Financial Management

Part II: Financial Management (50 marks)

Objectives:

(a) To develop ability to analyse and interpret various tools of financial analysis and planning;

(b) To gain knowledge of management and financing of working capital;

(c) To understand concepts relating to financing and investment decisions; and

(d) To be able to solve simple cases.

Contents:

1. Scope and Objectives of Financial Management

(a) Meaning, importance and objectives

(b) Conflicts in profit versus value maximisation principle

(c) Role of Chief Financial Officer.

2. Time Value of Money

Compounding and discounting techniques – concepts of annuity and perpetuity.

3. Financial Analysis and Planning

(a) Ratio analysis for performance evaluation and financial health

(b) Application of ratio analysis in decision making

(c) Analysis of cash flow statement.

4. Financing Decisions

(a) Cost of Capital – weighted average cost of capital and marginal cost of capital

(b) Capital Structure decisions – capital structure patterns, designing optimum capital structure,

constraints, various capital structure theories

(c) Business risk and financial risk – operating and financial leverage, trading on equity.

5. Types of Financing

(a) Different sources of finance

(b) Project financing – intermediate and long term financing

(c) Negotiating term loans with banks and financial institutions and appraisal thereof

(d) Introduction to lease financing

(e) Venture capital finance.

6. Investment Decisions

(a) Purpose, objective, process

(b) Understanding different types of projects

(c) Techniques of decision making: non-discounted and discounted cash flow approaches - payback

period method, accounting rate of return, net present value, internal rate of return, modified internal

rate of return, discounted payback period and profitability index.

(d) Ranking of competing projects, ranking of projects with unequal lives.

7. Management of working capital

(a) Working capital policies

(b) Funds flow analysis

(c) Inventory management

(d) Receivables management

(e) Payables management

(f) Management of cash and marketable securities

(g) Financing of working capital.