19-11-2012, 06:30 PM
Financial Management – MGT201
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INTRODUCTION TO FINANCIAL MANAGEMENT
Learning objectives:
The purpose of this lecture is to provide you with an overview of financial management. After
finishing this lecture, you would be able to have a better understanding of the following.
· Definition of financial management
· Significance of financial management for non-finance students and professionals
· Important concepts and areas in financial management
· The position of financial managers in organizational hierarchy and their respective work
domains.
· Different business legal entities, their advantages and limitations.
· The external and internal business environments and their relevance to financial management.
· Different types of financial and real assets markets.
What is FM?
FM is the management of financial resources – how to best find and use investments and
financing opportunities in an ever-changing and increasingly complex environment.
Why should CS majors study FM?
First of all, financial management is a core life skill; almost every one needs to understand some
concepts of finance to manage his/her business & personal finances.
It is generally and quite rightfully said, “Money makes the world go round”. Finance is like a
life-blood for a company. Even the best of the companies and CEOs go out of the business because of
poor financial management policies.
Management Information Systems (MIS) and Information Technology (IT) are just a part of the
overall corporate strategy which runs on finances, the major resource. So the computer sciences
professionals need to have an understanding of the financial concepts to understand and contribute to
the overall corporate strategy.
Financial Engineering is an upcoming field that requires people with CS, math/science, and
finance background. Financial engineering is the application of engineering methods to finance. One
important area of study is the design, analysis, and construction of financial contracts to meet the needs
of enterprises. This field is experiencing an increased demand for professionals, especially those who
are trained in both the underlying mathematics/computer technologies and finance.
Investment Decisions & Capital Budgeting:
Investment decisions are the most critical as they usually involve huge sums of money and
these decisions are likely to bring prosperity or doom to a business. A company’s future income
depends on how much investment is made, in what type of assets, and how these assets add to the
overall value of the company.
Capital budgeting is a term strictly related to investment in fixed assets; here, the term
capital refers to the fixed assets that are used in production, while budget is a plan which details
projected cash inflows and outflows over some future period. The following concepts and
techniques are employed while analyzing investment decisions.
o Interest rate formulas
o Time Value of Money
o Discounted Cash Flows
o Net Present Value
o Internal Rate of Return
Corporate Financing & Capital Structure:
When a firm plans to expand, it needs capital or funds. Acquisition of funds is considered to
be a primary responsibility of a finance department in an organization. There are numerous ways to
acquire funds, i.e., finances can be raised in the form of debt or equity. The proportion of debt and
equity constitutes the capital structure of the firm. Financial experts attempt to find a combination of
debt and equity that could increase the overall value of the company, i.e., they try to find the
optimal capital structure. The following concepts would be used to understand how an optimal
capital structure could be attained.
International Finance & Foreign Exchange:
With the increasing importance of international trade and global markets, the role of
international finance has increased manifold. In a global environment, the finance managers have
more choices pertaining to investing and financing than ever before. However, it is important to
understand the implications of working in a global environment, since fluctuations in the currency
rates can convert a good financing or investment decision into a bad one. This section of the course
would discuss the international financial environment and the financial implications of working in a
global environment.