401. Financial Management

ICMAB

401. Financial Management – 100

Course Objectives

Financial Management course is designed to achieve the following objectives. These are to

      a.      explain the term “finance” and its scope in business management;

      b.      describe various sources of funds with their costs;

      c.      explain various methods of evaluating investment projects;

      d.      explain capital structure theories;

      e.      describe various dividend polices and their relative importance; and

      f.       explain various specific issues like working capital management, base financing and recondition of organization. 

      g.      describe various investment concepts

      h.      describe various techniques of security analysis; and

      i.       explain various steps involved in portfolio management.

 

401.01 Role and objective, working capital Management and Analysis of Financial Management

1.01. Role and objective of Financial Management, Financial Management Decisions, Agency Problem, objective of public Enterprise in Financial Management.

 

1.02. Working Capital Management, Working Capital Polices, Factors effecting working capital of a Firm, Fore casting working capital requirement, Management of Debtors, Inventory and cash.

 

1.03. Analysis of Financial Statements : Statement changes in financial position; Income statement, Balance Sheet, Cash flows statement, Owners equity statement & their components, Ratio Analysis, Financial statement analysis, Budgeting and Profit planning.

 

401.02 The Time value of Money, Cost of Capital and leverage and capital structure

2.01. Time value of Money : Time preference for money, reasons for time preference of money, Preference rate and required rate, implication of time value of money, Technique of Calculation compounding and discounting, Periodical compounding and discounting – linking to PV & FV.  

 

2.02. Cost of Capital : Costs of capital components, Marginal Cost of capital, Weighted Cost of Capital, Modigliani and Millers view of cost of capital, cost of Capital and Adjusted cost of Capital.

 

2.03. Capital Structure: Capital structure and financial structure, Theories of Capital structure, Traditional Approach and MM Approach, Designing Capital Structure.

 

2.04. Leverage: Financial leverage, operating leverage, combined leverage, Effects of Financial Planning on leverage.

 

2.05. Risk management

 

401.03 Source of Finance & valuation of securities

3.01. Short – term Finance : Nature and Importance of STF, Types of STF, Trade Credits, Money market securities, Commercial papers banker’s acceptance, time of credit, short time bank loan.

 

3.02. Term & long term Financing: Nature and Importance of Source of LTF or term financing, payment structure of LTF – Conceptual meaning of long term financing.

 

3.03. Characteristics and valuation of fixed income Decorations characteristics of Long-term Debts, Bond valuation – Characteristic of Preference share – valuation of Preferred stock. 

 

3.04 Characteristics of Common stock, Characteristics of Common stock valuation – Valuation of closely Held Firm. 

 

3.05 Lease Financing: Jargons, Types, Methods of Lease, NPV Analysis,

 

401.04 Portfolio Management, Capital Market Theory and Dividend Policy

4.01. Portfolio Management: Concept, process, importance, measuring risk and return from port folio – Markowits – port folio selection model – single asset port folio, two assets – three assets port folio, Port folio risk and return in risky and uncertain situation Formulate appropriate investment port folio policy, efficient port-folio – Efficient fronter – Index model, correlation model portfolio strategies  

 

4.02. Capital Market Theory : Capital Assets pricing model (CAPM) uses of CAPM – Capital asset pricing – fund transfer, cost of capital, Historical and empirical CAPM – Market portfolio estimating beta – equilibrium risk return trade off, estimating security market line (SML), Capital market line (CML), Arbitrage pricing Theory (APT), concepts Testing APT – estimating APT.  

 

4.03. Dividend Policy : Dividend policy constant payment ratio- stable Dividend – Residual Dividend policy – Determinate of Dividend policy – scrip Dividend and stock Dividend- Theory of Dividend irrelevancy.

 

 

401.05 Financial Derivative–Marger and Acquisition and Foreign Exchange Management

5.01. Derivatives : Derivatives and option theory – Theory of Options Simple, Option strategic – call option and future compared, Factor Affecting option values – Application of option pricing theory to corporate Finance Swaps  - Swap structure – types of swaps. Convertible securities, warranties, hedging.

 

5.02. Marger and Acquisition: Marger and Take over Activity – Motives for meaning Takeover Tactics – Financing Acquisition.

 

5.03. Foreign Exchange Management: Factor influencing Exchange Rates – Managing Transaction Risk – Currency Future Contracts Foreign Exchange Risk. Methods of Translation and Adjustment of Rate fluctuation effects.

 

Recommended Text books

1. Principles of Managerial Finance – L. J. Gitman

2. Principles of Corporate Finance – Brealy – S. A. & S. C. Myers (2003) 7th edition.

3.Financial Management – Vanhorne - 12th Edition

4. Financing Large Projects – Using Project Finance Technique and Practice – Khan and Parra 2003 edition

5. Investment Management – Security Analysis and Portfolio Management – 9th Edition – V.K. Bhalla.

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