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Financial Management
-Prof Dimple Pandey
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Objective of Financial Management
Objective- To understand the need and importance of FM. Importance of time
value of money
earning outcome- !tudents "no# the reason to study FM
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Objective of Financial Management
Introduction to subject
$elevance
$elation of finance #ith economics and accounting
%hy this subject is there after studying economics and accounting
&oal of firms-caselet Importance of time value of money
'ompounding( discounting
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Objective of Financial Management
FINANCE THEORY RESTS ON THE PREMISE THAT MANAGERS
SHOULD MANAGE THEIR FIRMs RESOURCES WITH THE
OBJECTIVE OF ENHANCING THE FIRMs MARKET VALUE.
SHAREHOLDER ORIENTATION IN INDIA
In the !"e #$ %&'e(!%&)!tn* +%#'!%&)!tn* !n, &nst&t-tn!%&)!tn #$ the!/&t!% 0!("et* the(e &s ! +(e!te( &nent&1e t# $#-s #n (e!t&n+ 1!%-e $#(sh!(eh#%,e(s. The $#%%#&n+ #'se(1!tns !(e %e!( &n,&!tns.
Dh&(-'!& A0'!n& 2 In e1e(3th&n+ th!t e ,#* e h!1e #n%3 #ne s-/(e0e+#!%* th!t &s t# 0!4&0&)e 3#-( e!%th !s In,&!5s %!(+est &n1est#( $!0&%3.
An!n, M!h&n,(! 2 A%% #$ -s !(e 'e+&nn&n+ t# %##" !t #0/!n&es !s #ne,'3 sh!(eh#%,e(s. The "e3 &s t# (!&se sh!(eh#%,e( (et-(ns
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Objective of Financial Management
RELATIONSHIP OF FINANCE TO ACCOUNTING
A#-nt&n+ &s #ne(ne, &th s#(e "ee/&n+* he(e!s $&n!ne &s !&0e, !t1!%-e 0!4&0&)&n+.
The !#-nt!nt /(e/!(es the !#-nt&n+ (e/#(ts '!se, #n the !(-!%0eth#,. The $#-s #$ the $&n!n&!% 0!n!+e( &s #n !sh $%#s.
A#-nt&n+ ,e!%s /(&0!(&%3 &th the /!st. F&n!ne &s #ne(ne, 0!&n%3&th the $-t-(e.
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Objective of Financial Management
THE FUNDAMENTAL PRINCIPLE OF FINANCE A '-s&ness /(#/#s!%6(e+!(,%ess #$ hethe( &t &s ! ne &n1est0ent #(
!7-&s&tn #$ !n#the( #0/!n3 #( ! (est(-t-(&n+ &n&t&!t&1e 8(!&ses the1!%-e #$ the $&(0 #n%3 &$ the /(esent 1!%-e #$ the $-t-(e st(e!0 #$ net !sh'ene$&ts e4/ete, $(#0 the /(#/#s!% &s +(e!te( th!n the &n&t&!% !sh #-t%!3(e7-&(e, t# &0/%e0ent the /(#/#s!%.
In1est#(s /(#1&,e the &n&t&!% !sh (e7-&(e, t# $&n!ne the '-s&ness /(#/#s!%
The /(#/#s!% +ene(!tes !sh (et-(ns t# &n1est#(s
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Time value of money
Objective- To "no# the importance of time value of money. Introduction to
compunding and discounting techni)ues and their applications using numericals.
earning outcome- !tudent should be able to understand the importance of time
value of money( be able to calculate present and future values of investment.
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Time value of money
It is the value of money at different time intervals as the value of moneychanges over a period of time.
*alue of money received today is more than its value received at a later date.
Methods of calculating time value of money+
'ompounding- Future value
Doubling period $ule of ,
$ule of /
Future value of an 0nnuity-periodic flo#s of e)ual amounts
!in"ing fund- Fi1ed payments each period to accumulate to a future sum after
specified period. Discounting- Present value
Present value of perpetuity- 0nnuity for an infinite time period
'apital recovery factor- amount of installment