Financial Management

2. Financial Management

3. Financial Management
Organization
Operational
Structure
Financial
Structure
Statements
Income Statement Balance Sheet
Trading Account Profit and Loss

4. Types of Departments
Purchase Department ( buys raw material)
Production Department ( convert the material into Finished product and services)
Marketing Department (sells the product)
Advertising
Sales and Distribution
 Financial Department (Accounting)
 After Sales Service

5. Money vs Capital
• If money is used to invest in business in order to run the business and make a profit out of it and
increase its value, it becomes Capital

6. Important aspects of a Business
1. Investment Analysis
2. Working Capital Management
3. Sources and Cost of Funds
4. Determination of Capital Structure
5. Dividend policy
6. Analysis of risks and returns

7. Investment Analysis
Investment
Analysis
Market &
Demand
Analysis
Success
and Reject
of the
product
Detailed
Analysis
Quality of
Product
Affordable
Pricing

8. Working Capital
Working Capital is used to manage current Assets:
• Raw Material
• Human resources
• Power, water etc.

9. Working Capital
Sources of Funds
Long Term Funds
for Fixed Assets
(Land, plant,
furniture, building,
machinery etc. )
Short Term Funds
for short term assets
or Working Capital
Capital
Budgeting
Working Capital
Management

10. Sources and Cost of Funds
Capital Structure = Equity ( by Venture Capitalists) + Debt ( at some interest rate)
Sources:
1. Long Term sources
2. Short Term Sources
3. Spontaneous
Note: Debt is non taxable, hence cheaper component as compared to equity

11. Dividend Policy
Net Profit
Distributed as
dividend to
shareholders
Re-invested in
Business

12. Risks and Returns
• How much is the return available for given amount of risk?
• There are two types of values – Book value and Market Value
• Book value – Summing the all the assets of the firm
• Market Value – Total number of outstanding shares in the market multiplied by the price of the
one share. This is the amount of Market Capitalization
• The goal is to maximize the market value of the firm.
• Market value is not same as Book value of the firm but market value is influenced by the Book
value of the firm

13. Risks and Returns
Market
Risks Returns