study of financial statements

study of financial statements - MODULEB STUDYOFFINANCIAL...

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MODULE B STUDY OF FINANCIAL  STATEMENTS C.S.BALAKRISHNAN FACULTY MEMBER SPBT COLLEGE
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Scope,Functions and objective Scope is Designing and implementing certain plans. Ensuring effective funds utilisation by  directing funds flow according to some plan. Serving as a necessary tool and technique for  resources allocation to various projects of the  business and providing the best guide for  existing and prospective resource allocation.
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According to Howard and Upton “Financial  management involves the application of  general management principles to  particular financial operation”. Attending to investment decisions as to  when and how to acquire and allocate  funds for short-term and long-term assets  keeping in view the profit generation of the  business through which repayment  obligation can be met.
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Objectives and basic consideration of Financialmanagement. Although profit maximisation is the  objective of financial management,the  long-term goalof the business entity is to  achieve maximising the shareholder value  of the firm,since the “principle of  maximisation of shareholder wealth  provides a rational guide for running a  business and for efficient allocation of  resources in society”.
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The key objective of Financial Management is  to maximise the value of the company.This is  the result of good investment decisions,prudent  financing decisions and well thought-out  financial planning and control. Maximisation of the value of the company is  also known as maximisation of the wealth of the  owners.To achieve this,finance manager has to  take careful decisions in respect of     -Financing           -Dividend     -Investment        -Current asset management.
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Financing decision-Has to decide on sources  of funds for business.It is to be decided  whether entire capital should be raised from  equity capital or a part is to be raised from  loan.Hence Debt/Equity ratio or Leverage are  important since each source has in them  associated risk factors involved. Investment decision-It relates to acquisition  of assets.Assets are classified into real  assets such as land,building,plant,equipment  etc.and the financial assets are shares and  debentures etc.It indicates available mix of  financing to fund company’s activities.Such  decisions on investment in projects come  within the field of capital budgeting which is  derived from net present value of assets.
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Dividend decision-It is basically a financing  decision.This is because profit is a source of  fund.By not paying dividend,the “retained  earnings”or ‘reserve’can be increased which 
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This note was uploaded on 03/21/2010 for the course KNOWLEDGE 5654 taught by Professor Mr.david during the Spring '10 term at IESE Business School.

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study of financial statements - MODULEB STUDYOFFINANCIAL...

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