View
219
Download
0
Category
Preview:
Citation preview
8/2/2019 Edebchapter 1,Fm,Mba
1/17
3/15/2012 1
A CREATION OF VALUE TO(INVESTORS)SHARE HOLDERS
By
M.P.NAIDU
8/2/2019 Edebchapter 1,Fm,Mba
2/17
An overview of Financial
Management
The Environment of Finance
Managerial Finance Functions The Goals of Financial management
3/15/2012 2
8/2/2019 Edebchapter 1,Fm,Mba
3/17
Finance can be defined as the art & science ofmanaging money
Finance consists of 3 interrelated areas as
3/15/2012 3
Finance
Investments
(Analysis)
FinancialMarkets
Business financeor Finical
management
8/2/2019 Edebchapter 1,Fm,Mba
4/17
Where the firm issues & investors buys andsells financial securities
These markets assist investors for buying andselling stock and other securities
These markets involve a variety of financialintermediaries and middle man such as (financial institutions ), commercial banks,stock brokers, insurance companies, finance
companies, pension funds, etc.. Financial instruments: stocks, bonds,
certificates, deposits, mortgages etc
3/15/2012 4
8/2/2019 Edebchapter 1,Fm,Mba
5/17
Financial consulting firms which advise toindividual investors ( or by own analysis, ofinvestor) how to invest their funds
There three main function in the investmentsarea are:
sales
The analysis of individual securities and Determining the optimal mix of securities
3/15/2012 5
8/2/2019 Edebchapter 1,Fm,Mba
6/17
Def: Financial Management( planning &control)defined as the management of capital sourcesand use in order to achieve a desired goal
( value creation).
Capital sources:
Management of ( planning & control)
Investing Financing
Dividend
3/15/2012 6
8/2/2019 Edebchapter 1,Fm,Mba
7/17
3/15/2012 7
InvestmentsFinancialMarkets
FinancialManagement
Investors
Funds
Firms
Financial Securities
Profit
8/2/2019 Edebchapter 1,Fm,Mba
8/17
The securities are issued by the firms to potentialinvestors in financial markets.
The investor will analyze the risk- return feature ofsecurities issued by the firm
One the investor choose the security or securitiesfor investment, he will provide capital to the firm(purchase securities)
This capital, the firm will use in investmentactivities ( financial management) with thepurpose of earning returns on their investment,part of profits distributed to investors as dividend.
3/15/2012 8
8/2/2019 Edebchapter 1,Fm,Mba
9/17
This Field is separated from economics in1900.
The reason behind, mergers, formation ofnew firms,& various types of securitiesissued by firms to raise capital, in 1900s.
In 1930s the emphasis shifted toBankruptcy & reorganization, tocorporate liquidity & to regulation ofsecurity markets.
3/15/2012 9
8/2/2019 Edebchapter 1,Fm,Mba
10/17
In 1950sm a movement towards theoreticalanalysis began and focus of financialmanagement shifted to managerial decisions
regarding investment, finance decisions, formaximizing the firms value.
In earlier times the marketing manager would projectsales, the engineering and production staff would
purchase the required plant assets, and inventories.
3/15/2012 10
8/2/2019 Edebchapter 1,Fm,Mba
11/17
determine the assets necessary to meet those demands,and the financial managers job was simply to raise themoney needed to
The situation no longer exist- decision are how made ina much more coordinated manner and the financialmanager generally has direct responsibility for thecontrol process.
Financial management useful to all type of business las well as Govt.operation like hospitals, andschools
3/15/2012 11
8/2/2019 Edebchapter 1,Fm,Mba
12/17
Financial management focuses on how an organizationcan create and maintain Value for its stock holders.
Value represented by the market price of thecompanys (FM)
Investment,
Financing &Dividend , decisions.
3/15/2012 12
8/2/2019 Edebchapter 1,Fm,Mba
13/17
Investment ( Capital Budgeting) decision hastwo major aspects:
1. evaluation of the prospective profitability of new
investments.2. The measurement of cut of Rate against that the
prospective return of new investments could becompared.
Future benefits of investment are uncertain, so
it involves risk. So investment proposal should be evaluated in
terms of both expected Return and Risk.
3/15/2012 13
8/2/2019 Edebchapter 1,Fm,Mba
14/17
The financial manager must decideWhen,Where, and How to acquire thefunds to meet the firms investment
needs. The Financial manager must determine
the proportion of equity and Debt( Mix),
is known as capital structure. The best finance mix provides the
optimal capital structure. .
3/15/2012 14
8/2/2019 Edebchapter 1,Fm,Mba
15/17
The use of debt affects the return and risk ofshare holders; it may increase the return onequity funds but it always increase risk( the
edge bankruptcy). When share holder return is maximized with
minimum risk, the market value per share willbe maximized and the firms capital structurewould be considered optimum
15
8/2/2019 Edebchapter 1,Fm,Mba
16/17
The Financial manager must decidewhether the firm should distribute allprofits or retain them or distribute a
portion.
The optimum dividend policy is one thatmaximize the market value of the firms
share.
3/15/2012 16
8/2/2019 Edebchapter 1,Fm,Mba
17/17
The financial manager must determine theoptimum dividend payout ratio.(earningsavailable & dividend paid ) ,for maximizing the
share holder wealth.
Most profitable companies pay cash dividends
regularly, along with bonus shares or stockdividend issues periodically.
3/15/2012 17
Recommended