role of financial management in decision making
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8/3/2019 Role of Financial Management in Decision Making
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Role of Financial Management in
Decision Making
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(Or Stock split)
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New Investment
Investment Base
VolumePrice
Variable
costs
Fixed costs
InterestOperating
Profits
Dividends
Retained
Earnings
Long Term
DebtEquity
Funding
Potential
Capital Budgeting
Types of investments
Emphasis and deployment
Disinvestments
Operations
Utilisation of assets
Market selection
Competitive position
Pricing strategy
Cost effectiveness
Operating Leverage
Liquidity
Financing
Disposition of earnings
Dividends
Interest
Retention
Capital structure
Types of equity
Types of debt
Financial leverage
Risk reward trade
off
Present value
Rate of Return
Operating ratios
Contribution
margin
Activity Analysis
Comparative data
Earnings per
share
Cash flow per
share
Payout ratios
Interest coverage
Debt Equity
Debt Service
Cost of capital
Shareholder value
Strategies
Yardsticks
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Liabilities
Current
liabilitiesLong term
liabilitiesOwners Equity
Total liabilities
and Net Worth
Assets
Current AssetsFixed Assets
Other Assets
Total AssetsNet Profit
Or Loss
Financing Operations Investment
Balance Sheet
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Liabilities
CurrentliabilitiesLong term
liabilitiesOwners Equity
Total liabilitiesand Net Worth
Assets
CurrentAssets
Fixed AssetsOther Assets
Total Assets
Financing
Operations Investment
Operating Statement
Revenues
- Cost of sales
= Gross Margin
- Expenses= Net Earnings / loss
- Taxes
= After tax profit /
Balance Sheet and Operations or Income ExpenditureStatement
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Current liabilities
(Plus or minus)
Long Term Liabilities(Plus or minus)
Owners Equity
(Plus or minus)
Total Liabilities andnet worth
(Plus or minus)
SOURCES or USES
Current assets
(Plus or minus)
Fixed Assets
(Plus or minus)
Other assets
(Plus or minus)
Total assets
(Plus or minus)
USES or SOURCES
Net Profits or loss
(Plus or minus)
(Adjustments
for write offs)
SOURCES or USES
Financing Operations Investment
Funds Flow Statement
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Objectives of Financial Process
Accounting
Financial Information
Activity Economics
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Accounting
Profit Determination
± Revenues recognition
± Expense recognition
±Cost allocation
± Profit definition
Value determination
± Historical costs
±Conservatism
± Equity determination
± Contingency recognition
Tax Determination Legal data requirement
Income expense timing
Tax managementissues
Statement adjustments
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Financial Analysis
Financial Information
± Ad justment process
± Trend Analysis
±Profit Pro jection
± Cash flow pro jection
Comparative data
± Industry analysis
±Competitor analysis
± Economic conditions
± Ad justment areas
Market Analysis Share price patterns
Market trends
Value drivers Market models
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Managerial Economics
Activity economics
± Task analysis
± Economic allocation
±Contribution analysis
± Trade off determination
Resource Effectiveness
± Investment base
±Capital investments
± Capital divestments
± Human resources
Shareholder value Cash flow patterns
Cost of capital
Investor expectations Risk return trade off
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Financial Performance Measures
Area and Viewpoint
Management
Owners
Lenders
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Management Operational Analysis
± Gross Margin
± Profit margin
± Operating expense analysis
±
Contribution analysis ± Operating leverage
Resource Management
± Asset turnover
± Working capital management
Inventory / AR and AP patterns
± Human resource effectiveness
Profitability Return on assets
Return beforeinterest and taxes
Return on currentvalue basis
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Owners Profitability
± Return on total NW
± Return on equity
± EPS
±
Cash flow per share ± Share price appreciation
± Shareholder value analysis
Disposition of earnings ± Dividend per share
± Dividend yield ± Payout / retention
± Dividend coverage
Market Indicators Price / earnings ratio
Market to book value
Relative pricemovements
Cash flow multiples
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Lenders
Liquidity
± Current ratio
± Acid test
±
Quick sale value ± Cash flow patterns
Financial Leverage
± Debt to assets
±
Debt to capitalization ± Debt to equity
± Risk return trade off
Debt Service Interest coverage
Interest and principal
coverage Cash flow analysis
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Thank You