Meaning of Financial Management Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise. Scope/Elements 1. Investment decisions includes investment in fixed assets (called as capital budgeting). Investment in current assets are also a part of investment decisions called as working capital decisions. 2. Financial decisions - They relate to the raising of finance from various resources which will depend upon decision on type of source, period of financing, cost of financing and the returns thereby. 3. Dividend decision - The finance manager has to take decision with regards to the net profit distribution. Net profits are generally divided into two: a. Dividend for shareholders- Dividend and the rate of it has to be decided. b. Retained profits- Amount of retained profits has to be finalized which will depend upon expansion and diversification plans of the enterprise. Objectives of Financial Management The financial management is generally concerned with procurement, allocation and control of financial resources of a concern. The objectives can be1. To ensure regular and adequate supply of funds to the concern. 2. To ensure adequate returns to the shareholders which will depend upon the earning capacity, market price of the share, expectations of the shareholders. 3. To ensure optimum funds utilization. Once the funds are procured, they should be utilized in maximum possible way at least cost. 4. To ensure safety on investment, i.e, funds should be invested in safe ventures so that adequate rate of return can be achieved. 5. To plan a sound capital structure-There should be sound and fair composition of capital so that a balance is maintained between debt and equity capital. Functions of Financial Management

1. Estimation of capital requirements: A finance manager has to make estimation with regards to capital requirements of the company. This will depend upon expected costs and profits and future programmes and policies of a concern. Estimations have to be made in an adequate manner which increases earning capacity of enterprise. 2. Determination of capital composition: Once the estimation have been made, the capital structure have to be decided. This involves short- term and long- term debt equity analysis. This will depend upon the proportion of equity capital a company is possessing and additional funds which have to be raised from outside parties. 3. Choice of sources of funds: For additional funds to be procured, a company has many choices likea. Issue of shares and debentures b. Loans to be taken from banks and financial institutions c. Public deposits to be drawn like in form of bonds. Choice of factor will depend on relative merits and demerits of each source and period of financing. 4. Investment of funds: The finance manager has to decide to allocate funds into profitable ventures so that there is safety on investment and regular returns is possible. 5. Disposal of surplus: The net profits decision have to be made by the finance manager. This can be done in two ways: a. Dividend declaration - It includes identifying the rate of dividends and other benefits like bonus. b. Retained profits - The volume has to be decided which will depend upon expansional, innovational, diversification plans of the company. 6. Management of cash: Finance manager has to make decisions with regards to cash management. Cash is required for many purposes like payment of wages and salaries, payment of electricity and water bills, payment to creditors, meeting current liabilities, maintainance of enough stock, purchase of raw materials, etc. 7. Financial controls: The finance manager has not only to plan, procure and utilize the funds but he also has to exercise control over finances. This can be done through many techniques like ratio analysis, financial forecasting, cost and profit control, etc.

Role of a Financial ManagerFinancial activities of a firm is one of the most important and complex activities of a firm. Therefore in order to take care of these activities a financial manager performs all the requisite financial activities. A financial manger is a person who takes care of all the important financial functions of an organization. The person in charge should maintain a far sightedness in order to ensure that the funds are utilized in the most efficient manner. His actions directly affect the Profitability, growth and goodwill of the firm. Following are the main functions of a Financial Manager: 1. Raising of Funds In order to meet the obligation of the business it is important to have enough cash and liquidity. A firm can raise funds by the way of equity and debt. It is the responsibility of a financial manager to decide the ratio between debt and equity. It is important to maintain a good balance between equity and debt. 2. Allocation of Funds Once the funds are raised through different channels the next important function is to allocate the funds. The funds should be allocated in such a manner that they are optimally used. In order to allocate funds in the best possible manner the following point must be considered

The size of the firm and its growth capability Status of assets whether they are long term or short tem Mode by which the funds are raised. These financial decisions directly and indirectly influence other managerial activities. Hence formation of a good asset mix and proper allocation of funds is one of the most important activity 3. Profit Planning Profit earning is one of the prime functions of any business organization. Profit earning is important for survival and sustenance of any organization. Profit planning refers to proper usage of the profit generated by the firm. Profit arises due to many factors such as pricing, industry competition, state of the economy, mechanism of demand and supply, cost and output. A healthy mix of variable and fixed factors of production can lead to an increase in the profitability of the firm. Fixed costs are incurred by the use of fixed factors of production such as land and machinery. In order to maintain a tandem it is important to continuously value the depreciation cost of fixed cost of production. An opportunity cost must be calculated in order to replace those factors of production which has gone thrown wear and tear. If this is not noted then these fixed cost can cause huge fluctuations in profit. 4. Understanding Capital Markets Shares of a company are traded on stock exchange and there is a continuous sale and purchase of securities. Hence a clear understanding of capital market is an important function of a financial manager. When securities are

traded on stock market there involves a huge amount of risk involved. Therefore a financial manger understands and calculates the risk involved in this trading of shares and debentures. Its on the discretion of a financial manager as to how distribute the profits. Many investors do not like the firm to distribute the profits amongst share holders as dividend instead invest in the business itself to enhance growth. The practices of a financial manager directly impact the operation in capital market.

Finance FunctionsThe following explanation will help in understanding each finance function in detail Investment Decision One of the most important finance functions is to intelligently allocate capital to long term assets. This activity is also known as capital budgeting. It is important to allocate capital in those long term assets so as to get maximum yield in future. Following are the two aspects of investment decision a. Evaluation of new investment in terms of profitability b. Comparison of cut off rate against new investment and prevailing investment. Since the future is uncertain therefore there are difficulties in calculation of expected return. Along with uncertainty comes the risk factor which has to be taken into consideration. This risk factor plays a very significant role in calculating the expected return of the prospective investment. Therefore while considering investment proposal it is important to take into consideration both expected return and the risk involved. Investment decision not only involves allocating capital to long term assets but also involves decisions of using funds which are obtained by selling those assets which become less profitable and less productive. It wise decisions to decompose depreciated assets which are not adding value and utilize those funds in securing other beneficial assets. An opportunity cost of capital needs to be calculating while dissolving such assets. The correct cut off rate is calculated by using this opportunity cost of the required rate of return (RRR) Financial Decision Financial decision is yet another important function which a financial manger must perform. It is important to make wise decisions about when, where and how should a business acquire funds. Funds can be acquired through many ways and channels. Broadly speaking a correct ratio of an equity and debt has to be maintained. This mix of equity capital and debt is known as a firms capital structure. A firm tends to benefit most when the market value of a companys share maximizes this not only is a sign of growth for the firm but also maximizes shareholders wealth. On the other hand the use of debt affects the risk and return of a shareholder. It is more risky though it may increase the return on equity funds. A sound financial structure is said to be one which aims at maximizing shareholders return with minimum risk. In such a scenario the market value of the firm will maximize and hence an optimum capital structure would be achieved. Other than equity and debt there are several other tools which are used in deciding a firm capital structure.

Dividend Decision Earning profit or a positive return is a common aim of all the businesses. But the key function a financial manger performs in case of profitability is to decide whether to distribute all the profits to the shareholder or retain all the profits or distribute part of the profits to the shareholder and retain the other half in the business. Its the financial managers responsibility to decide a optimum dividend policy which maximizes the market value of the firm. Hence an optimum dividend payout ratio is calculated. It is a common practice to pay regular dividends in case of profitability Another way is to issue bonus shares to existing shareholders. Liquidity Decision It is very important to maintain a liquidity position of a firm to avoid insolvency. Firms profitability, liquidity and risk all are associated with the investment in current assets. In order to maintain a tradeoff between profitability and liquidity it is important to invest sufficient funds in current assets. But since current assets do not earn anything for business therefore a proper calculation must be done before investing in current assets. Current assets should properly be valued and disposed of from time to time once they become non profitable. Currents assets must be used in times of liquidity problems and times of insolvency.

Planning Function of ManagementAccording to Koontz & ODonell, Planning is deciding in advance what to do, how to do and who is to do it. Planning bridges the gap between where we are to, where we want to go. It makes possible things to occur which would not otherwise occur. Steps in Planning Function Planning function of management involves following steps:1. Establishment of objectives a. Planning requires a systematic approach. b. Planning starts with the setting of goals and objectives to be achieved. c. Objectives provide a rationale for undertaking various activities as well as indicate direction of efforts. d. Moreover objectives focus the attention of managers on the end results to be achieved. e. As a matter of fact, objectives provide nucleus to the planning process. Therefore, objectives should be stated in a clear, precise and unambiguous language. Otherwise the activities undertaken are bound to be ineffective. f. As far as possible, objectives should be stated in quantitative terms. For example, Number of men working, wages given, units produced, etc. But such an objective cannot be stated in quantitative terms like performance of quality control manager, effectiveness of personnel manager. g. Such goals should be specified in qualitative terms. h. Hence objectives should be practical, acceptable, workable and achievable.

2. Establishment of Planning Premises a. Planning premises are the assumptions about the lively shape of events in future. b. They serve as a basis of planning. c. Establishment of planning premises is concerned with determining where one tends to deviate from the actual plans and causes of such deviations. d. It is to find out what obstacles are there in the way of business during the course of operations. e. Establishment of planning premises is concerned to take such steps that avoids these obstacles to a great extent. f. Planning premises may be internal or external. Internal includes capital investment policy, management labour relations, philosophy of management, etc. Whereas external includes socio- economic, political and economical changes. g. Internal premises are controllable whereas external are noncontrollable. 3. Choice of alternative course of action a. When forecast are available and premises are established, a number of alternative course of actions have to be considered. b. For this purpose, each and every alternative will be evaluated by weighing its pros and cons in the light of resources available and requirements of the organization. c. The merits, demerits as well as the consequences of each alternative must be examined before the choice is being made. d. After objective and scientific evaluation, the best alternative is chosen. e. The planners should take help of various quantitative techniques to judge the stability of an alternative. 4. Formulation of derivative plans a. Derivative plans are the sub plans or secondary plans which help in the achievement of main plan. b. Secondary plans will flow from the basic plan. These are meant to support and expediate the achievement of basic plans. c. These detail plans include policies, procedures, rules, programmes, budgets, schedules, etc. For example, if profit maximization is the main aim of the enterprise, derivative plans will include sales maximization, production maximization, and cost minimization. d. Derivative plans indicate time schedule and sequence of accomplishing various tasks. 5. Securing Co-operation a. After the plans have been determined, it is necessary rather advisable to take subordinates or those who have to implement these plans into confidence. b. The purposes behind taking them into confidence are :a. Subordinates may feel motivated since they are involved in decision making process. b. The organization may be able to get valuable suggestions and improvement in formulation as well as implementation of plans. c. Also the employees will be more interested in the execution of these plans.

6. Follow up/Appraisal of plans a. After choosing a particular course of action, it is put into action. b. After the selected plan is implemented, it is important to appraise its effectiveness. c. This is done on the basis of feedback or information received from departments or persons concerned. d. This enables the management to correct deviations or modify the plan. e. This step establishes a link between planning and controlling function. f. The follow up must go side by side the implementation of plans so that in the light of observations made, future plans can be made more realistic.

Definition of Financial Planning Financial Planning is the process of estimating the capital required and determining its competition. It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise. Objectives of Financial PlanningFinancial Planning has got many objectives to look forward to: a. Determining capital requirements- This will depend upon factors like cost of current and fixed assets, promotional expenses and long- range planning. Capital requirements have to be looked with both aspects: short- term and long- term requirements. b. Determining capital structure- The capital structure is the composition of capital, i.e., the relative kind and proportion of capital required in the business. This includes decisions of debt- equity ratio- both short-term and long- term. c. Framing financial policies with regards to cash control, lending, borrowings, etc. d. A finance manager ensures that the scarce financial resources are maximally utilized in the best possible manner at least cost in order to get maximum returns on investment. Importance of Financial Planning Financial Planning is process of framing objectives, policies, procedures, programmes and budgets regarding the financial activities of a concern. This ensures effective and adequate financial and investment policies. The importance can be outlined as1. Adequate funds have to be ensured. 2. Financial Planning helps in ensuring a reasonable balance between outflow and inflow of funds so that stability is maintained. 3. Financial Planning ensures that the suppliers of funds are easily investing in companies which exercise financial planning. 4. Financial Planning helps in making growth and expansion programmes which helps in long-run survival of the company.

5. Financial Planning reduces uncertainties with regards to changing market trends which can be faced easily through enough funds. 6. Financial Planning helps in reducing the uncertainties which can be a hindrance to growth of the company. This helps in ensuring stability an d profitability in concern.

Financial Management & Corporate Finance Case Study Case Title: Unilever Limited: Transforming the Finance Function Publication Month & Year : July 2009 Authors: Mora Sowjanya & D. Satish Industry: FMCG Region:Global Case Code: FM0001 Teaching Note: Available Structured Assignment: Available Abstract: The case studywas primarilywritten to understand the transformation of finance function in themodern corporateworld. Meant to be discussed in the initial stages of a financial managementmodule, this case studyprovides a holistic perspective onwhat is expected of aCFOin a large company. In the evolvingbusiness environment, the role of finance function is undergoingmassive changes.The transformationof finance function has enlarged the role of CFO. The increased role of CFO and wide scope of finance function is creating complexities and posingunintended challenges.At the same time, the successof a company depends on the effectivemanagement of finance function and suchmanagement becomes eventougher inamultinational company.Thecase studyhelps tounderstandthe complexities involvedin effectivelydischarginga finance departments functions fromthepointof view of a CFO, atUnilever Ltd. Pedagogical Objectives:

To understand the position and importance of finance in an organisation To analyse the interface of finance functionwith other functional areas To understand the required skill sets for an effectiveCFO.

Keywords : Finance Function; Treasury; Controller; CFO; Chief Financial Officer; US GAAP; Global Treasury Centre; Cash Flows; Risk Management ; Hedging; Foreign Exchange; Finance for Managers; MBA; Course Case Maps; Principles of Financial Management; Financial Management; Managerial Finance; Business Finance; Corporate Finance; Course Case Packs; Financial Management Course Case Pack; Financial Management Course Case

Case Title: Women-led Family-owned Businesses: Capital Structure of Balaji Telefilms Ltd. Publication Year : 2009 Authors: Fareeda &Fathima Reshma Taj H Industry: Services Region:India Case Code: FM0020 Teaching Note: Available Structured Assignment: Not Available Abstract: The case study Women-led Family-owned Businesses: Capital Structure of Balaji Telefilms Ltd. deals with the capital structure analysis of a woman-led familyowned company, Balaji Telefilms Ltd. Generally, members of the family-owned businesses are observed to be risk averse in matters of capital financing due to their fear of losing control over the firm. Moreover, if the family business is led by a woman it would have a low risk capital structure with zero or little debt. This case study focuses on the affects of the owners decisions on firms capital structure and also the influence of woman leadership on the capital financing decisions of the firm. Pedagogical Objectives:

To analyse and understand similarities and dissimilarities in capital structure policies of women-led organisations in family-owned businesses To analyse the capital structure policy of Balaji Telefilms Ltd., assess the value of the firm and to discuss the influence of the family members ownership and woman leadership on the firms capital policy.

Keywords : Capital Structure, Debt, Share Capital, Capital Structure in FamilyBusinesses, Capital Structure in Women led Enterprises, Debt-Equity Mix, Women Entrpreneurs, Indian Women Entrpreneurs

Case Title: Indian Financial System: A Young Entrepreneur's Dilemmas Publication Month & Year : July 2009 Authors: Saradhi Kumar Gonela & D. Satish Industry: Financial Services Region:India Case Code: FM0004 Teaching Note: Available Structured Assignment: Available

Abstract: This case study was written primarily to understand different constituents of a countrys financial system in this case, Indias financial system.Written fromthe generalised experiences, the case studys learning outcomes revolve around Subodh Agarwal, the protagonist of the case study. The case study helps in debating the changes that occurred in the Indian financial systemafter the economic reforms in 1991 through the next decade and half. This case also enables discussion on the rules and regulations that a start-up company has to adhere to, both to float the company and also to raise capital. Indian financial system has undergone a sea change with the ushering in of the economic reforms in 1991. Vibrancy, vitality and the vigor of financial system to a large extent reflect and decide the economic health of a country. Rapid growth of the economy and maturing financial system have perfectly complemented each other, while the regulators majorly RBI and SEBI have kept a tight vigilance fostering balanced growth. The Indian financial markets are not byzantine compared to the western financial markets, but are also not as premature as some financialmarkets in developing nations.Regulators have done a splendid job in achieving a fine balance, which was well demonstrated by the way the Indian financial institution swith stood the global financial meltdown. Pedagogical Objectives:

To analyse the role of a financial system in the development of an economy To understand various constituents of a countrys financial systemand debate on whether and how each of these constituents should work together to have the right influence on the economy. To understand the rules and regulations that govern the Indian financial markets, along with the steps taken by regulators to ensure stability amidst global financial meltdown.

Keywords : Indian Financial System; Indian Financial Structure; Indian Capital Markets; Money Markets Call Markets; Banking system; Regulations to start business; Financial regulations; Financial Management; Finance for Managers; Managerial Finance; MBA; Business Finance; Principles of Financial Management; Course Case Maps; Course Case Packs; Financial Management Course Case Pack; Corporate Finance; Financial Management Course Case

DefinitionA financial manager is responsible for providing financial advice and support to colleagues and clients to enable them to make sound business decisions. The role of the financial manager is more than simply accounting; it is multifunctional. Financial managers must understand all aspects of the business so that they are able to adequately advise and support the chief executive officer in decision-making and ensuring company growth and profitability.

Almost every firm, government agency, or other type of organization has one or more financial managers. Financial managers oversee the preparation of financial reports, direct investment activities, and implement cash management strategies. They also implement the long-term goals of their organization.

Many corporations operate multifunctional teams where the financial manager is responsible for a particular division or function, or looks after a range of departments and functions. Financial managers often have specific roles and titles:

Controllers prepare financial reports and analyses of future earnings or expenses that summarize the organizations financial position. Controllers are also in charge of preparing special reports required by regulatory authorities especially important because of the SarbanesOxley Act, designed in part to protect investors from fraud.

Treasurers and finance officers direct and oversee budgets, monitor the investment of funds, manage associated risks, supervise cash management activities, execute capital raising strategies, and deal with mergers and acquisitions.

Risk and insurance managers administer programs to minimize risks and losses that could arise from financial transactions and business operations.

Credit managers supervise the firms issuance of credit, fix credit-rating criteria, determine credit limits, and monitor the collection of past-due accounts.

Cash managers supervise and manage the flow of cash receipts and disbursements to meet business and investment needs.

The financial managers role, particularly in business, is changing in response to technological advances that have significantly reduced the time it takes to produce financial reports. Financial managers now perform more data analysis to offer senior management ideas on how to maximize profits. They play an increasingly significant role in mergers and acquisitions and in related financing, and in areas that require wide-ranging, focused knowledge to diminish risks and maximize profit.

AdvantagesFinancial managers improve business organization and risk management by providing reassurance on the effectiveness and efficiency of operations, financial reporting, and compliance with applicable laws and regulations.

Financial managers provide management with an in-depth and unbiased understanding of risks that the organization may be facing, allowing for preemptive planning.

Financial managers give company officers and directors forewarning of ethical and legal issues that may affect the organization. Back to top

DisadvantagesAlthough they are meant to be independent and impartial, financial managers are paid by the company and are an integral part of the company management; this can lead to conflicts of interest when advising senior management on, for example, investment risk.

Financial managers judgments, estimates, and interpretations are not always objective because of their close relationship with the organization for which they work. Back to top

Action ChecklistHas the financial manager worked in related business fields previously and, if so, for how long? What reliable references can be provided?

How good is his/her track record on risk assessment and planning for contingencies? In assessing business processes, how up-to-date is he/she with technology controls in auditing? Back to top

Dos and DontsDoConsult with the financial controllers where ethical or legal issues may be involved.

DontDont forget to consult key stakeholders and managers when evaluating and employing new financial managers, so that areas of competence can be checked.

Tata Motors - Speed Breakers GaloreAbstract:The case discusses the problems faced by Tata Motors Limited, the largest automobile company in India in the domestic and international markets. The company posted a net loss of Rs. 25.05 billion for the financial year ending March 2009, its first loss in eight years. Earlier, in June 2008, Tata Motors had completed the acquisition of Jaguar and Land Rover (JLR). Immediately after the acquisition of JLR, Tata Motors started facing problems as the sales of JLR started decreasing. The global financial crisis impacted the sales of luxury vehicles heavily. Against the expectation of Tata Motors, JLR could not generate the funds for working capital, requiring Tata Motors to pump additional funds to keep the operations going. Things turned for the worse by the end of 2008, with demand shrinking further. To finance the acquisition of JLR, Tata Motors took a bridge loan of US$ 3 billion. To refinance bridge loan, Tata Motors came out with two rights issues. When the rights issues were opened in September-October 2008, the share price of Tata Motors fell drastically, and the rights issue had to be bailed out by the promoters of the company. Then Tata Motors called for deposits from public and issued non-convertible debentures. However, as of May 2009, Tata Motors was yet to refinance US$ 1 billion of the bridge loan. With the global economic slowdown hampering the growth of global automobile industry, Tata Motors had a tough task ahead to bring JLR back on the growth track.

Issues: Analyze the problems faced by Tata Motors and suggest probable solutions. Evaluate the reasons behind Tata Motors's decision to acquire JLR. Understand the advantages and disadvantages of JLR's acquisition for Tata Motors. Deliberate if acquisition is the right method to go global. Understand the influence of macroeconomic environment on businesses. Study the reasons for the global financial crisis and its impact on the economies of developed and developing countries. Analyze the impact of global financial crisis on the automobile industry. Understand the problems a company could face in financing acquisitions. Evaluate the importance of global business environment for the success of the organization.

Background NoteTata Motors was incorporated in 1945 as the Tata Engineering and Locomotive Company Limited (TELCO), with the aim of manufacturing locomotives and engineering products. In 1954, it entered into a contract with Daimler Benz AG to manufacture medium commercial vehicles. In 1961, TELCO began exporting vehicles and its first exports were to Sri Lanka...

The ProblemsIn light of the global financial crisis, credit availability was severely affected while the cost of credit rose sharply. As a result, consumer demand for automobiles plummeted significantly across developed and developing countries...

The Road AheadNotwithstanding a disastrous financial performance in the fiscal year 2008-09, Ratan Tata remained positive about the revival of the domestic economy, after the Indian government announced fiscal stimulus packages and the Reserve Bank of India (RBI) came out with monetary measures to stimulate the economy...

ExhibitsExhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit I: A Note on Global Financial Crisis II: Tata Motors - Stock Price Chart (April 2008 - March 2009) III: About Tata Nano IV: JLR - Unaudited Income Statements (January 01, 2004 - June 30, 2008) V: JLR - Unaudited Statement of Assets and Liabilities (2004-07) VI: A Note on the Global Automobile Industry VII: Jaguar Land Rover - Income Statement (June 02, 2008 -- March 31, 2009)

Tata Motors Reports LossIn early July 2009, Ratan Tata, Chairman of India-based Tata Motors, deliberated on the decisions that had gone wrong with the company, between January 2008 and June 2009. The calendar year 2008 was a milestone in the history of Tata Motors. In January 2008, the company unveiled the Nano, which at Rs.100,0002, was the cheapest car in the world. This event was followed by the acquisition of British brands - Jaguar and Land Rover (JLR) from Ford Motor Company (Ford)3 in June 2008. This deal was expected to transform Tata Motors into a leading player in the global automobile industry. However, things did not turn out quite the way Ratan Tata had expected them to.