-: PRESENTATION :--: PRESENTATION :-

FINANCIAL MANAGEMENT FINANCIAL MANAGEMENT

-: GROUP MEMBER :--: GROUP MEMBER :- Pramodkumar Jaju Pramodkumar Jaju

Pawan GuptaPawan Gupta

Sahanawaz AhamadSahanawaz Ahamad

M.S.RAMAIAHM.S.RAMAIAH MANAGEMENT INSTITUTEMANAGEMENT INSTITUTE

1. Forecasting and estimating capital requirements:1. Forecasting and estimating capital requirements:

2. Designing the capital structure:2. Designing the capital structure:

3. Mobilization of funds:3. Mobilization of funds:

4. Deployment of funds:4. Deployment of funds:

5. Control over the use of funds:5. Control over the use of funds:

6. Dividend decision:6. Dividend decision:

7. Cash management:7. Cash management:

8. Evaluating financial performance:8. Evaluating financial performance:

9. Financial negotiations:9. Financial negotiations:

10. Maintaining relations with outside agencies:10. Maintaining relations with outside agencies:

11. Cost control:11. Cost control:

12. Product pricing:12. Product pricing:

1.1.Role of finance manager ? Role of finance manager ?

Business finance is concerned with making Business finance is concerned with making decisions about which investments the decisions about which investments the firm should make and how best to finance firm should make and how best to finance those investments.those investments.

Thus business finance function deals with Thus business finance function deals with three major decisions :-three major decisions :-

1.1.The Investment decision.The Investment decision.

2.2.The Financing decision.The Financing decision.

3.3.The dividend policy decision.The dividend policy decision.

2.Business finance decisions ?2.Business finance decisions ?

• Capital budgetingCapital budgeting• Cost of capital Cost of capital • Measuring risk Measuring risk • Management of liquidity and current Management of liquidity and current assets.assets.• Decisions on lease/hire purchase of Decisions on lease/hire purchase of machinesmachines

and equipments.and equipments.• Buy or hire or lease an asset.Buy or hire or lease an asset.• Decisions on merger and acquisition.Decisions on merger and acquisition.

Investment decisionInvestment decision

• Deciding the financing pattern of long Deciding the financing pattern of long

term, medium term and short term funds term, medium term and short term funds requirementrequirement• Decision regarding choice of financial instrumentDecision regarding choice of financial instrument

(equity shares,preference (equity shares,preference shares,bonds,debentures etc)shares,bonds,debentures etc)• Arrangement of funds from banks and financialArrangement of funds from banks and financial

institutions for working capital and other needsinstitutions for working capital and other needs• Decision regarding proper balance between debt Decision regarding proper balance between debt andand

equity in the capital structure.equity in the capital structure.• Decision in what proportion should funds be Decision in what proportion should funds be raised toraised to

maximize the return to the shareholders.maximize the return to the shareholders.

Financing DecisionsFinancing Decisions

A financial ratio is a relationship between A financial ratio is a relationship between two accounting numbers. Ratios help to two accounting numbers. Ratios help to make a qualitative judgment about the make a qualitative judgment about the firm’s financial performance.firm’s financial performance.

3.Introduction of ratio 3.Introduction of ratio analysis ?analysis ?

• Liquidity ratiosLiquidity ratios• Solvency ratiosSolvency ratios• Turnover ratiosTurnover ratios• Profitability ratiosProfitability ratios• Equity-related ratiosEquity-related ratios

Types of Financial Types of Financial Ratios Ratios

Liquidity ratios measure a firm’s ability to Liquidity ratios measure a firm’s ability to meet its current obligations.meet its current obligations.

Liquidity RatiosLiquidity Ratios

Current assetsCurrent ratio =

Current liabilitiesCurrent assets – Inventories

Quick ratio = Current liabilities

Cash + Marketable securitiesCash ratio =

Current liabilities

Solvency ratios measure the dependence Solvency ratios measure the dependence of a firm on borrowed funds. of a firm on borrowed funds.

Solvency RatiosSolvency Ratios

DebtDebt-equity ratio

Equity (Net Worth)

Debt ratio

Debt Equity employed

Earnings before interest and tax coverage

Interest

DebtDebt

Capital

Interest

Turnover or activity ratios measure the Turnover or activity ratios measure the firm’s efficiency in utilizing its assets. firm’s efficiency in utilizing its assets.

Turnover RatiosTurnover Ratios

Cost of goods sold or net salesInventory turnober

Average (or closing) inventory

Number of days in the year (say, 360) of inventory holding

Inventory turnover

Credit sales or net saDebtors turnover

Days

les

Average (or closing) debtors

Number of days in the year (say, 360) period

Debtors turnoverCollection

Net salesCurrent assets turnover

Current assetsNet sales

current assets turnoverNet current assets

Net sales assets turnover

Net fixed assetsNet sales

assets turnoverNet assets or capital

Net

Fixed

Net

employed

Profitability ratios measure a firm’s overall Profitability ratios measure a firm’s overall efficiency and effectiveness in generating efficiency and effectiveness in generating

profit. profit.

Profitability RatiosProfitability Ratios

before interest and tax (PBIT)Margin

Net sales after tax (PAT)

marginNet sales

PBIT return on investment

Net assetsProfit after tax

on equityEquity (net worth)

Profit

ProfitNet

Before tax

Return

Equity-related ratios measure the Equity-related ratios measure the shareholders’ return and value.shareholders’ return and value.

Equity-related RatiosEquity-related Ratios

Profit after taxEPS

Number of ordinary shares

DPSNumber of ordinary shares

DPS ratio

EPS Pr after tax

DPS yield

Market value per share

Dividends

DividendsPayout

ofit

Dividend

EPSEarnings yield

value per share

value per shareP / E ratio =

EPSNet worth

value per shareNumber of ordinary shares

value per shareM Bvalue

Book value per share

Mar'

Market

Market

Book

Market

Tobin s q

ket value of assets

Economic value of assets

Thanking Thanking you you