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Chapter - 1

This document introduces the topic of financial management. It discusses traditional and modern concepts of the finance function, including the narrow focus and limitations of the traditional approach versus the broader and more analytical modern approach. The modern approach treats financial management as an integral part of overall management. It also provides an overview of the scope of financial management responsibilities, which include financial planning, raising funds, controlling fund use, managing assets, and determining profit distribution.

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Pooja Bathla Giroti
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171 views

Chapter - 1

This document introduces the topic of financial management. It discusses traditional and modern concepts of the finance function, including the narrow focus and limitations of the traditional approach versus the broader and more analytical modern approach. The modern approach treats financial management as an integral part of overall management. It also provides an overview of the scope of financial management responsibilities, which include financial planning, raising funds, controlling fund use, managing assets, and determining profit distribution.

Uploaded by

Pooja Bathla Giroti
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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INTRODUCTION TO

FINANCIAL
MANAGEMENT
CHAPTER -1

Reference Books:-
1.Financial Management - I M Pandey
2.Financial Management – Prasana Chandra
3.Financial Management – Pradeep Kumar Sinha
4.Financial Management – K.G. Gupta
CONTENTS

1. Introduction
2. Traditional & Modern Concept of finance Function
3. Nature
4. Scope
5. Importance
6. Functions & Financial Decisions
7. Financial Environment

FINANCIAL MANAGEMENT CHAPTER - 1


INTRODUCTION
 Financial +Management

MONEY ALL THE FUNCTIONS OF MGT . ( PODSCORB )

When we combine money with the management it contributes towards


FINANCIAL MANAGEMENT.

FINANCIAL MANAGEMENT CHA


MEANING
FM is concerned with the duties of the financial managers in the
business firm. Financial managers actively manage the financial
affairs of any type of business like – financial & non-financial,
private & public, large & small, profit seeking & non-profit
seeking…
 Financial managers perform various task such as –
budgeting, financial forecasting, cash management, credit
administration, investment analysis, fund management etc….

FINANCIAL MANAGEMENT CHAPTER - 1


DEFINITION

“Financial Management is an integral part of


overall management & not a totally independent
area. It draws heavily on related disciplines and
field of study, such as economics, accounting,
marketing, production & quantitative methods.
Although these disciplines are interrelated, but
there are key difference among them.”

FINANCIAL MANAGEMENT
CHAPTER - 1
DIAGRAMATIC PRESENTATION
Financial Management

Maximization of Shareholders Wealth


Or
Profit Maximization

Financial Decision

Investment Liquidity Financing Dividend


Decision Management Decisions Decisions

Return Risk

FINANCIAL MANAGEMENT CHAPTER - 1


GOALS/ OBJECTIVES

1. Maintain the liquidity of the firm.


2. Maximize the wealth of the shareholders.
3. Maintain the profitability of the firm.
4. Provide the framework for optimum financial decision-
making.
5. Provides framework for analyzing different decision
rule.
6. Must be goal oriented.
7. Suggestive in nature.
8. Normative framework.

FINANCIAL MANAGEMENT CHAP


APPROACHES

TRADITIONAL MODERN

Traditional Approach
•Narrow Concept of finance.
•Studies the institutional arrangement of corporate sector.
•Studies only ‘LEGAL’ & ‘ACCOUNTING’ transactions.

Auditing, Income Book keeping, Concept &


tax act etc… conventions etc…

FINANCIAL MANAGEMENT CHAPTER - 1


Contd…
 Limitations of Traditional approach
1. Ignores routine problem.
2. Treatment of various topic but in narrow sense.
3. Conceptual in nature.
4. Ignores the working capital financing.
5. Focus on corporate companies not on financial institutions.

 Conclusion
Traditional approach is ‘OUTSIDERS LOOKING IN'. It is more concerned

with legal obligations & it completely ignores the inside decisions of a


company……

FINANCIAL MANAGEMENT CHAPTER - 1


APPROACHES
Modern Approach

Integral
Conceptual Financial Part of
decisions Management

•Broader as well as vast in scope.


•Provides conceptual & analytical framework to the financial decisions.
•Covers major financial decisions viz.. acquisition of funds, allocation of
funds & profit distribution.
•Integral part of management.
•Case study – ‘COLGATE’

FINANCIAL MANAGEMENT CHAPTER - 1


Contd…
Characterstics of Modern Approach –

1. Less descriptive more analytical.


2. Most important part of business.
3. Continuous process.
4. Helpful to top management in decision making.
5. Measurement of performance.
6. Financial planning, control & co-ordination.

Principal content of Modern Approach –
(Questions need to be answered)

1. How big should an organization/enterprise be?


2. In what form should it hold the assets?
3. What should be the composition of its liability?
(Equity, Debentures, Financial Institution….)

All these above questions are answered when a finance manager performs the financial

functions or take the financial decisions for its organization….



FINANCIAL MANAGEMENT CHAPTER - 1
SCOPE OF FINANCE (RESPONSIBILTY OF FINANCIAL
MANAGER)

1. Financial planning
2. Raising of necessary funds
3. Controlling the use of funds
4. Management of fixed & current assets
5. Disposition of profits
6. Other responsibility

FINANCIAL MANAGEMENT CHAPTER - 1

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