Financial Management — 3 Big Decisions
I F D
"I Found Dividends"
Investment → Financing → Dividend
Investment: Where to put money (Capital Budgeting = long-term; Working Capital = short-term)
Financing: How to raise money (Equity, Loans, Debentures)
Dividend: How to split profit (Dividend to shareholders vs Retained Earnings)
Story: A farmer Invests in seeds, Finances by borrowing from a bank, and after harvest, splits the crop — some goes to the lenders (Dividends), rest is kept in the barn (Retained Earnings).
Objectives of Financial Management
AROSE
Adequate supply · Returns to shareholders · Optimum utilisation · Safety of investment · Equity-debt balance (Sound capital structure)
Functions of Financial Management
ECIDC M
Estimate capital needed → Composition (structure) → Investment of funds → Disposal of surplus → Cash management → Monitoring (Financial Controls)
Story: A chef Estimates how much he needs, decides the Composition of his menu, Invests in equipment, Disposes of surplus food, keeps enough Cash for daily ops, and Monitors waste weekly.
P&L Statement
R – E = NI
Revenue – Expenses = Net Income
Order: Revenue → COGS → Gross Profit → Operating Expenses → Interest → Taxes → Net Income
"Real Gorillas Often Irritate Teachers Now"
Revenue · Gross profit · Operating expenses · Interest · Taxes · Net income
Net Income = Revenue − COGS − Opex − Interest − Taxes
Balance Sheet
A = L + E
Assets = Liabilities + Owner's Equity
Assets: CAIF — Cash · Accounts Receivable · Inventory · Fixed Assets
Liabilities: AL — Accounts Payable · Long-term Loans
+ Owner's Capital
Think of a bathtub: Water in the tub = Assets. Debt = the plug. Your equity = how much YOU own. If the tub drains (liabilities rise), your share shrinks.
Cash Flow Statement — 3 Activities
OIF
Operating (core sales/expenses) · Investing (buy/sell assets) · Financing (loans, shares, dividends)
"Oil Is Fuel"
Key insight: A company can show profit but run out of cash. Cash Flow reveals the truth.
Break-Even Analysis
BEP (units) = Fixed Costs ÷ (Selling Price − Variable Cost)
BEP (₹) = BEP units × Selling Price
Units for target profit = (FC + Target Profit) ÷ Contribution
Contribution = SP − VC (what each unit "contributes" to covering fixed costs)
Story: You sell samosas at ₹500 each (VC ₹300), rent is ₹1,00,000. You need to sell 500 samosas before even 1 rupee of profit. Sell 501st = profit begins!
Time Value of Money
"Money Now > Money Later" — because of Inflation, Earning capacity, Risk
IER — Inflation · Earning capacity · Risk
FV = PV × (1 + r/100)ⁿ
₹1 lakh at 10% for 5 years → ₹1,61,051
Capital Budgeting — 5 Techniques
PP NAI P
Payback Period · NPV · ARR · IRR · Profitability Index
"Plenty Nice And Interesting Projects"
Payback
Time to recover cost
No TVM. Shorter = better
NPV
PV inflows − Investment
+ve = Accept
ARR
Avg profit ÷ Investment
Higher = better
IRR
Rate where NPV = 0
IRR > Cost of capital = Accept
PI = PV inflows ÷ Investment. PI > 1 = Accept
NPV & IRR are best — both consider Time Value of Money.
Material Management — Aim (5 Rights)
5R
Right Quality · Right Quantity · Right Time · Right Place · Right Cost
"Queens Trust Perfect Couriers"
Quality · Quantity · Time · Place · Cost
Inventory Control — EOQ
EOQ = √(2DS ÷ H)
D = Annual demand · S = Cost per order · H = Holding cost per unit
"2 Dogs Sprint Home" — 2·D·S÷H under the root sign.
Story: Too many orders = transport bills pile up. Too much stock = warehouse overflows. EOQ is the Goldilocks quantity — just right.
EOQ Assumptions (DKICOS)
Demand is constant · Known lead time · Instant replenishment · Constant costs · One product · Stockouts not allowed
Probabilistic Inventory (Safety Stock)
DLT = Mean demand × Lead time
σ_LT = σ × √Lead time
Safety Stock = Z × σ_LT
ROP = DLT + Safety Stock
"Demand Leads; Safety Arrives at ROP"
First find demand during lead time (DLT), then add a safety cushion = ROP.
JIT — Just in Time
"Toyota's tyre arrives every 2 hours, not in a warehouse"
Benefits: No storage cost, better cash flow, less waste.
Risk: One delayed truck = entire assembly line stops.
ZERO inventory = ZERO buffer. Works great until supply chain breaks.
MRP — Material Requirements Planning
"Sales Forecast + BOM + Inventory = What to Order, When"
Key inputs: SQTSIB
Sales forecast · Quantity required · Timing · Shelf life · Inventory status · BOM (Bill of Materials)
Story: You're making 500 laptops. BOM says each needs 1 keyboard. You have 200. MRP orders only 300 more — arriving exactly 3 days before assembly.
ERP — Enterprise Resource Planning
"One system. Every department. Real-time."
Scope: FLHSW
Finance · Logistics · HR · Supply Chain · Workflow
Why ERP: BFBACC
Business integration · Flexibility · Better analysis · Accurate decisions · Competitive advantage · Cutting-edge tech
Without ERP: Sales emails inventory → inventory emails production → everyone manually updates accounts. 3-day delay.
With ERP: Sales enters order → inventory, production, accounts all update in seconds.
SCM — Supply Chain Management
Supplier → Manufacturer → Distributor → Retailer → Customer
Materials flow forward ➡ Demand info flows backward ⬅
"Some Men Drive Really Carefully"
Supplier · Manufacturer · Distributor · Retailer · Customer
SCM manages: Procurement → Transformation → Distribution
BPR — Business Process Reengineering
"Don't fix the horse — get a car."
BPR = Radical redesign, not small tweaks.
5 Steps: PMAIC
Prepare · Map current (As-Is) · Analyse new design (To-Be) · Implement · Continuously improve
Walmart: Restocking used to take 6 weeks. After BPR with digital tracking → 36 hours. That's radical improvement, not gradual.
Marketing — Scope (10 areas)
CB PPB CDP SA
Consumer wants · Behaviour · Product planning · Pricing · Branding · Channels of distribution · Distribution · Promotion · Sales mgmt · After-sales
Story: A phone company studies consumer wants (battery life), understands behaviour (teens love gaming), plans the product, gives it a brand (OnePlus), chooses channels (Amazon), sets a price (₹30k), promotes on YouTube, trains a sales team, and provides after-sales warranty.
Marketing Mix — 4Ps (and 7Ps)
4Ps
Product · Price · Place · Promotion
For services add 3 more → 7Ps:
+ People · Process · Physical environment
"Pretty Prices Please People"
STP Strategy
STP
Segmentation → Targeting → Positioning
"Split the crowd → Target your fans → Plant an image in their mind"
Segmentation: Divide market by age, income, behaviour, lifestyle
Targeting: Pick the best segment to focus on
Positioning: Create a lasting impression (Apple = premium, Redmi = budget)
Story: A cafe segmented customers into students, office workers, and families. Targeted students with ₹99 study deals. Positioned itself as "your second home." Now it's packed every evening.
Types of Quality
DCP
Design quality (what is planned)
Conformance quality (what is produced vs spec)
Performance quality (how it works in real use)
"Designers Carefully Perform"
A bicycle: Design = planned to be lightweight. Conformance = frame weighs 9.8 kg (spec: 10±0.5). Performance = rider completes a race without breakdowns.
8 Principles of Quality Management
CL I PS CF MS
Customer focus · Leadership · Involvement of people · Process approach · System approach · Continual improvement · Factual decisions · Mutually beneficial supplier relations
"Customers Love It Pretty Sensibly, Companies Find More Success"
Ishikawa / Fishbone Diagram
6M
Man · Machine · Method · Material · Measurement · Medium (Environment)
"Many Machines Make Many Measurement Mistakes"
Problem: 12% products fail screw alignment. Head of the fish = the problem. Each bone = one M (Man, Machine...). Small bones = specific causes. Find the real culprit!
TQM — Total Quality Management
"Whole organisation. Always improving. Customer first."
Key tools: Fishbone + SPC + Kaizen + 5S + Six Sigma
Benefits: SEARCH PM
Stronger competitive position · Eliminate defects · Adaptability · Reduced costs · Customer loyalty · Higher productivity · Profit · Morale
Kaizen — Continuous Improvement
"Small steps every day beat one giant leap."
Kaizen = Japanese for "change for better"
Developer: Masaaki Imai
Benefits: WSEM
Waste reduced · Space better used · Employee morale up · Mistakes drop
5S — Workplace Organisation
5S
Seiri (Sort) · Seiton (Systematic arrangement) · Seiso (Shine/Clean) · Seiketsu (Standardise) · Shitsuke (Sustain)
"Some Smart Students Stay Successful"
Factory before 5S: Tools everywhere, machines dusty, workers searching 10 mins for a spanner. After 5S: Labelled shadow boards, daily cleaning, weekly audits. Assembly time halved.
Six Sigma — DMAIC
Goal: 3.4 defects per million. Developed: Motorola 1986.
DMAIC
Define · Measure · Analyse · Improve · Control
"Don't Make Any Imperfect Chips"
PCB factory: 10% solder joints fail. Define the problem → Measure defect rate → Analyse: overheating → Improve: temp-controlled iron → Control: daily SPC charts. Defects drop to 1%.
ISO 9000 Series
ISO 9000 · 9001 · 9004
9000 = Vocabulary & basics (foundation, no certification)
9001 = Requirements for QMS (YES, certification possible)
9004 = Guidelines for long-term success (no certification)
"Vocab First, Requirements Second, Sustain Long"
Only ISO 9001 gives you certification. 9000 and 9004 are guides, not certifiable.