The Function of Financial Management Report (1)

8/13/2019 The Function of Financial Management Report (1)

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1. SUMMARYThe story of rivalry between two business houses, Bhandarkar brings to light the covertbusiness tactics and the underhand ploys that are played in the game of one-upmanship between

two industrialists. In the thick of this corporate tussle, Bhandarkar places the central characterof his story - a smart and ambitious executive, played by Bipasha Basu. The film has RajatKapoor and Raj Babbar playing two bitter rivals. Vinay Sehgal (Rajat Kapoor) and Dharmesh

Marwah (Raj Babbar) are the MDs of their respective companies, Sehgal Group of Industries

and Marwah International Private Limited.

While Sehgal is a stylish and modern entrepreneur, Marwah is a traditional, superstitious

businessman who takes advices from his spiritual guru and wears gemstones to bring him goodluck in business. Nishigandha (Bipasha Basu) is a top executive working for Vinay Sehgal. She

is clever, sly and often uses manipulation and deceit to get the work done. Sehgal's brother-in-

law Ritesh (Kay Kay Menon) joins the company. Ritesh and Nishi are more than colleagues.

They share love for each other.

Things gather pace after Nishi manages to steal a business plan from Sehgal's rival Marwah.The plan is about a cola brand that Marwah plans to launch. To kill the competition at its very

root, Sehgal launches a similar product before Marwah. But Marwah won't take it lying low. He

will hit back at Sehgal. In the process, Nishi's conscience is shaken as she sees basic moralities

and ethics abandoned in the race for profits and one-upmanship. She also ends up paying a huge

price for her ambition.

'Corporate' showcases the acting talent of Bipasha Basu. The actress, usually seen as a

glamorous siren, has shed her typical image and given a performance full of subtle nuances.

She brings in her character a right mix of toughness and vulnerability, cunningness andrepentance.

Rajat Kapoor and Kay Kay Menon are two other actors who stand out. Rajat fits the role of a


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shrewd and guileful businessman to t. K K Menon speaks through his facial expressions. On the

other hand, Raj Babbar underplays his character commendably. He convincingly plays the

traditional, emotional businessman who, however, is not without moral corruption.

Minissha Lamba and Sammir Dattani have very brief roles in the film.

The first half of 'Corporate' is a bit of a drag, with all the business parlance and corporate lingo.But it is in this half Bhandarkar lays the foundation for the drama that unfolds in the second

half. The movie picks tempo after the interval and the story sort of reaches a crescendo with a

moral lesson that perhaps one shouldn't get involved in one's job too seriously.

Although 'Corporate' is a well intended movie that deals with a subject that hasn't often been

told in Hindi films, but the movie eventually talks about the same business tactics and

manipulations that even a layman might be aware of. And in doing so, the film actually reeks abit of cynicism. The truth remains that there is more to the corporate world than just deceitful

dealings and betrayals. But Bhandarkar focuses only on the ugly side - top executive sleeping

with high-class hookers, the nexus of corporate world with corrupt politicians, the innocent

taking the fall while the guilty walks away free. At the end of the day, the film will have youbelieve that many of the executives in their well-preened suits and ties are morally bankrupt

within.

CAST

Bipasha Basu - Nishigandha Dasgupta

Kay Kay Menon - Ritesh Sahani

Rajat Kapoor - Vinay Sehgal

Raj Babbar - Dharmesh MarwahMinissha Lamba - Megha Apte

Sameer Dattani - Anmol Rawat

Payal Rohatgi - Payal Rohatgi (actress)Harsh Chhaya - Naveen Shroff

Bharat Dabholkar - Joe Rajan

Sandeep Mehta - Parvez Merchant

Achint Kaur - Vinay Sehgal's wifeLilette Dubey - Devyani bakshi

Ashok Pandit - Ashok Pandit (journalist)

Manoj Joshi (actor) - Monty (movie director)

Shweta Menon - Archana
http://en.wikipedia.org/wiki/Bipasha_Basuhttp://en.wikipedia.org/wiki/Kay_Kay_Menonhttp://en.wikipedia.org/wiki/Rajat_Kapoorhttp://en.wikipedia.org/wiki/Raj_Babbarhttp://en.wikipedia.org/wiki/Minissha_Lambahttp://en.wikipedia.org/wiki/Sameer_Dattanihttp://en.wikipedia.org/wiki/Payal_Rohatgihttp://en.wikipedia.org/wiki/Achint_Kaurhttp://en.wikipedia.org/wiki/Lilette_Dubeyhttp://en.wikipedia.org/wiki/Manoj_Joshi_%28actor%29http://en.wikipedia.org/wiki/Shweta_Menonhttp://en.wikipedia.org/wiki/Shweta_Menonhttp://en.wikipedia.org/wiki/Manoj_Joshi_%28actor%29http://en.wikipedia.org/wiki/Lilette_Dubeyhttp://en.wikipedia.org/wiki/Achint_Kaurhttp://en.wikipedia.org/wiki/Payal_Rohatgihttp://en.wikipedia.org/wiki/Sameer_Dattanihttp://en.wikipedia.org/wiki/Minissha_Lambahttp://en.wikipedia.org/wiki/Raj_Babbarhttp://en.wikipedia.org/wiki/Rajat_Kapoorhttp://en.wikipedia.org/wiki/Kay_Kay_Menonhttp://en.wikipedia.org/wiki/Bipasha_Basu


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2.MANAGEMENT CONCEPTFINANCE FUNCTIONS

2.1 INTRODUCTION

The finance function is the process of acquiring and utilizing funds by the business. It consists in

rising providing, managing of all money, capital or funds of any kind to be used in connection

with the business. Finance functions are carried on to achieve the objective of the firm. There are

mainly two approaches to express the "Financial Function".

The first approach relates it to the collection of funds and it ignores the uses of funds. It was

major finance function at the early stage of the development of finance. This approach is called

traditional concept of finance function.

Then, the second approach relates finance functions to the procurements of funds and their

effective utilization. It is comprehensive and universally accepted. And this approach called a

modern approach (financial management).

2.2 OBJECTIVES OF FINANCEThere are many types of objectives in finance like profit maximization, wealth maximization,sell maximization, maximizing earning per share etc. But only two important objectives in

finance there are:

2.2.1 Profit Maximization ObjectiveIn the conventional theory of the firm, the principle objective of a business fir is to maximize

profits. Under the assumption of given tastes and technology, price and output of a given product

under perfect competition are determined with the sole objective of maximization of profit.

Maximization of profit simply refers to the maximization of rupees income of the firm. Underprofit maximization objective, business firm attempt to adopt those investments projects, which

yield profits, and drop all other unprofitable activities.

In maximizing profit, input-output relationship is crucial, either input is minimized to achieve a

given amount of output or the output is maximized with a given amount of input. Thus, this

objective of the firm enhances productivity and improves the efficiency of the firm.

The conventional theory of the firm defends profit maximization objective on the following

grounds;

a. Only those firms survive in the long-run in a competitive market, which are able to makea reasonable amount of profit. Once they are able to make profit, they will always try to

make it large as possible. All other objectives are subjected to this primary objective.

b. Profit maximization assumption is a time-honored objective of a firm and evidenceagainst this objective is not conclusive or unambiguous.


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c. Profit maximization objective has been found extremely accurate in predicting certainaspect of firm's behavior and trends as such the behavior of most firms are directed with

the objective of profit maximization.

d. Though not perfect, profit is the most efficient and reliable measure of the efficiency of afirm.

e. Under the condition of competitive market, profit can be used as a performanceevaluation criterion, and profit maximization leads to efficient allocation of resources

2.2.2Wealth Maximization Objective

Wealth refers to the market price of stock. Wealth maximization (shareholders wealthmaximization) is almost universally accepted goal/ objective of a firm. According to this goal,

the manager should take decision that maximizes the shareholders wealth. In other words, it is to

make the shareholders as richer as possible. Shareholders wealth is maximized when a decision

generates net present value. The net present value is the difference between present value of thebenefits of a project and present value of its costs. A decision that has a positive net present

value creates wealth for shareholders and a decision that has a negative net present value

destroys wealth of shareholders. Therefore only those projects which have positive net present

value should be accepted.

Wealth maximization: A superior Decision Criterion

a. Efficient allocation of resources.b. Separation between ownership and management.c. Residual owners.d. Emphasis on cash flow.e. Recognizes time value of money.


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SCENE

Scene Description

There are two important objectives of the organization. First objective is Profit maximizationwhich is a vague and self centered approach; second objective is wealth maximization. It is very

much sure that without earning profit, wealth maximization is not possible. Wealth helps to

increase the value of the company by increasing the market capitalization and Shareholders

wealth can be increased by distributing dividend among shareholders. In this clipping, it isclearly predicted that profit is more important and it is called bottom-line. Every organization

wants to maximize their profit by hook or crook. But if organization opt wealth maximization as

its main objective firstly it has to increase profit. This further explained that either the motive ofthe organization is profit or wealth because they may depend on owners equity or shareholders

for maximizing the value of the firm.


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3. FINANCE FUNCTIONS

Traditional Approach Modern approach(Corporate Finance) (Financial management)

Procurement of funds Acquisition of funds as well as utilization of

funds

Issues involved

Financial institution Financial instruments Procedural details Funds needed at episodicevents

Issues involved

Total volume of funds needed andacquisition of assets

Financing the funds needed Rate of growth

Financial management in the modern sense of the term involves four

major decisions as function of financial management: Investment

decision, financing decision, dividend decision, and liquidity decision.


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1. Traditional concept of finance function:According to traditional concept, finance function is related only to the arrangement of

funds for the business. In other words, procuring necessary capital for the business is the

function of financial executive. Financial executives has to take decisions as to what are

the sources of capital and how much funds should be raised what is the proper time of

acquiring such funds, on what conditions such funds should be raised etc.

Traditional concept of finance function, which remained in existence up to the mid of 20th

century, was very much related to left hand side (with Indian context) of balance sheet.

This concept studies the finance from investors (external parties) viewpoints only.

2. Modern concept / financial management of finance function:As pointed out just earlier, the central issues of financial management are ignored by the

traditional approach. Experts like Haward and Lipton, Weston and Brigham, SolomanEzra, van Horne etc., have explained the finance function as a financial decision-making.

According to these experts the meaning of finance function is confined not only to

acquisition of funds but also to making effective use of such funds. This approach attemptto answer the questions like:

(i) What is the total volume of funds an enterprise should arrange?(ii) What specific assets should an enterprise acquire?(iii) How should the funds required be raised?(iv) What should be the composition of liabilities?(v) How should profit be allocated?All these questions encompass the entire major financial problem and to have solution to

them, four types of decisions have to be taken-

a. Investment decision,b. Financing decisions,c. Dividend decision andd. Liquidity decision.


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1. INVESTMENT DECISIONS

Investment decisions are concerned with selecting the right type of assets in which funds will be

invested by the firm. The assets which can be acquired fall into two groups:

(i) Long-term assets (fixed assets), which would yield a return over a period of time infuture, and

(ii) Short term assets (also known as current assets), which is normal course of businessoperations convertible into cash usually within a year.

One of the most important finance functions is to intelligently allocate capital to long term

assets. This activity is also known as capital budgeting. It is important to allocate capital in those

long term assets so as to get maximum yield in future. Following are the two aspects oinvestment decision

a. Evaluation of new investment in terms of profitabilityb. Comparison of cut off rate against new investment and prevailing investment.

Since the future is uncertain therefore there are difficulties in calculation of expected return.Along with uncertainty comes the risk factor which has to be taken into consideration. This risk

factor plays a very significant role in calculating the expected return of the prospective

investment. Therefore while considering investment proposal it is important to take intoconsideration both expected return and the risk involved.

Investment decision not only involves allocating capital to long term assets but also involves

decisions of using funds which are obtained by selling those assets which become less profitableand less productive. It wise decisions to decompose depreciated assets which are not adding

value and utilize those funds in securing other beneficial assets. An opportunity cost of capitalneeds to be calculating while dissolving such assets. The correct cut off rate is calculated by

using this opportunity cost of the required rate of return (RRR).


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SCENE

Scene DescriptionInvestment decisions are also know as capital budgeting decision. Investment decisions are long

term decisions and considered following decision:Diversification (in the same product line or different/ new product development)

Modernization

ReplacementAdvertisement

And corporate restructuring like merger, acquisition, and take over.

In this scene, there are two rivalries between two company Malwa group and SGL group. Therefights to get PSU which is issued by Mr. Gulab Rao (state minister). Both of them are fighting to

get this PSU to get more profit. According to Malwa group this PSU worth every rupee and if

any company takes over NDCA which is a backward area, excise duty and benefits are given bystate government. And according to SGL group this investment help to reduce their bottle price

5-3 per bottle and their margins more than double and addition to them their capital expenditurebecome half. And both of them also want to invest in agriculture land which worth Rs630 crore.

In this clipping it has been clearly noticed that the companies wanted to develop new product

which is a part of investment decision. Secondly both the companies want to taking over NDCAthat is also a part of corporate restructuring.


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2. FINANCING DECISION

Financial decision is yet another important function which a financial manger must perform. It is

important to make wise decisions about when, where and how should a business acquire funds.Funds can be acquired through many ways and channels. Broadly speaking a correct ratio of an

equity and debt has to be maintained. This mix of equity capital and debt is known as a firms

capital structure. A firm tends to benefit most when the market value of a companys share

maximizes this not only is a sign of growth for the firm but also maximizes shareholders wealth.

On the other hand the use of debt affects the risk and return of a shareholder. It is more risky

though it may increase the return on equity funds. A sound financial structure is said to be onewhich aims at maximizing shareholders return with minimum risk. In such a scenario the market

value of the firm will maximize and hence an optimum capital structure would be achieved.

Other than equity and debt there are several other tools which are used in deciding a firm capital

structure.

SCENE

Scene DescriptionFinancial decision is mix of debt and equity i.e. capital structure. According to this clip mixture

of capital for new joint venture consists of share of SGL group as 44%, Friscon international

food chain as 26% and Indian financial institution as30%. It says that they are raising capital

through private placement and planning for future public issue.

Initially for generating the finances the owner got the proposal from Finance minister Mr.Ashwini for joint collaboration with foreign venture. In this clipping the owner wants to finance

the investment by raising the public issue and through divestment. However this clipping is also

talking about joint venture which is the part of corporate restructuring hence, we can say that this

clip is the mixture of investing and financing decision both.


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3. DIVIDEND DECISIONEarning profit or a positive return is a common aim of all the businesses. But the key function afinancial manger performs in case of profitability is to decide whether to distribute all the profits

to the shareholder or retain all the profits or distribute part of the profits to the shareholder andretain the other half in the business. Its the financial managers respo nsibility to decide a

optimum dividend policy which maximizes the market value of the firm. Hence an optimumdividend payout ratio is calculated. It is a common practice to pay regular dividends in case of

profitability another way is to issue bonus shares to existing shareholders.

4. LIQUIDITY DECISION

It is very important to maintain a liquidity position of a firm to avoid insolvency. Firms

profitability, liquidity and risk all are associated with the investment in current assets. In order to

maintain a tradeoff between profitability and liquidity it is important to invest sufficient funds in

current assets. But since current assets do not earn anything for business therefore a propercalculation must be done before investing in current assets. Current assets should properly be

valued and disposed of from time to time once they become non profitable. Currents assets must

be used in times of liquidity problems and times of insolvency.


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ANNEXURE

OBJECTIVES OF FINANCIAL MANAGEMENT

INVESTMENT DECISION


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FINANCIAL DECISION


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REFRENCES

http://financepravas.blogspot.in/p/functions-of-fm.html retrieved on 12 February 2013.
http://financepravas.blogspot.in/p/functions-of-fm.html%20%20%20%20%20retrieved%20on%2012-3-2013http://financepravas.blogspot.in/p/functions-of-fm.html%20%20%20%20%20retrieved%20on%2012-3-2013http://financepravas.blogspot.in/p/functions-of-fm.html%20%20%20%20%20retrieved%20on%2012-3-2013

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The Function of Financial Management Report (1)