • According to prof.
every economic activity. Profit
maximization simply means Solomon Ezra of stand
maximizing the income of the ford university , the
firm . Economist are of the view ultimate goal of financial
that profits can be maximized
when the difference of total management should be
revenue over total cost is the maximization of the
maximum, or in other words total owner's wealth. The
revenue is greater than the total
cost value of corporate wealth
may be interpreted in
terms of the value of the
Importance of FM
Strategizing Decision - Making
• Leaders • Helping • Controlling
need insights business • Ensuring each
department is
into current leaders contributing to
performance decide the the vision and
for scenario best way to operating within
planning execute on budget and I n
alignment with
plans by strategy.
providing up
Importance of Finance in Modern World

• Financial Problems • Maximizing Earnings

• Wealth Maximization • Cost of Present &

Goal Future Funds

• Allocation of Funds • Allocation of

Earnings
Principles of Finance

• Principle 1: The Risk- Return Principles 3: Cash- Not Profit –

Trade- Off is King
• Saving allow for more future • We should use cash flows to
consumption.
measure the benefits that acc...
• Borrowers pay...
• Principles 4: Diversification
• Principles 2: The Time Value Of Reduces Risk
Money
• Money has a value with respect to
• Don’t put all your eggs in one
the time. basket.
• Money received... • To diversify ,...
Principles Of Finance

• Principles 5: All Risk Is Principle 7: Taxes Bias

Not Equal Business ecisions
• Some risk cannot be • Taxes influence the realized
diversified away. return of investments.
• Principle 6: The curse of • Principles 8: Importance of
Competitive Investment Liquidity
Markets • Have funds available for
the unexpect...
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Summary
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9/3/20XX

PRESENTATION TITLE

THANK YOU
Dr. Aparna Pavani Siddhabattula
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