GNIOT

INTRODUCTION TO FINANCE
& C O R P O R AT E F I N A N C E

Unit: 1

Financial Management
Dr. A.H.KHAN
(MBA)
Professor
MBA
MBA II Sem

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BUSINESS
NEWS
W1

W2
WEEK 3

Analysis
Week 4

End month
discussion

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 YOUR STUDY PLAN

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 DISCUSSION ON GLOBAL FINANCE

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 BEST PRACTICES OF START UP FINANCE IN INDIA

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 Syllabus
Course Contents / Syllabus
UNIT-I Introduction to Finance & Corporate
Finance 6 Hours
Finance & its scope Financial Decisions, Sources of
Finance Time Value of Money,Profit
maximization vs. Wealth maximization,
Functions of Finance Manager in Modern Age,
Corporate Finance Introduction:
Nature and Scope. Concept of Risk and Return.
UNIT-II Investment Decision
10 Hours
Concept of Opportunity Cost, Cost of Debenture,
Preference 4
and Equity capital, Composite Cost of
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Capital,
/ 1 7 /2 Cash Flows as Profit and components
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Cash Flows, Capital Budgeting Decisions,
 UPDATED SYLLABUS 2024
Introduction to Finance & Corporate Finance:
Corporate Finance & its scope,
Corporate Governance and Agency Problem,
Corporate valuation Models:
Asset Based Valuation Model,
Earning based Valuation Model,
Cash flow-based Model,
CAPM Model, APT,
EVA Analysis,
Introduction to start-up finance, Financial Decisions, Time
Value of Money.

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 Syllabus
UNIT-III Financial Decision
10 Hours
Capital Structure, Relevance and Irrelevancy
theory, Leverage analysis – financial,
operating and combined leverage along
with its implications, EBIT EPS Analysis,
Point of Indifference.
UNIT-IV Dividend Relevance
10 Hours
Factors affecting Dividend Policy, Forms of
Dividends, Types of Dividend Policies,
Dividend Models: Walter and Gordon
Model, Miller- Modigliani (MM) Hypothesis.
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 Syllabus
UNIT-V Indian Financial System
4Hours
Role of Financial Institution, Primary and
Secondary Market, Lease Financing,
Venture Capital, Mutual Funds.
Introduction to Derivatives.

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 Branch wise Applications
Introduction to Corporate Finance Course -
 Perfect for anyone in or starting a career
in:
Investment banking
Equity research, and accounting.
 It deals with the capital structure of a
corporation, including:
its funding.
Actions that management takes to increase
the value of the company.
 Corporate finance includes - tools and
analysis utilized to prioritize and distribute
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financial
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resources.
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 Branch wise Applications
The ultimate purpose of corporate finance -
maximize the valueAdded
Is the extra value created over and above the
original value of something.
It can apply to products, services, companies
and management and of a business
through planning and implementation of
resources while balancing risk and
profitability.

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List your problems regarding corporate
finance

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 Content

Introduction to Finance & Corporate Finance

Finance & its scope Financial Decisions,
Sources of Finance Time Value of Money,
Profit maximization vs. Wealth maximization
Functions of Finance Manager in Modern Age
Corporate Finance Introduction:
Nature and Scope
Concept of Risk and Return.

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 Objective of Unit

This unit is primarily intended to equip

the students with the knowledge of
managing funds & understand the risk
and return profile of investments.

Further this course also facilitates the

understanding and practice of financial
decisions both in long term and short
term.

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 Bring case to class of your choice

CASES

TVM

CVM

START UP FINANCE

CHALLENGES OF MORDEN FINANCE MANAGER

DISCUSSION

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STORY OF
SUCCESFUL
BUSINESS
LEADERS

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 Prerequisite and Recap

Basic Concepts of financial management

Different types of Sources of Finance
Money market and Capital market

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 Finance

Finance is defined as the management

of money and includes activities like
investing, borrowing, lending,
budgeting, saving, and forecasting.
There are three main types of finance:

(1) personal
(2) corporate
(3) public/government.

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 FINANCE

Finance is provision of money at the time when it is

required.
Every enterprise requires finance.
Indispensable
Lifeblood of business
Finance is the art and science of managing money.

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 Financial management
Financial management is an applied branch of management
that looks after the finance function of a business.
“Financial management is the operational activity of the
business that is responsible for obtaining and effectively
utilizing the funds necessary for efficient operations”.

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 finance function

finance function covers the following six major

activities
1. Financial planning;
2. Forecasting cash inflows and outflows;
3. Raising funds;
4. Allocation of funds;
5. Effective use of funds; and
6. Financial control (budgetary and non-
budgetary).
The last function is very important. Through
financial control the finance manager tries to
bring
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 finance function

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 Scope of Finance Function
Scope of finance function is wide because this function affects
almost all the aspects of a firm’s operations.

The finance function includes judgments about whether a

company should make more investment in fixed assets or not.

It is largely concerned with the allocation of a firm’s capital

expenditure over time as also related decisions such as
financing investment and dividend distribution.

Most of these decisions taken by the finance department affect

the size and timing of future cash flow or flow of funds.

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 Investment decisions
Investment decisions involve capital expenditure; known as capital
budgeting decisions.
Risk arises due to uncertain returns.
So, evaluate proposals in terms of both expected returns and risks.

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 Financing decisions

Decide from where, when and how to acquire funds to meet

needs.
Determine appropriate proportion of debt and equity.

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 Dividend Decision and Liquidity Decision

Decide whether the firm should distribute all profits or retain

them or distribute a portion and retain a balance.
Liquidity Decision
Investment in current assets affects the firm’s liquidity and
profitability.
Current assets to be managed effectively.

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 Sources of Finance

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 Objectives
Basic Objectives
Profit Maximization
Profit maximization implies that a firm either produces
maximum output for a given amount of input.
Uses minimum input for producing a given output.
Profit earning is the main aim of every business activity.

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 Objectives
Profit Maximization
Cover its costs and provide funds for growth.
Profit is the measure of efficiency
Help an organization to face market fluctuation.
Considered as the most appropriate measure of a firm’s
performance.
Profits provide protection against risks.

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 Points in favor of Profit maximization

Profit is a barometer through which the performance of a

business unit can be determined.
Profit ensures maximum welfare of all the stakeholders.
Profit maximization increases the confidence of management
for modernization, expansion and diversification.
Profit maximization attracts the investors to invest.
Profits indicate efficient utilization of funds.
Profits ensure survival during adverse business conditions.

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 Points Against Profit maximization

It may encourage corrupt and unethical practices.

It ignores time value of money.
It does not take into account the element of risk.
It attracts cut throat competition.
Huge amount of profit may attract Government intervention.
Huge profits may invite problems from workers who may
demand increased wages and salaries.
Customers may feel exploited.
The term profit is vague and it can not be defined precisely.

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 Wealth Maximization

Wealth maximization (shareholders’ value

maximization) is also a main objective of
financial management. Wealth maximization
means to earn maximum wealth for the
shareholders. So, the finance manager tries
to give a maximum dividend to the
shareholders.
He also tries to increase the market value of
the shares. The market value of the shares
is directly related to the performance of the
company.
Better the performance, higher is the market
value of shares and vice-versa. So, the
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 Wealth Maximization

The goal of the management should be such all the

stakeholders are benefited.
A financial action that has a positive NPV creates wealth for
shareholders and, therefore, is desirable.
The wealth will be maximized if NPV criteria is followed in
making financial decisions.
NPV is the difference between the present value of its benefits
and present value of its costs. If
Pv(benefits)>Pv(costs)=Positive
Pv(benefits)<Pv(costs)=Negative

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 Point Against Wealth Maximization

It may not be socially desirable.

Because of divorce between ownership and management, the
latter may be more interested in maximizing managerial
utility than shareholders wealth.

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 Point Against Wealth Maximization

Other Objectives:
Proper estimation of total financial requirements
Proper mobilization
Proper utilization of finance
Maintaining proper cash flow
Survival of company
Creating reserves

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 Time Value of Money (TVM)

The time value of money (TVM) is the concept that money

you have now is worth more than the identical sum in the
future due to its potential earning capacity.
This core principle of finance holds that provided money can
earn interest, any amount of money is worth more the
sooner it is received. TVM is also sometimes referred to as
present discounted value.

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 Time Value of Money (TVM)

Understanding Time Value of Money (TVM)

The time value of money draws from the idea that rational
investors prefer to receive money today rather than the
same amount of money in the future because of money's
potential to grow in value over a given period of time.
For example, money deposited into a savings account earns a
certain interest rate and is therefore said to be
compounding in value.

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 Time Value of Money (TVM)

Time value of money is based on the idea that people would

rather have money today than in the future.
Given that money can earn compound interest, it is more
valuable in the present rather than the future.
The formula for computing time value of money considers the
payment now, the future value, the interest rate, and the
time frame.
The number of compounding periods during each time frame
is an important determinant in the time value of money
formula as well.

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 Functions of Finance Manager

Finances are the cornerstone of every business. The prime

goal of any organization would be to garner huge profits
and this is only possible with proper management of the
finances.

Therefore, effectual finance management is imperative for

every organization as it leads to enhanced profits and
reduction in the operational cost.

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 Functions of Finance Manager

1.Estimating the amount of capital required for the proper

functioning of the business.

2. Devising a capital structure

3. Sources to raise funds

4. Acquisition of funds

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 Functions of Finance Manager

2. Utilizing funds

3. Disposing of profits

4. Managing the available cash

5. Control of Finance

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 Corporate Finance

Corporate finance is a specific area of finance that analyzes

the financial decisions of corporations.
- Investment or capital budgeting decisions
- Financing decision
- Day-to-day operations

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 Corporate Finance

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 Corporate Finance

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 Nature of Corporate Finance

1. Financial Planning
2. Fund Raising
3. Goal Oriented
4. Investing Objective
5. Finance Options
6. Legal Requirements
7. Managing and Controlling
8. Business Management
9. Dynamic in Nature
10. Connecting with Other Divisions

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 What is Return

“Income received on an investment plus any change in

market price, usually expressed as a percent of the
beginning market price of the investment .”
Components of Return
 Yield
The most common form of return for investors is the periodic
cash flows (income) on the investment, either interest from
bonds or dividends from stocks.
 Capital Gain
The appreciation (or depreciation) in the price
of the asset, commonly called the
Capital Gain (Loss).
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 Total Return

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 Expected Return

 The investor cannot be sure of the amount of return he/she

is going to receive.

 There can be many possibilities.

 Expected return is the weighted average of possible

returns, with the weights being the probabilities of
occurrence.
E ( R ) =  X* P(X)
where X will represent the various values of return, P(X)
shows the probability of various return
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 Relative Return
The relative return is the difference between absolute return
achieved by the investment and the return achieved by the
benchmark

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 What is Risk?

Risk is the variability between the expected and actual

returns.

Types of Risk
Interest Rate Risk
It is the risk that an investment’s value will
change as a result of change in interest rates. This risk
affects the value more directly than stock.
Market Risk
Market Risk refers to the variability in returns resulting
from fluctuations in the overall market conditions

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 Financial Risk

It is the risk associated with the use of debt financing. The

larger proportion of assets financed by debts, the larger
variability in return other things remaining equal.

Liquidity Risk
An investment that can be bought or sold quickly without
significant price concession is considered liquid.
The more uncertainty about time element and the price
concession, the greater the liquidity risk.

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 Foreign Exchange Risk

When investing in foreign countries one must consider the

fact that currency exchange rates can change the price of
the asset as well. This risk applies to all financial
instruments that are in a currency other than your
domestic currency.

Country Risk
This is also termed political risk, because it is the risk of
investing funds in another country whereby a major change
in the political or economic environment could occur. This
could devalue your investment and reduce its overall return.
This type of risk is usually restricted to emerging or
developing countries that do not have stable economic or
political
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 Test your knowledge

1. The basic objective of financial management is

(a)maximization of profit
(b) maximization of shareholders worth
(c )ensuring financial discipline in the organization
(d )none of the above
2) The only viable goal of financial management is
a)profit maximization
b)wealth maximization
c)sales maximization
d)assets maximization

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CHECK YOUR PROGRESS

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CONTE…

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TEST

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TEST 2

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.

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 Assignment

Q 1. “Finance is the lifeblood of industry.” Elucidate this

statement with suitable examples.
Q 2. Write a comprehensive note on the objectives of a firm
from financial point of view.
Q 3. Explain the concept of compounding and present value.
How are the two concepts different?
Q 4. Distinguish between long, medium and short-term
finance. What is the importance of long-term finance, also
give its various sources.

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 Old Question Papers
DOWN LOAD PAPER 2020 ONWARDS

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 h. When is said to be capital structure optimum?
i. Which is the most costly capital of a company?
j. What is the cheapest source of finance?
k. What are the factorsaffecting the
dividend decisions?

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 Old Question Papers
DISCUSSION

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 Old Question Papers
DISCUSSION

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 Old Question Papers

3. M-M approach is superior to traditional approach to

optimum capital structure. Discuss.
OR
Explain the following terms (i) networth (ii) PBIT
(iii) capital employed (iv) solvency (v) liquidity
4. The key argument of Walter’s model is that a firm would
have an optimum dividend policy. Comment and exp Iain
taking suitable illustration.
OR
What is Dividend? Explain various factors which
influence the dividend decision of a

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 Old Question Papers

5.“An appropriate mix and level of current assets

and current liabilities bring about efficiency in
working capital decisions” Comment.
OR
Discuss the factors determining working capital.
Also list out various sources for working capital
financing.

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 Expected Questions for University Exam

1. From This unit

2. Repeated questions .

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 Expected Questions for University Exam 2024

6. What do you understand by Financial Management?

Discuss the scope of Financial Management.
7. Companies should avoid financial risk by going for a zero
debt policy. Discuss.
8. What is Capital Budgeting? Discuss the process and
techniques of Capital Budgeting?
9. What do you understand by Financial and Operating
Leverage? What are the implications of these on EBIT and
EPS?

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Two topic capital budgeting and cost of capital dominant in
section c of University exam
Also a lot of questions are frame for interview
So student don’t miss these topic in class..
Khan and Jain book available in our library you can consult .

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 References

References:
1) Khan and Jain - Financial Management (Tata McGraw
Hill, 7th Ed.)
2) Pandey I M - Financial Management (Vikas, 11th Ed.)
3) William Hakka Bettner Carcello- Financial and
Management Accounting(TMH-16th Ed.)
4)Sheebakapil-Fundamental of financial management
(Wiley,2015 )
5) Prasanna Chandra - Fundamentals of Financial
Management (TMH, 9th Ed.)
6) Bark DemazoThampy- Financial Management
(Pearson,2nd Ed.)
2 4
Source:/20www.aktuonline.org
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 References

Thank You

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