FINANCIAL

MANAGEMENT
 DEFINITION
• 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
• INVESTMENT DECISIONS-investment in fixed
assets (called as capital budgeting)

• FINANCIAL DECISIONS-raising of finance from

various resources

• DIVIDEND DECISIONS-Dividend for

shareholders
 Objectives of Financial Management
• To ensure regular and adequate supply of funds to the concern.
• To ensure adequate returns to the shareholders which will depend upon
the earning capacity, market price of the share, expectations of the
shareholders.
• To ensure optimum funds utilization. Once the funds are procured, they
should be utilized in maximum possible way at least cost.
• To ensure safety on investment, i.e., funds should be invested in safe
ventures so that adequate rate of return can be achieved.
• 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.
 TYPES OF CAPITAL

1.FIXED
CAPITAL
2.WORKING
CAPITAL
Fixed assets: used over a period of more
than one year
• Tangible assets (e.g. physical plant and
machinery)
• Intangible assets (patents, brand names,
licences)
• Investments (shares of and loans to
other companies)
– Other (current) assets: constantly changing
during accounting period
• Inventories
• Receivables (amount due from
customers)
• Cash
 BUDGET
An estimation of the revenue and expenses
over a specified future period of time. A
budget can be made for a
person, family, group of people, business,
government, country, multinational
organization or just about anything else that
makes and spends money. A budget is
a microeconomic concept.
 production budget

• The production budget lists the

number of units that must be
produced during each budget
period to meet sales needs and
to provide for the desired
ending inventory.
 Hampton Freeze, Inc.
Production Budget
For the Year Ended December 31, 2009
Quarter
1 2 3 4 Year
Budgeted sales 10,000 30,000 40,000 20,000 100,000

Add desired ending inventory of

6,000 8,000 4,000 3,000 3,000
finished goods

------------ ------------ ------------ ----------- -----------

Total needs 16,000 38,000 44,000 23,000 103,000

Less Beginning inventory of finished

2,000 6,000 8,000 4,000 2,000
goods
------------ ------------ ------------ ------------ ------------

Required production 14,000 32,000 36,000 19,000 101,000

 LABOUR BUDGET
• The direct labor budget is developed from
the production budget.
• Direct labor requirements must be computed so
that the company will know whether sufficient
labor time is available to meet the budgeted
production needs.
• By knowing in advance how much labor will be
needed throughout the budget year, the
company can develop plans to adjust the labor
force as situation requires.
 Hampton Freeze, Inc.
Direct Labor Budget
For the Year Ended December 31, 2003

Quarter
1 2 3 4 Year
Required production in cases (see production
14,000 32,000 36,000 19,000 101,000
budget page)
Direct labor hours per case 0.40 0.40 0.40 0.40 0.40

-------- --------- -------- -------- --------

Total direct labor hours needed 5,600 12,800 14,400 7,600 40,400

Direct labor cost per hour $15.00 $15.00 $15.00 $15.00 $15.00

-------- -------- -------- -------- --------

Total direct labor cost $84,000 $192,000 $216,000 $114,000 $606,000

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 TAXES
• A fee charged ("levied") by a government on
a product, income, or activity.

• If tax is levied directly on personal or corporate income, then

it is a direct tax.

• If tax is levied on the price of a good or service, then it is

called an indirect tax.

• The purpose of taxation is to finance government expenditure.

• One of the most important uses of taxes is to finance public
goods and services, such as street lighting and street cleaning.
 TYPES OF TAXES
• INCOME TAX – It is the tax levied on personal
income of an individual.

• SERVICE TAX – It is the tax levied on services

provided e.g. hotels, mobile phone etc.

• EXCISE DUTY- It is the tax levied on goods

manufactured within the country.
 TYPES OF TAXES
• VAT (value added tax) -Value added tax (VAT) is similar
to a sales tax. It is a tax on the estimated market value
added to a product or material at each stage of its
manufacture or distribution, ultimately passed on to
the consumer.

• SALES TAX – It is the tax levied on goods sold to

consumers.

• CUSTOM DUTY- It is the tax levied on goods brought

into the country (purchased outside the country).
THANK YOU