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Financial Management
SUBMITTED TO: SUBMITTED BY:
MBA II Semester
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Financial Management
It is concerned with the efficient use of an important
economic resources, namely capital funds.
It is concerned with the managerial decisions that resultsin the acquisition and financing of short term and long
term credits of the firm.
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Nature of Financial
Management
Part of overall management.
Closely related with other disciplines.
Continuous process Different from accounting
Fast growing
Helpful in decision making
Wider scope
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Scope of Financial
Management
Financial management is concerned with optimization of output from
the given input of funds.
Traditional Approach- arrangement of funds.
Modern Approach-effective utilization of funds
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Functions of Financial
Manager
Investment decision or long term asset mix decision.
Finance decision or capital mix decision
Dividend decision or profit allocation decision
Liquidity decision or short term asset mix decision
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Sources of Finance-Internal
Sources of Finance and Growth
Organic growth growth
generated through the
development and expansion of
the business itself. Can be
achieved through: Generating increasing sales
increasing revenue to impact on
overall profit levels
Use of retained profit used to
reinvest in the business
Sale of assets can be a doubleedged sword reduces
capacity?
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Selling more goods and services to consumers is oneway to grow the business.
Title: Home Depot quarterly profit rises 53%. Copyright: GettyImages, available from Education Image Gallery
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External Sources of Finance
Long Term may be paid
back after many years or not
at all!
Short Term used to coverfluctuations in cash flow
Inorganic Growth growth
generated by acquisition
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The existence of capital markets enable firms to raiselong term loans and share capital.
Title: Dow up on Wall Street. Copyright: Getty Images, availablefrom Education Image Gallery
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Long term (Means?)
Loans (Represent creditors to the company not owners)
Bank loans and mortgages suitable for small to medium sized firmswhere property or some other asset acts as security for the loan
Merchant or Investment Banks act on behalf of clients to organiseand underwrite raising finance
Government/EU may offer loans in certain circumstances
Grants
Shares (Shareholders are part owners of a company only inPLCs)
New Share Issues arranged by investment banks.
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Short Term
Bank loans necessity of paying interest on the payment,
repayment periods from 1 year upwards but generally no longer
than 5 or 10 years at most
Overdraft facilities the right to be able to withdraw funds youdo not currently have
Provides flexibility for a firm
Interest only paid on the amount overdrawn
Overdraft limit the maximum amount allowed to be drawn -
the firm does not have to use all of this limit
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Continued..
Trade credit Careful management of trade credit can help ease
cash flow usually between 28 and 90 days to pay
Factoring the sale of debt to a specialist firm who secures
payment and charges a commission for the service.
Leasing provides the opportunity to secure the use of capital
without ownership effectively a hire agreement
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'Inorganic Growth'
Acquisitions
The necessity of financing
external inorganic growth
Merger:
firms agree to join
together both may
retain some form of
identity
Takeover:
One firm secures controlof the other, the firm
taken over may lose its
identity
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Safeway subject to a 3 billion takeover byMorrisons. Securing the 3 billion necessary is aspecialist job.
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Business Angels
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Business Angels
Individuals looking for investment opportunities
Generally small sums up to 100,000
Could be an individual or a small group
Generally have some say in the running of the company
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Venture Capital
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Venture Capital
Pooling of capital in the form of limited companies VentureCapital Companies
Looking for investment opportunities in fast growing businessesor businesses with highly rated prospects
May also buy out firms in administration who are going concerns
May also provide advice, contacts and experience
In the UK, venture capitalists have invested 50 billion since1983
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