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of fund
Planning
Financial
of fund
Planning
Investment of Fund
Investment of Fund
Decision Phase
Decision Phase
-Public finance
What is Finance?
Principles of Finance:
- Risk and return trade off.
- Time value of money
- Hedging
- Diversity
What is Financial Management?
What is the optimal firm size?
What specific assets should be acquired?
What assets (if any) should be
eliminated?
Financing Decisions
What is the best type of financing?
Financing sources may be of:
Institutional vs. Non institutional
Formal vs. Informal
Owners Equity vs. Debt capital
Internal vs. External
Capital market vs. Bank financing
Short term vs. intermediate term vs. long term.
Dividend Decisions
How much to pay to shareholder?
Depends on:
Future investment need [ H need L dividend]
Long term corporate practice
Industry practice
Growth philosophy – internal vs. external growth philosophy
Tax system
Nature of shareholders:
Young investors wants capital gain
Old investors wants more cash dividend.
Asset Management Decisions
How do we manage existing assets
efficiently?
Whether the existing assets are fully
utilized or there is idle capacity?
Increase in production may result in
economics of scale and vise-versa.
Incorrect depreciation method of assets
have negative impact on income.
WC Management Decisions
How do we efficiently manage
Operation on daily basis?
Involve inventory management
Cash Management and Modeling
Credit Management
Working capital cycle management.
Financial Manager in the Organization
Cash Manger:
Manages cash inflows and cash
Financial Manager in the Organization
Credit Manager:
Develops credit policies.
Tax Manager:
Works as internal auditors
A Note:
The importance of each post depends
on the nature of business.
However success depend on a team
work.
Agency Problem
“The potential conflict of interest between the
owner (Principal) and manager (agent) is
known as agency problem”
Profit Maximization?
2) Partnership
Similar to a sole proprietorship, except
that there are two or more owners.
Legal Forms of
Business
2a) General Partnership
All partners have unlimited liability.
tax
Government
The Corporation and
Financial Markets
Primary Market
Marketin which new issues of a
security are sold to initial
buyers.
Secondary Market
Marketin which previously
issued securities are traded.
The Corporation and
Financial Markets
Initial Public Offering (IPO)
The first time the firm’s stock is
sold to the general public.
Seasoned New Issue
A new stock offering by a firm
that already has stock that is
traded in the secondary market.