Description
Deals with the introduction of Management Accounting and its features,Role of Finance Manager, Goal of a fiirm.
Prof.Chandan Kumar Tripathy Finance – DRIEMS Business School
What is Management Accounting?
? Management Accounting is an accounting system
which will help the Management to improve its efficiency. Management Accounting determines policy and plans to achieve desired objectives of management. ? It helps the Management in planning, controlling and analyzing the performance of the organization in order to follow the path of continuous improvement. ? Management Accounting utilizes the principle and practices of financial accounting and cost accounting for effective operation of a company.
Prof.Chandan Kumar Tripathy 2
Distinguishing features of Management Accounting are :
1.The Management Accounting data are derived from both financial accounting and cost accounting. 2.The main thrust in management accounting is towards determining policy and formulating plans to achieve desired objectives of management. 3.Management Accounting makes corporate planning and strategy effective and meaningful. 4.It is concerned with short and long range planning and uses highly sophisticated techniques like sensitivity analysis, probability techniques, decision tree, ratio analysis etc for planning, control and evaluation.
Prof.Chandan Kumar Tripathy 3
Distinguishing features of Management Accounting are :
5. It is futuristic in approach and predictive in nature. 6. Management Accounting system cannot be installed without proper cost accounting system. 7. Management Accounting systems generate various reports which are extremely useful from the Management point of view.
Prof.Chandan Kumar Tripathy
4
What is the Goal of the Firm?
Maximization of Shareholder Wealth!
Value creation occurs when we maximize the share price for current shareholders.
Prof.Chandan Kumar Tripathy
5
Traditional Approach of Financial Management
Profit Maximization
? The traditional approach of financial management was all
about profit maximization. The main objective of companies was to make profits. Limitations of the traditional approach 1.Business may have several other objectives other than profit maximization. Companies may have goals like: a larger market share, high sales, greater stability and so on. The traditional approach did not take into account so many of these other aspects. 2.Profit Maximization has to defined after taking into account many things like: a.Short term,mid term,and long term profits b.Profits over period of time
Prof.Chandan Kumar Tripathy
6
Limitations of The Traditional Approach
3.Social Responsibility is one of the most important objectives of many firms. Big corporates make an effort towards giving back something to the society. The big companies use a certain amount of the profits for social causes. It seems that the traditional approach did not consider this point.
Prof.Chandan Kumar Tripathy
7
Modern Approach
? Modern Approach is about the idea of wealth maximization. ? Modern Approach is about the idea of wealth maximization.This
involves increasing the Earning per share of the shareholders and to maximize the net present worth. ? Wealth is equal to the difference between gross present value of some decision or course of action and the investment required to achieve the expected benefits. ? Gross present value involves the capitalised value of the expected benefits.This value is discounted a some rate,this rate depends on the certainty or uncertainty factor of the expected benefits. ? The Wealth Maximization approach is concerned with the amount of cash flow generated by a course of action rather than the profits.
Prof.Chandan Kumar Tripathy 8
Role of Finance Manager
? Financial managers try to answer some or all of these
questions ? The top financial manager within a firm is usually the Chief Financial Officer (CFO) ? Treasurer – oversees cash management, credit management, capital expenditures and financial planning ? Controller – oversees taxes, cost accounting, financial accounting and data processing
Prof.Chandan Kumar Tripathy
9
doc_888281943.ppt
Deals with the introduction of Management Accounting and its features,Role of Finance Manager, Goal of a fiirm.
Prof.Chandan Kumar Tripathy Finance – DRIEMS Business School
What is Management Accounting?
? Management Accounting is an accounting system
which will help the Management to improve its efficiency. Management Accounting determines policy and plans to achieve desired objectives of management. ? It helps the Management in planning, controlling and analyzing the performance of the organization in order to follow the path of continuous improvement. ? Management Accounting utilizes the principle and practices of financial accounting and cost accounting for effective operation of a company.
Prof.Chandan Kumar Tripathy 2
Distinguishing features of Management Accounting are :
1.The Management Accounting data are derived from both financial accounting and cost accounting. 2.The main thrust in management accounting is towards determining policy and formulating plans to achieve desired objectives of management. 3.Management Accounting makes corporate planning and strategy effective and meaningful. 4.It is concerned with short and long range planning and uses highly sophisticated techniques like sensitivity analysis, probability techniques, decision tree, ratio analysis etc for planning, control and evaluation.
Prof.Chandan Kumar Tripathy 3
Distinguishing features of Management Accounting are :
5. It is futuristic in approach and predictive in nature. 6. Management Accounting system cannot be installed without proper cost accounting system. 7. Management Accounting systems generate various reports which are extremely useful from the Management point of view.
Prof.Chandan Kumar Tripathy
4
What is the Goal of the Firm?
Maximization of Shareholder Wealth!
Value creation occurs when we maximize the share price for current shareholders.
Prof.Chandan Kumar Tripathy
5
Traditional Approach of Financial Management
Profit Maximization
? The traditional approach of financial management was all
about profit maximization. The main objective of companies was to make profits. Limitations of the traditional approach 1.Business may have several other objectives other than profit maximization. Companies may have goals like: a larger market share, high sales, greater stability and so on. The traditional approach did not take into account so many of these other aspects. 2.Profit Maximization has to defined after taking into account many things like: a.Short term,mid term,and long term profits b.Profits over period of time
Prof.Chandan Kumar Tripathy
6
Limitations of The Traditional Approach
3.Social Responsibility is one of the most important objectives of many firms. Big corporates make an effort towards giving back something to the society. The big companies use a certain amount of the profits for social causes. It seems that the traditional approach did not consider this point.
Prof.Chandan Kumar Tripathy
7
Modern Approach
? Modern Approach is about the idea of wealth maximization. ? Modern Approach is about the idea of wealth maximization.This
involves increasing the Earning per share of the shareholders and to maximize the net present worth. ? Wealth is equal to the difference between gross present value of some decision or course of action and the investment required to achieve the expected benefits. ? Gross present value involves the capitalised value of the expected benefits.This value is discounted a some rate,this rate depends on the certainty or uncertainty factor of the expected benefits. ? The Wealth Maximization approach is concerned with the amount of cash flow generated by a course of action rather than the profits.
Prof.Chandan Kumar Tripathy 8
Role of Finance Manager
? Financial managers try to answer some or all of these
questions ? The top financial manager within a firm is usually the Chief Financial Officer (CFO) ? Treasurer – oversees cash management, credit management, capital expenditures and financial planning ? Controller – oversees taxes, cost accounting, financial accounting and data processing
Prof.Chandan Kumar Tripathy
9
doc_888281943.ppt