School of Distance Education - University of Calicut

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´╗┐FINANCIAL MANAGEMENT

BBA (IV Semester Core Course) (V Semester Specialisation-

Finance)

2011 Admission onwards

UNIVERSITY OF CALICUT

SCHOOL OF DISTANCE EDUCATION

CALICUT UNIVERSITY.P.O., MALAPPURAM, KERALA, INDIA ? 673 635

311

School of Distance Education

UNIVERSITY OF CALICUT

SCHOOL OF DISTANCE EDUCATION

STUDY MATERIAL

BBA (IV Semester Core Course) (V Semester Specialisation- Finance)

2011 Admission

FINANCIAL MANAGEMENT

Prepared by: Ratheesh K. Nair, Assistant Professor, Govt College Madappally.

Scrutinised by: Dr.K.Venugopalan, Associate Professor, Department of Commerce, Govt. College Madappally.

Layout & Settings Computer Section, SDE

Financial Management

? Reserved

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School of Distance Education

CONTENTS

MODULE I

SCOPE AND OBJECTIVE OF FINANCIAL

MANAGEMENT

05 ? 11

MODULE II INVESTMENT DECISION

12 ? 22

MODULE III FINANCING DECISION

23 ? 49

MODULE IV DIVIDEND DECISION

50 ? 64

MODULE V WORKING CAPITAL MANAGEMENT

65 ? 82

Financial Management

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School of Distance Education

Financial Management

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School of Distance Education

MODULE I

SCOPE AND OBJECTIVE OF FINANCIAL MANAGEMENT

INTRODUCTION

Finance is called "The science of money". It studies the principles and the methods of obtaining, control of money from those who have saved it, and of administering it by those into whose control it passes. It is the process of conversion of accumulated funds to productive use. Financial management is the science of money management .It is that managerial activity which is concerned with planning and controlling of the firms financial resources. In other words it is concerned with acquiring, financing and managing assets to accomplish the overall goal of a business enterprise.

MEANING, DEFINITION AND NATURE OF FINANCIAL MANAGEMENT:

Meaning and Definition

Financial management is that managerial activity which is concerned with the planning and controlling of the firm's financial resources. In other words it is concerned with acquiring, financing and managing assets to accomplish the overall goal of a business enterprise (mainly to maximise the shareholder's wealth).

"Financial management is concerned with the efficient use of an important economic resource, namely capital funds" - Solomon Ezra & J. John Pringle.

"Financial management is the operational activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient business operations"- J.L. Massie.

"Financial Management is concerned with managerial decisions that result in the acquisition and financing of long-term and short-term credits of the firm. As such it deals with the situations that require selection of specific assets (or combination of assets), the selection of specific liability (or combination of liabilities) as well as the problem of size and growth of an enterprise. The analysis of these decisions is based on the expected inflows and outflows of funds and their effects upon managerial

objectives". - Phillippatus.

'Financial Engineering'

The creation of new and improved financial products through innovative design or repackaging of existing financial instruments.

Financial engineers use various mathematical tools in order to create new investment strategies. The new products created by financial engineers can serve as solutions to problems or as ways to maximize returns from potential investment opportunities.

The management of the finances of a business / organisation in order to achieve financial objectives

Taking a commercial business as the most common organisational structure, the key objectives of financial management would be to:

Financial Management

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