Description
SCOPE N OBJECTIVES OF F.M
DNYANASADHANA COLLEGE TYBMM 6th SEMISTER
NAME
RISHI KUMAR SINGH
ROLL NO
27
SUBJECT
Financial Management
TOPIC
Financial Management “Scope & Importance”
SUBMITTED TO
MUMBAI UNIVERSITY
INDEX
? ? ? ? ? ?
Acknowledgement
Introduction Scope / Elements Objectives of Financial Management Function of financial management Case study
Acknowledgement
Here I want to thank my Financial Management teacher for helping me choose this topic and granting permission to do it. I want to thank my parents for supporting me. I also want to thank all the people who helped me in getting information on my topic.
INTRODUCTION
Financial Management is one of the important function of management in dealing with the resource and monetary aspect of business for funding and operating a business with adequate return.
? 'Sourcing of Fund:
The financial management deals with pros and cons of sources of different funds in term of capital. As business needs capital to start , the finance management plays important role in identifying the different sources in term of owner's fund, share capital or loans to finance the business operation.
? Application of Fund:
The financial management analyse the different operation in term of risk and return and after thorough analysis of different business activities with all possible alternatives in term of cost and benefits takes decision regarding application of fund in possible alternative to minimize the risk and maximizing profit. The application of fund in term of capital budgeting and working capital . Capital budgeting attached to strategic decision and the working capital deals with day to day operation of the business. Role of finance department in term of managing day to day cash has been increasing for smooth operation as well as for maintaining solvency.
? Determining the Objective of Business:
Financial management determines the objective of business for profit maximization or wealth maximization. Finance management decides on short term and long term objective of business operation. 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
?
Investment decisions includes investment in fixed assets (called as capital budgeting) - Investment in current assets
is also a part of investment decisions called as working capital decisions.
?
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.
?
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 programmers 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 has 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 has 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 expansion, 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, maintenance 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.
CASE STUDY
Mahindra Satyam Merger with Tech Mahindra: Arriving at the Share Exchange Ratio Issues:
? ?
?
Merger and acquisition and types of synergies. Valuation of company. Exchange ratio of the shares.
Abstract:
This case study analyzes the merger between Tech Mahindra and Mahindra Satyam. On August 10, 2011, at the 24th Annual General Meeting (AGM) of Mahindra Satyam, minority shareholders opposed a proposal by Vineet Nayyar, Chief Executive Officer, Mahindra Satyam, and the management team to merge Mahindra Satyam with Tech Mahindra. However, Vineet Nayyar's proposal during the AGM earned mixed reactions from many observers. Initially, the minority shareholders of Mahindra Satyam were apprehensive about the timing of the merger with regards to the unattractive valuations and the number of shares they would receive in exchange for one Tech Mahindra share. Although, both companies had strong presence globally, the companies had to resolve few other problems before going for the merger.
Satyam to Mahindra Satyam
Satyam was established in 1987 as a private limited company providing software development and consultancy services. The company was promoted by Ramalinga Raju (Raju) and his brother Rama Raju. Initially, it started operations from Hyderabad in India with 20 employees. In 1991, the company came up with an Initial Public Offering (IPO) which was oversubscribed by 17 times. The company grew rapidly after that and expanded its business globally. By 2001, the company had a presence in more than 30 countries and was listed in the National Association of Securities Dealers Automated Quotation (NASDAQ) for trading in the year 2001. At the end of the financial year 2008, the company recorded revenues of $2.13 billion. Satyam expanded its business into 60 countries and the number of employees reached 51,127. On the revenue growth and other motivators, Raju had commented then, "It took us 14 years to reach the $ 1 billion mark, and to be able to touch $ 2 billion after merely two
years is indeed a tremendous feat. It also brings us much pride that we have been a part of some of our clients' ascent, after it has been reported that two of our customers have achieved run-rates of $ 100 million. It is developments like these that motivate us to increase our focus on ways the organization can sustain continued growth. This year, our aim is to establish deeper and more valuable partnerships with our customers, which will attract a new wave of business opportunities for us.
Fall of Satyam Computers Limited
On December 16, 2008, Raju proposed to Satyam's board members that the company acquire Maytas Infrastructure Limited (Maytas Infra) and Maytas Properties private Limited (MPPL). This would help Satyam, which had accumulated a huge cash balance of $ 1.2 billion, diversify from its core business into the infrastructure business. MPPL and Maytas Infra were promoted by Raju's family members. Raju proposed to acquire 51% equity in Maytas Infra and 100% equity stake in the privately-held MPPL for $1.3 billion and $ 300 million respectively...
Post Scam
The Government of India immediately intervened and constituted a new board for Satyam Computers Limited. The new board sought to reassure Satyam's clients and employees. It also raised funds for working capital and appointed new auditors to restate the accounts. The board initiated the process for the sale of Satyam to potential investors after securing approval from SEBI and the Company Law Board (CLB)...
Tech Mahindra
Tech Mahindra was founded in 1986 as a joint venture between Mahindra and Mahindra Limited of India and British Telecommunications plc of UK. Its headquarters was at Pune, Maharashtra, of India. The company was involved in information technology, networking technology solutions, and business process outsourcing (BPO) services in the global telecommunications industry...
Expected Synergies After Merger of MSAT and TECHM
TechM was in the business of providing software for the telecommunication industry while Msat had businesses cutting across multiple sectors. According to International Data Corporation (IDC), "Potentially, the next stage of consolidation after the Mahindra Satyam and Tech Mahindra merger would be to bring Mahindra's BPO services into the fold to build up the scale of its operations in domestic and global markets." But before the merger, the management of both the companies would have to seek approval from both company's shareholders and the high courts of Andhra Pradesh for Msat and Bombay for TechM...
Exhibits
Exhibit I: Various Inflated Items Listed on Balance Sheet as on September 30, 2008 Exhibit II: Mahindra Satyam's Profit and Loss Account from 2009 to 2011 Exhibit III: Mahindra Satyam's Balance Sheet from 2009 to 2011 Exhibit IV: Mahindra Satyam's Projected Capital Expenditures and Other Variables Exhibit V: Tech Mahindra's Profit and Loss Account Exhibit VI: Tech Mahindra's Balance Sheet Exhibit VII: Tech Mahindra's Projected Capital Expenditures and Other Variables Exhibit VIII: Weekly Closing Value of NSE and Shares Prices of Mahindra Satyam & Tech Mahindra from April 2009 to October 2011
doc_455633961.docx
SCOPE N OBJECTIVES OF F.M
DNYANASADHANA COLLEGE TYBMM 6th SEMISTER
NAME
RISHI KUMAR SINGH
ROLL NO
27
SUBJECT
Financial Management
TOPIC
Financial Management “Scope & Importance”
SUBMITTED TO
MUMBAI UNIVERSITY
INDEX
? ? ? ? ? ?
Acknowledgement
Introduction Scope / Elements Objectives of Financial Management Function of financial management Case study
Acknowledgement
Here I want to thank my Financial Management teacher for helping me choose this topic and granting permission to do it. I want to thank my parents for supporting me. I also want to thank all the people who helped me in getting information on my topic.
INTRODUCTION
Financial Management is one of the important function of management in dealing with the resource and monetary aspect of business for funding and operating a business with adequate return.
? 'Sourcing of Fund:
The financial management deals with pros and cons of sources of different funds in term of capital. As business needs capital to start , the finance management plays important role in identifying the different sources in term of owner's fund, share capital or loans to finance the business operation.
? Application of Fund:
The financial management analyse the different operation in term of risk and return and after thorough analysis of different business activities with all possible alternatives in term of cost and benefits takes decision regarding application of fund in possible alternative to minimize the risk and maximizing profit. The application of fund in term of capital budgeting and working capital . Capital budgeting attached to strategic decision and the working capital deals with day to day operation of the business. Role of finance department in term of managing day to day cash has been increasing for smooth operation as well as for maintaining solvency.
? Determining the Objective of Business:
Financial management determines the objective of business for profit maximization or wealth maximization. Finance management decides on short term and long term objective of business operation. 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
?
Investment decisions includes investment in fixed assets (called as capital budgeting) - Investment in current assets
is also a part of investment decisions called as working capital decisions.
?
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.
?
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 programmers 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 has 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 has 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 expansion, 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, maintenance 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.
CASE STUDY
Mahindra Satyam Merger with Tech Mahindra: Arriving at the Share Exchange Ratio Issues:
? ?
?
Merger and acquisition and types of synergies. Valuation of company. Exchange ratio of the shares.
Abstract:
This case study analyzes the merger between Tech Mahindra and Mahindra Satyam. On August 10, 2011, at the 24th Annual General Meeting (AGM) of Mahindra Satyam, minority shareholders opposed a proposal by Vineet Nayyar, Chief Executive Officer, Mahindra Satyam, and the management team to merge Mahindra Satyam with Tech Mahindra. However, Vineet Nayyar's proposal during the AGM earned mixed reactions from many observers. Initially, the minority shareholders of Mahindra Satyam were apprehensive about the timing of the merger with regards to the unattractive valuations and the number of shares they would receive in exchange for one Tech Mahindra share. Although, both companies had strong presence globally, the companies had to resolve few other problems before going for the merger.
Satyam to Mahindra Satyam
Satyam was established in 1987 as a private limited company providing software development and consultancy services. The company was promoted by Ramalinga Raju (Raju) and his brother Rama Raju. Initially, it started operations from Hyderabad in India with 20 employees. In 1991, the company came up with an Initial Public Offering (IPO) which was oversubscribed by 17 times. The company grew rapidly after that and expanded its business globally. By 2001, the company had a presence in more than 30 countries and was listed in the National Association of Securities Dealers Automated Quotation (NASDAQ) for trading in the year 2001. At the end of the financial year 2008, the company recorded revenues of $2.13 billion. Satyam expanded its business into 60 countries and the number of employees reached 51,127. On the revenue growth and other motivators, Raju had commented then, "It took us 14 years to reach the $ 1 billion mark, and to be able to touch $ 2 billion after merely two
years is indeed a tremendous feat. It also brings us much pride that we have been a part of some of our clients' ascent, after it has been reported that two of our customers have achieved run-rates of $ 100 million. It is developments like these that motivate us to increase our focus on ways the organization can sustain continued growth. This year, our aim is to establish deeper and more valuable partnerships with our customers, which will attract a new wave of business opportunities for us.
Fall of Satyam Computers Limited
On December 16, 2008, Raju proposed to Satyam's board members that the company acquire Maytas Infrastructure Limited (Maytas Infra) and Maytas Properties private Limited (MPPL). This would help Satyam, which had accumulated a huge cash balance of $ 1.2 billion, diversify from its core business into the infrastructure business. MPPL and Maytas Infra were promoted by Raju's family members. Raju proposed to acquire 51% equity in Maytas Infra and 100% equity stake in the privately-held MPPL for $1.3 billion and $ 300 million respectively...
Post Scam
The Government of India immediately intervened and constituted a new board for Satyam Computers Limited. The new board sought to reassure Satyam's clients and employees. It also raised funds for working capital and appointed new auditors to restate the accounts. The board initiated the process for the sale of Satyam to potential investors after securing approval from SEBI and the Company Law Board (CLB)...
Tech Mahindra
Tech Mahindra was founded in 1986 as a joint venture between Mahindra and Mahindra Limited of India and British Telecommunications plc of UK. Its headquarters was at Pune, Maharashtra, of India. The company was involved in information technology, networking technology solutions, and business process outsourcing (BPO) services in the global telecommunications industry...
Expected Synergies After Merger of MSAT and TECHM
TechM was in the business of providing software for the telecommunication industry while Msat had businesses cutting across multiple sectors. According to International Data Corporation (IDC), "Potentially, the next stage of consolidation after the Mahindra Satyam and Tech Mahindra merger would be to bring Mahindra's BPO services into the fold to build up the scale of its operations in domestic and global markets." But before the merger, the management of both the companies would have to seek approval from both company's shareholders and the high courts of Andhra Pradesh for Msat and Bombay for TechM...
Exhibits
Exhibit I: Various Inflated Items Listed on Balance Sheet as on September 30, 2008 Exhibit II: Mahindra Satyam's Profit and Loss Account from 2009 to 2011 Exhibit III: Mahindra Satyam's Balance Sheet from 2009 to 2011 Exhibit IV: Mahindra Satyam's Projected Capital Expenditures and Other Variables Exhibit V: Tech Mahindra's Profit and Loss Account Exhibit VI: Tech Mahindra's Balance Sheet Exhibit VII: Tech Mahindra's Projected Capital Expenditures and Other Variables Exhibit VIII: Weekly Closing Value of NSE and Shares Prices of Mahindra Satyam & Tech Mahindra from April 2009 to October 2011
doc_455633961.docx