Ch. 1: Nature of Financial Management 1 CHAPTER 1 NATURE OF FINANCIAL MANAGEMENT CASES Case 1.1: The Anandnagar Electricity Company The objective of this case is to initiate a discussion on the financial objectives of a private sector company. A private sector company may be distinguished from a government-owned company in terms of the financial objectives. The role of shareholder as suppliers of capital becomes very critical. Therefore, there has to be undiluted focus on earning profits and maximising the shareholder value. In case of a public sector company, the government as owner may like to achieve several non-financial objectives (like employment etc.) at the cost of the profit objective. The instructor may start discussion by asking students to look at data in Table 1.1.1 and explain the change in the performance of the company after it became a private sector company. The instructor may ask students to explain the concept of shareholder wealth maximisation, how it works in practice and the reasons for its superiority over other objectives. The relationship between shareholder value and financial markets should be brought out. In the discussion, the relationship between shareholders and other stakeholders should be brought out.. The issue of conflicts between stakeholders and particularly, the agency problems also need discussion. Case 1.2: Bharat Heavy Electricals Limited (BHEL) This is a straight forward case to discuss the importance of overall strategy in achieving financial goals. The instructor may like to emphasise how the objectives of other stakeholders can be fulfilled by attaining the objective of shareholder value maximisation. The interdependence between these objectives may also be focussed upon. The instructor can ask students to search for financial information about BHEL from the Internet and discuss it.
CASES Case 1.1: The Anandnagar Electricity Company
The objective of this case is to initiate a discussion on the
financial objectives of a private sector company. A private sector
company may be distinguished from a government-owned company in
terms of the financial objectives. The role of shareholder as
suppliers of capital becomes very critical. Therefore, there has to
be undiluted focus on earning profits and maximising the
shareholder value. In case of a public sector company, the
government as owner may like to achieve several non-financial
objectives (like employment etc.) at the cost of the profit
objective. The instructor may start discussion by asking students
to look at data in Table 1.1.1 and explain the change in the
performance of the company after it became a private sector
company. The instructor may ask students to explain the concept of
shareholder wealth maximisation, how it works in practice and the
reasons for its superiority over other objectives. The relationship
between shareholder value and financial markets should be brought
out. In the discussion, the relationship between shareholders and
other stakeholders should be brought out.. The issue of conflicts
between stakeholders and particularly, the agency problems also
need discussion.
Case 1.2: Bharat Heavy Electricals Limited (BHEL)
This is a straight forward case to discuss the importance of
overall strategy in achieving financial goals. The instructor may
like to emphasise how the objectives of other stakeholders can be
fulfilled by attaining the objective of shareholder value
maximisation. The interdependence between these objectives may also
be focussed upon. The instructor can ask students to search for
financial information about BHEL from the Internet and discuss
it.
I. M. Pandey, Financial Management, 9th Edition, New Delhi:
Vikas.
