PPT: Scope and Objectives of Financial Management | Financial Management & Strategic Management for CA Intermediate PDF Download

 Page 1


Introduction 
?
‘FM’ may be defined as the art & science of managing money. 
FM is concerned with the duties of the financial managers in 
the business firm.
?
Relationship of financial management and other supportive 
disciplines is:
Shareholder wealth maximization
Support
Support
Resulting in
Financial Decision Areas
1. Investment analysis
2. Working Capital Management
3. Sources and cost of funds
4. Determination of capital structure
5. Dividend Policy
6. Analysis of risk and returns
Primary Disciplines
1. Accounting
2. Macroeconomics
3. Microeconomics
Other Related Disciplines
1. Marketing 
2. Production
3. Quantitative methods
Page 2


Introduction 
?
‘FM’ may be defined as the art & science of managing money. 
FM is concerned with the duties of the financial managers in 
the business firm.
?
Relationship of financial management and other supportive 
disciplines is:
Shareholder wealth maximization
Support
Support
Resulting in
Financial Decision Areas
1. Investment analysis
2. Working Capital Management
3. Sources and cost of funds
4. Determination of capital structure
5. Dividend Policy
6. Analysis of risk and returns
Primary Disciplines
1. Accounting
2. Macroeconomics
3. Microeconomics
Other Related Disciplines
1. Marketing 
2. Production
3. Quantitative methods
Scope of Financial 
Management 
Scope of FM is divided for the purpose of 
exposition into two broad categories :
?
The Traditional Approach
?
The Modern Approach
Page 3


Introduction 
?
‘FM’ may be defined as the art & science of managing money. 
FM is concerned with the duties of the financial managers in 
the business firm.
?
Relationship of financial management and other supportive 
disciplines is:
Shareholder wealth maximization
Support
Support
Resulting in
Financial Decision Areas
1. Investment analysis
2. Working Capital Management
3. Sources and cost of funds
4. Determination of capital structure
5. Dividend Policy
6. Analysis of risk and returns
Primary Disciplines
1. Accounting
2. Macroeconomics
3. Microeconomics
Other Related Disciplines
1. Marketing 
2. Production
3. Quantitative methods
Scope of Financial 
Management 
Scope of FM is divided for the purpose of 
exposition into two broad categories :
?
The Traditional Approach
?
The Modern Approach
The traditional approach
Evolved during the 1920’s and 1930’s known as 
‘Corporation Finance’. The field of study dealing with 
finance as encompassing three related aspects of raising and 
administering resources from outside. 
?
The institutional arrangement in the form of financial 
institutions which comprise the organisation of the capital 
market.
?
The financial instruments through which funds are raised from 
the Capital markets and the related aspects of practices and the 
procedural aspects of capital markets.
?
The legal and accounting relationship between a firm and its 
sources of funds.
Page 4


Introduction 
?
‘FM’ may be defined as the art & science of managing money. 
FM is concerned with the duties of the financial managers in 
the business firm.
?
Relationship of financial management and other supportive 
disciplines is:
Shareholder wealth maximization
Support
Support
Resulting in
Financial Decision Areas
1. Investment analysis
2. Working Capital Management
3. Sources and cost of funds
4. Determination of capital structure
5. Dividend Policy
6. Analysis of risk and returns
Primary Disciplines
1. Accounting
2. Macroeconomics
3. Microeconomics
Other Related Disciplines
1. Marketing 
2. Production
3. Quantitative methods
Scope of Financial 
Management 
Scope of FM is divided for the purpose of 
exposition into two broad categories :
?
The Traditional Approach
?
The Modern Approach
The traditional approach
Evolved during the 1920’s and 1930’s known as 
‘Corporation Finance’. The field of study dealing with 
finance as encompassing three related aspects of raising and 
administering resources from outside. 
?
The institutional arrangement in the form of financial 
institutions which comprise the organisation of the capital 
market.
?
The financial instruments through which funds are raised from 
the Capital markets and the related aspects of practices and the 
procedural aspects of capital markets.
?
The legal and accounting relationship between a firm and its 
sources of funds.
Limitations of Traditional Approach :
?
The traditional approach was, in other words, the outsider –looking approach. The 
limitation was that internal decision making (i.e. insider –looking –out ) was 
completely ignored.
?
Related to procurement of funds and financing problems  by corporate enterprise, 
i.e. confined only to a segment of the industrial enterprise as the non-corporate 
organisation lay outside its scope. 
?
The treatment in traditional approach was built too closely around episodic events 
such as incorporation, promotion, merger, consolidation, reorganisation and so on 
which hampered day –to –day financial problems of the company did not receive 
much attention.
?
The traditional treatment was found to have a lacuna to the extent that the  focus 
was only on long term financing and ignored that issues involved in the working 
capital management.
?
It ignored the central issues of financial management such as the cost of capital 
funds to the enterprise, financial standards of performance, and so on.
Page 5


Introduction 
?
‘FM’ may be defined as the art & science of managing money. 
FM is concerned with the duties of the financial managers in 
the business firm.
?
Relationship of financial management and other supportive 
disciplines is:
Shareholder wealth maximization
Support
Support
Resulting in
Financial Decision Areas
1. Investment analysis
2. Working Capital Management
3. Sources and cost of funds
4. Determination of capital structure
5. Dividend Policy
6. Analysis of risk and returns
Primary Disciplines
1. Accounting
2. Macroeconomics
3. Microeconomics
Other Related Disciplines
1. Marketing 
2. Production
3. Quantitative methods
Scope of Financial 
Management 
Scope of FM is divided for the purpose of 
exposition into two broad categories :
?
The Traditional Approach
?
The Modern Approach
The traditional approach
Evolved during the 1920’s and 1930’s known as 
‘Corporation Finance’. The field of study dealing with 
finance as encompassing three related aspects of raising and 
administering resources from outside. 
?
The institutional arrangement in the form of financial 
institutions which comprise the organisation of the capital 
market.
?
The financial instruments through which funds are raised from 
the Capital markets and the related aspects of practices and the 
procedural aspects of capital markets.
?
The legal and accounting relationship between a firm and its 
sources of funds.
Limitations of Traditional Approach :
?
The traditional approach was, in other words, the outsider –looking approach. The 
limitation was that internal decision making (i.e. insider –looking –out ) was 
completely ignored.
?
Related to procurement of funds and financing problems  by corporate enterprise, 
i.e. confined only to a segment of the industrial enterprise as the non-corporate 
organisation lay outside its scope. 
?
The treatment in traditional approach was built too closely around episodic events 
such as incorporation, promotion, merger, consolidation, reorganisation and so on 
which hampered day –to –day financial problems of the company did not receive 
much attention.
?
The traditional treatment was found to have a lacuna to the extent that the  focus 
was only on long term financing and ignored that issues involved in the working 
capital management.
?
It ignored the central issues of financial management such as the cost of capital 
funds to the enterprise, financial standards of performance, and so on.
THE MODERN APPROACH
?
The modern approach views FM in a broad sense 
and provides a analytical and conceptual 
framework for financial decision making.  The 
principal contents of modern approach are 
?
How large should an enterprise be, how fast it 
should grow.
?
In what form should it hold assets.
?
What should be the composition of its 
liabilities.