session 1 intro - Nature of Financial Management Finance...

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Nature of Financial Management
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Vikas. Finance and Related Disciplines Finance is closely related to both macroeconomics and microeconomics. Macroeconomics provides an understanding of the institutional structure in which the flow of finance takes place. Microeconomics provides various profit maximization strategies based on the theory of the firm. A financial manager uses these to run the firm efficiently and effectively. Similarly, he depends on accounting as a source of information/data relating to the past, present and future financial position of the firm. Despite this interdependence, finance and accounting differ in that the former is concerned with cash flows, while the latter provides accrual-based information; and the focus of finance is on the decision making but accounting concentrates on collection of data.
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I. M. Pandey, Financial Management, 9th ed., Vikas. 3 1. Investment analysis 2. Working capital management 3. Sources and cost of funds 4. Determination of capital structure 5. Dividend policy 6. Analysis of risks and returns Primary Disciplines Accounting Macroeconomics Microeconomics Other Related Disciplines Marketing Production Quantitative methods Shareholder wealth maximisation Financial Decision Areas Support Support Resulting in Figure 1: Impact of Other Disciplines on Financial Management
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I. M. Pandey, Financial Management, 9th ed., Vikas. 4 Scope of Financial Management The scope of financial management can be broken down into three major decisions as functions of finance: (1) Investment Decision The investment decision relates to the selection of assets in which funds will be invested by a firm. The assets which can be acquired fall into two broad groups: (1) long-term assets (Capital Budgeting) (2) short-term or current assets (Working Capital Management). ( 1) Capital Budgeting Capital budgeting is probably the most crucial financial decision of a firm. It relates to the selection of an asset or investment proposal or course of action whose benefits are likely to be available in future over the lifetime of the project. (2) Working Capital Management Working capital management is concerned with the management of current assets. It is an important and integral part of financial management as short-term survival is a prerequisite for long-term success.
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I. M. Pandey, Financial Management, 9th ed., Vikas.
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This note was uploaded on 03/03/2011 for the course MARKETING 101 taught by Professor Singh during the Spring '11 term at Management Development Institute.

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session 1 intro - Nature of Financial Management Finance...

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