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CA Intermediate · Financial Management & Strategic Management

Scope & Objectives of Financial Management

Chapter 1 · 0 formulas · 4 exam-critical pointers

Core concepts

  1. 01Functions: Investment (capital budgeting), Financing (capital structure), Dividend (payout policy), Working Capital.
  2. 02Profit maximisation vs Wealth maximisation — wealth (NPV) is the goal.
  3. 03Time value of money is foundational concept.
  4. 04Agency relationship — costs to align managers with shareholders.
  5. 05Financial decisions interact: investment & financing affect each other (M&M, Modigliani-Miller).

Flowchart

FM Functions | Investment ── Capital Budgeting Financing ── Capital Structure Dividend ── Payout Policy Working Capital ── Short-term funding | Goal: Maximise Shareholder Wealth (MV/share)

Exam-critical pointers

  • ⭐EVA (Economic Value Added) = NOPAT − (Cost of Capital × Invested Capital).
  • ⭐Distinguish profit max (short-term) from wealth max (NPV, risk-adjusted).
  • ⭐Agency cost categories: monitoring, bonding, residual loss.
  • ⭐Indian regulatory environment: SEBI for listed, RBI for NBFCs, MCA for compliance.

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