need help for my 40 marks FM project

priyanka2007

New member
pls send me a good project of FM on sources of finance & role of a finance manager. pls do it as fast as possible.................
 

dk2424

New member
The Role of the Financial Manager
To carry on business, companies need an almost endless variety of real assets. Many of
these assets are tangible, such as machinery, factories, and offices; others are intangible,
such as technical expertise, trademarks, and patents. All of them must be paid for.
To obtain the necessary money, the company sells financial assets, or securities.3
These pieces of paper have value because they are claims on the firm’s real assets and
the cash that those assets will produce. For example, if the company borrows money
from the bank, the bank has a financial asset. That financial asset gives it a claim to a
Sole
Proprietorship Partnership Corporation
Who owns the business?
Are managers and owner(s)
separate?
What is the owner’s
liability?
Are the owner and business
taxed separately?
TABLE 1.1
Characteristics of
business organizations
3 For present purposes we are using financial assets and securities interchangeably, though “securities” usually
refers to financial assets that are widely held, like the shares of IBM. An IOU (“I owe you”) from your
brother-in-law, which you might have trouble selling outside the family, is also a financial asset, but most people
would not think of it as a security.
REAL ASSETS Assets
used to produce goods and
services.
FINANCIAL ASSETS
Claims to the income
generated by real assets.
Also called securities.
The manager Partners Shareholders
No No Usually
Unlimited Unlimited Limited
No No Yes
8 SECTION ONE
stream of interest payments and to repayment of the loan. The company’s real assets
need to produce enough cash to satisfy these claims.
Financial managers stand between the firm’s real assets and the financial markets
in which the firm raises cash. The financial manager’s role is shown in Figure 1.1,
which traces how money flows from investors to the firm and back to investors again.
The flow starts when financial assets are sold to raise cash (arrow 1 in the figure). The
cash is employed to purchase the real assets used in the firm’s operations (arrow 2).
Later, if the firm does well, the real assets generate enough cash inflow to more than
repay the initial investment (arrow 3). Finally, the cash is either reinvested (arrow 4a)
or returned to the investors who contributed the money in the first place (arrow 4b). Of
course the choice between arrows 4a and 4b is not a completely free one. For example,
if a bank lends the firm money at stage 1, the bank has to be repaid this money plus interest
at stage 4b.
This flow chart suggests that the financial manager faces two basic problems. First,
how much money should the firm invest, and what specific assets should the firm invest
in? This is the firm’s investment, or capital budgeting, decision. Second, how
should the cash required for an investment be raised? This is the financing decision.
THE CAPITAL BUDGETING DECISION
Capital budgeting decisions are central to the company’s success or failure. For example,
in the late 1980s, the Walt Disney Company committed to construction of a Disneyland
Paris theme park at a total cost of well over $2 billion. The park, which opened
in 1992, turned out to be a financial bust, and Euro Disney had to reorganize in May
1994. Instead of providing profits on the investment, accumulated losses on the park by
that date were more than $200 million.
Contrast that with Boeing’s decision to “bet the company” by developing the 757 and
767 jets. Boeing’s investment in these planes was $3 billion, more than double the total
value of stockholders’ investment as shown in the company’s accounts at the time. By
1997, estimated cumulative profits from this investment were approaching $8 billion,
and the planes were still selling well.
Disney’s decision to invest in Euro Disney and Boeing’s decision to invest in a new
generation of airliners are both examples of capital budgeting decisions. The success of
such decisions is usually judged in terms of value. Good investment projects are worth
more than they cost. Adopting such projects increases the value of the firm and therefore
the wealth of its shareholders. For example, Boeing’s investment produced a stream
of cash flows that were worth much more than its $3 billion outlay.
Not all investments are in physical plant and equipment. For example, Gillette spent
around $300 million to market its new Mach3 razor. This represents an investment in a
(2)
(3)
(1)
(4b)
Financial manager (4a)
Firm’s
operations
(a bundle
of real assets)
Financial
markets
(investors holding
financial assets)
FIGURE 1.1
Flow of cash between capital
markets and the firm’s
operations. Key: (1) Cash
raised by selling financial
assets to investors; (2) cash
invested in the firm’s
operations; (3) cash
generated by the firm’s
operations; (4a) cash
reinvested; (4b) cash
returned to investors.
FINANCIAL MARKETS
Markets in which financial
assets are traded.
CAPITAL BUDGETING
DECISION Decision as
to which real assets the firm
should acquire.
FINANCING DECISION
Decision as to how to raise
the money to pay for
investments in real assets.
The Firm and the Financial Manager 9
nontangible asset—brand recognition and acceptance. Moreover, traditional manufacturing
firms are not the only ones that make important capital budgeting decisions. For
example, Intel’s research and development expenditures in 1998 were more than $2.5
billion.4 This investment in future products and product improvement will be crucial to
the company’s ability to retain its existing customers and attract new ones.
Today’s investments provide benefits in the future. Thus the financial manager is
concerned not solely with the size of the benefits but also with how long the firm must
wait for them. The sooner the profits come in, the better. In addition, these benefits are
rarely certain; a new project may be a great success—but then again it could be a dismal
failure. The financial manager needs a way to place a value on these uncertain future
benefits.
We will spend considerable time in later material on project evaluation. While no one
can guarantee that you will avoid disasters like Euro Disney or that you will be blessed
with successes like the 757 and 767, a disciplined, analytical approach to project proposals
will weight the odds in your favor.
THE FINANCING DECISION
The financial manager’s second responsibility is to raise the money to pay for the investment
in real assets. This is the financing decision. When a company needs financing,
it can invite investors to put up cash in return for a share of profits or it can promise
investors a series of fixed payments. In the first case, the investor receives newly
issued shares of stock and becomes a shareholder, a part-owner of the firm. In the second,
the investor becomes a lender who must one day be repaid. The choice of the longterm
financing mix is often called the capital structure decision, since capital refers
to the firm’s sources of long-term financing, and the markets for long-term financing
are called capital markets.5
Within the basic distinction—issuing new shares of stock versus borrowing money
—there are endless variations. Suppose the company decides to borrow. Should it go to
capital markets for long-term debt financing or should it borrow from a bank? Should
it borrow in Paris, receiving and promising to repay euros, or should it borrow dollars
in New York? Should it demand the right to pay off the debt early if future interest rates
fall?
The decision to invest in a new factory or to issue new shares of stock has long-term
consequences. But the financial manager is also involved in some important short-term
decisions. For example, she needs to make sure that the company has enough cash on
hand to pay next week’s bills and that any spare cash is put to work to earn interest. Such
short-term financial decisions involve both investment (how to invest spare cash) and
financing (how to raise cash to meet a short-term need).
Businesses are inherently risky, but the financial manager needs to ensure that risks
are managed. For example, the manager will want to be certain that the firm cannot be
wiped out by a sudden rise in oil prices or a fall in the value of the dollar. We will look
at the techniques that managers use to explore the future and some of the ways that the
firm can be protected against nasty surprises.
 

seemanikam

New member
The important functions of the financial manager in a modern business consists of the following :
1. Provision of capital: To establish and execute program’s for the provision of capital required by the business.
2. Investor relations: to establish and maintain an adequate market for the company securities and to maintain adequate liaison with investment bankers, financial analysis and share holders.
3. Short term Financing: To maintain adequate sources for company’s current borrowing from commercial banks and other lending institutions.
4. Credit and collections: to direct the granting of credit and the collection of accounts due to the company including the supervision of required arrangements for financing sales such as time payment and leasing plans.
5. Investments: to achieve the company’s funds as required and to establish and co-ordinate policies for investment in pension and other similar trusts.
6. Insurance: to provide insurance coverage as required.
7. Planning for control: To establish, co-ordinate and administer an adequate plan for the control of operations.
8. Reporting and Interpreting: To compare information with operating plans and standards and to report and interpret the results of operations to all levels of management and to the owners of the business.
9. Evaluating and Consulting: To consult with all the segments of management responsible for policy or action concerning any phase of the operation of the business as it relates to the attainment of objectives and the effectiveness of policies, organization structure and procedures.
10. Tax administration: to establish and administer tax policies and procedures.
11. Government reporting: To supervise or co-ordinate the preparation of reports to government agencies.
12. Protection of assets: To ensure protection of assets for the business through internal control, internal auditing and proper insurance coverage.
The twin aspects procurement & effective utilization of funds are the crucial tasks, which the finance manager faces. The financial manger is required to look into financial implications of any decision in a firm. The finance manager has to manage funds in such a way as to make their optimum utilization & to ensure that their procurement is in a manner so that the risk, cost & control considerations are properly balanced under a given situation.
It is pertinent here to distinguish between the nature of job of the finance manager and that of the accountant .An accountant is not concerned with management of funds which is a specialized task though historically many accountants have been managing funds also. In the modern day business, since the size of business has grown enormously the finance function is separate & complex one. The finance manager has a task entirely different from that of an accountant. He has to manage funds, which involves a number of important decisions, which are as follows:
1. Estimating the Requirement of Funds: In a business the requirements of funds have to be carefully estimated. Certain funds are required for long term purpose i.e. investments in fixed assets etc. A careful estimation of such funds & the timing of requirement must be made. Forecasting the requirement of funds involves the use of technique of budgetary control. Estimates of requirements of fund can be made only if all physical activities of the organization have been forecasted.
2. Decisions Regarding Capital Structure: Once the requirements of funds have been estimated, decisions regarding various sources from where these funds would be raised have to be taken. Finance manager has to carefully look into existing capital structure and see how the various proposals of raising funds will affect it. He has to maintain a proper balance between long term and short term funds. Long-term funds rose from outside have to be in a certain proportion with the funds procured from the owner. He has to see that capitalization of company is such that company is able to procure funds .All such decisions are “financing decisions”.
3. Investment Decisions: Funds procured from different sources have to be invested in various kinds of assets. Investments of funds in a project have to be made after careful assessment of the various projects through capital budgeting. A part of long-term funds is also to be kept for financing working capital requirement. The production manager’s & finance manager keeping in view the requirement of production & future price estimates of raw material availability of funds would determine inventory policy.
4. Dividend Decision: Finance manager is concerned with the decision to pay or declare dividend .He has to assist management in deciding as to what amount of dividend should be retained in business. & this depends on whether the company can make and more profitable use of funds. But in practice trend of earning, share market prices; requirement of funds for future growth, cash flow situation, tax position of shareholders has to be kept in mind while deciding dividend.
5. Cash Management: Finance manager has to ensure that all sections & units of organization are supplied with adequate funds. Sections, which have an excess of funds, have to contribute to the central pool for use in other sections, which needs funds. Even if one of the 200 retail branches does not have sufficient funds whole business may be in danger. Hence the need for laying down cash management & cash disbursement policies with a view to supply adequate funds at all times is an important function of a finance manager.
In the last few years, the complexion of the economic and financial environment has altered in many ways. The important changes have been as follows:
 The industrial licensing framework has been considerably relaxed.
 The Monopolies and Restrictive Trade Practices (MRTP) Act has been virtually abolished.
 The Foreign Exchange Regulation Act (FERA) has been substantially liberalized.
 Considerable freedom has been given to companies in pricing their equity issues.
 The scope for designing new financing instruments has been substantially widened.
 Interest rate ceilings have been largely removed.
 The rupee was devalued and, in two stages, has been made fully convertible on the current account.
 Investors have become more demanding and discerning.
 The system of cash credit is being replaced by a system of syndicated loans.
 A number of new investment opportunities have emerged in the money market.
 The relative dependence on the capital market has increased.
These changes have made the job of the finance manager more important, complex and demanding
 

seemanikam

New member
Sources of Short term and long term finance
The business requires two types of finance namely:
1. Short term finance
2. Long term finance
Short term finance is concerned with decisions relating to current assets and current liabilities and is also called as working capital finance. Short term financial decisions typically involve cash flows within a year or within the operating cycle of the firm. Normally short term finance is for a period upto 3 years.
The main sources of short term finance are:
1. Cash credit
2. Short term loans from financial institutions
3. Bill Discounting
4. Letter of credit
5. Inter-corporate deposits
6. Commercial papers
7. Factoring
8. Working capital advance by commercial banks

1. Cash Credit:
Cash Credit facility is taken basically for financing the working capital requirements of the organization. Interest is charged the moment cash credit is credited to the Bank A/C irrespective of the usage of the Cash Credit.
2. Short term loans from financial institutions:
Bank overdraft

3. Bill Discounting:
Bill Discounting is a short term source of finance, whereby Bills Receivable received from debtors are in cashed from the bank at a discounted rate.

4. Letter of credit
Letter of credit is an indirect form of working capital financing and banks assume only the risk, the credit being provided by the supplier himself. A letter of credit is issued by a bank on behalf of its customer to the seller. As per this document, the bank agrees to honor drafts drawn on it for the supplies made to the customer. I f the seller fulfills the condition laid down in the letter of credit.
5.Inter- corporate Deposits
A deposit made by one company with another, normally for a period of six months is referred to as an ICD ie. Short-term deposits with other companies are a fairly attractive form of investment of short term funds in terms of rate of return.
These deposits are usually of three types:
a. Call deposits: A call deposit is withdraw able by the lender on a given days notice.
b. Three-months Deposits: These deposits are taken by the borrowers to tied over a short term cash inadequacy
c. Six-month Deposits: Normally lending companies do not extend deposits beyond this time frame. Such deposits are usually made with first-class borrowers.

6. Commercial papers
A company can use commercial papers to raise funds. It is a promissory note carrying the undertaking to repay the amount or/ on after a particular date.
7. Factoring
A factor is a financial institution which offers services relating to management and financing of debts arising form credit sales. Factoring provides resources to finance receivables as well as facilitates the collection of receivables.
There are 2 banks, sponsored organizations which provide such services:
a. SBI factors and commercial services LTD
b. Can bank factors LTD, started operations since the beginning of 1997.
8. Working capital advance by commercial banks
Since the above sources do not permit the use of funds, for a longer period of time, the business has to seek further sources, if the need is for a longer period of time , i.e. which extends to 3 years and above.
When a firm wants to invest in long term assets, it must find the needs to finance them. The firm can rely to some extent on funds generated internally. However, in most cases internal resources are not enough to support investment plans. When that happens the firm may have to curtail investment plan or seek external funding. Most firms choose to take external funding. They supplement internal funding with external funding raise from a variety of sources.

The main sources of long term finance can broadly divided into:
1. Internal
2. External

Internal sources include:
a. Share capital (Equity shares and preference shares)
b. Reserves and Surplus
c. Personal loans and advances from owners called as ‘Quasi Capital’

External sources include:
a. Term loan from banks, financial institutions and international bodies like International Monetary Funds, World Bank, Asian Development Bank.
b. Debentures
c. Loans and advances from friends and relatives
d. Inter- Corporate Deposits
e. Asian Depository Receipts / Global Depository Receipts
f. Commercial Papers


The short term or long term finance is a function of financial management. The good and efficient management is that which can raise the funds whenever required and at the most competitive terms and conditions. Raising of funds either internally or externally requires a professional approach and also complying with so many legal, technical and statutory requirements prescribed by the Companies Act, Securities Exchange Board Of India, Stock Exchanges Authorities and also allied laws like Income Tax, Foreign Exchange Management Act, Banking Regulations Act, etc.
 

seemanikam

New member
Sources of Short term and long term finance
The business requires two types of finance namely::SugarwareZ-191:
1. Short term finance
2. Long term finance
Short term finance is concerned with decisions relating to current assets and current liabilities and is also called as working capital finance. Short term financial decisions typically involve cash flows within a year or within the operating cycle of the firm. Normally short term finance is for a period upto 3 years.
The main sources of short term finance are:
1. Cash credit
2. Short term loans from financial institutions
3. Bill Discounting
4. Letter of credit
5. Inter-corporate deposits
6. Commercial papers
7. Factoring
8. Working capital advance by commercial banks

1. Cash Credit:
Cash Credit facility is taken basically for financing the working capital requirements of the organization. Interest is charged the moment cash credit is credited to the Bank A/C irrespective of the usage of the Cash Credit.
2. Short term loans from financial institutions:
Bank overdraft

3. Bill Discounting:
Bill Discounting is a short term source of finance, whereby Bills Receivable received from debtors are in cashed from the bank at a discounted rate.
:bump:
4. Letter of credit
Letter of credit is an indirect form of working capital financing and banks assume only the risk, the credit being provided by the supplier himself. A letter of credit is issued by a bank on behalf of its customer to the seller. As per this document, the bank agrees to honor drafts drawn on it for the supplies made to the customer. I f the seller fulfills the condition laid down in the letter of credit.
5.Inter- corporate Deposits
A deposit made by one company with another, normally for a period of six months is referred to as an ICD ie. Short-term deposits with other companies are a fairly attractive form of investment of short term funds in terms of rate of return.
These deposits are usually of three types:
a. Call deposits: A call deposit is withdraw able by the lender on a given days notice.
b. Three-months Deposits: These deposits are taken by the borrowers to tied over a short term cash inadequacy
c. Six-month Deposits: Normally lending companies do not extend deposits beyond this time frame. Such deposits are usually made with first-class borrowers.

6. Commercial papers
A company can use commercial papers to raise funds. It is a promissory note carrying the undertaking to repay the amount or/ on after a particular date.
7. Factoring
A factor is a financial institution which offers services relating to management and financing of debts arising form credit sales. Factoring provides resources to finance receivables as well as facilitates the collection of receivables.
There are 2 banks, sponsored organizations which provide such services:
a. SBI factors and commercial services LTD
b. Can bank factors LTD, started operations since the beginning of 1997.
8. Working capital advance by commercial banks
Since the above sources do not permit the use of funds, for a longer period of time, the business has to seek further sources, if the need is for a longer period of time , i.e. which extends to 3 years and above.
When a firm wants to invest in long term assets, it must find the needs to finance them. The firm can rely to some extent on funds generated internally. However, in most cases internal resources are not enough to support investment plans. When that happens the firm may have to curtail investment plan or seek external funding. Most firms choose to take external funding. They supplement internal funding with external funding raise from a variety of sources.

The main sources of long term finance can broadly divided into:
1. Internal
2. External

Internal sources include::SugarwareZ-098:
a. Share capital (Equity shares and preference shares)
b. Reserves and Surplus
c. Personal loans and advances from owners called as ‘Quasi Capital’

External sources include:
a. Term loan from banks, financial institutions and international bodies like International Monetary Funds, World Bank, Asian Development Bank.
b. Debentures
c. Loans and advances from friends and relatives
d. Inter- Corporate Deposits
e. Asian Depository Receipts / Global Depository Receipts
f. Commercial Papers
:SugarwareZ-229:

The short term or long term finance is a function of financial management. The good and efficient management is that which can raise the funds whenever required and at the most competitive terms and conditions. Raising of funds either internally or externally requires a professional approach and also complying with so many legal, technical and statutory requirements prescribed by the Companies Act, Securities Exchange Board Of India, Stock Exchanges Authorities and also allied laws like Income Tax, Foreign Exchange Management Act, Banking Regulations Act, etc.
 
pls send me a good project of FM on sources of finance & role of a finance manager. pls do it as fast as possible.................

Hey priyanka, as you mentioned in your thread that you need information on FM so i just found out some important information for you and would like to share it with you. So, please download my presentation for getting the information on role of financial manager.
 

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