PAPER 7 : FINANCIAL MANAGEMENT

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1 Level of Knowledge: Working knowledge PAPER 7 : FINANCIAL MANAGEMENT (60 Marks) Learning Outcome: To gain knowledge of various aspects of Financial Management and the ability to apply such knowledge in decision-making in non-complex scenarios. Contents A. Financial Management and Financial Analysis (a) Introduction to Financial Management Function (b) Objective and scope of financial management Role and purpose Financial management environment Functions of finance executives in an organization Financial distress and insolvency. Financial Analysis through Ratios Users of the financial analysis Sources of financial data for analysis Calculation and Interpretation of ratios: - Analysing liquidity - Analysing leverage - Analysing efficiency/ activity - Analysing profitability Limitations of ratio analysis B. Financing Decisions (a) Sources of Finance Different Sources of Finance, Characteristics of different types of long term debt and equity finance, Method of raising long term finance Different Sources of short term Finance Internal fund as a source of finance International sources of finance Other sources of finance- Sale and lease back, Convertible debt, Venture capital, Grants etc.

2 (b) Cost of Capital Significance of cost of capital Factors of cost of capital Measurement of costs of individual components of capital Weighted average cost of capital (WACC) Marginal cost of capital (c) Capital Structure Decisions (vi) Significance of capital structure Capital structure planning and designing Designing of optimum capital structure Determinants of capital structure Theories of Capital Structure and value of the firm- relevancy and Irrelevancy of capital structure. EBIT- EPS Analysis, Breakeven- EBIT Analysis. (vii) Under/ Over Capitalisation. (d) Leverages Types of Leverages- Operating, Financial and Combined Analysis of leverages C. Capital Investment and Dividend Decisions (a) (b) Capital Investment Decisions Objective of capital investment decisions Methods of Investment appraisal: - Payback period, Discounted payback period - Accounting Rate of Return (ARR), - Net Present Value (NPV)- The meaning of NPV, Strengths and limitations of NPV method, The impact of taxation on the NPV analysis, The impact of Inflation on the NPV analysis, The working capital adjustment in an NPV analysis, Capital rationing, Equivalent Annual Costs, Adjusted present value - Internal Rate of return (IRR)- Limitations of the IRR method, Multiple IRRs, - Modified internal Rate of Return (MIRR)- Definition and explanation of MIRR, The process for calculating MIRR, Strengths of the MIRR approach. - Profitability Index Dividend Decisions Basics of Dividends Forms of dividend Determinants of dividend

3 Relevancy and Irrelevancy of Dividend Policies- Traditional Approach, Walter s model, Gordon s model, Modigliani and Miller (MM) Hypothesis. D. Management of Working Capital (a) Management of Working Capital (vi) The management of working capital- Liquidity and Profitability The Working capital financing decisions- Primary and Secondary Sources of Liquidity The working Capital Cycle (operating Cycle), Effectiveness of Working Capital based on its operating and cash conversion cycles Assessment of working capital requirement Management of Accounts Receivables (Debtors), Management of Accounts Payables (Creditors) (vii) Management of Inventory (viii) Management of Cash, Treasury management (ix) Banking norms of working capital finance

4 Part II: Business Economic Environment (40 Marks) 1. Business and Its Economic Environment I. Introduction II. Elements of Business Economic Environment Economic Systems Economic Conditions Economic Policies 2. Economic Environment in India I. Economic Planning and Economic Reforms in India Objectives of Planning in India Five-Year Plans Economic Reforms II. Various Sectors in India- Agriculture, Industry, Service and Infrastructure Agriculture Industry Industrial Growth and Diversification Industrial Policy in India Industrial Policy Resolution 1948 Industrial Policy Resolution 1956 Industrial Policy Resolution Industrial Licensing Policy - Micro Small and Medium Enterprises Policy - National Manufacturing Policy Service Infrastructure III. Economic Condition in India I. Economic Growth National Income and Per Capita Income II. Poverty in India III. Unemployment in India IV. Inflation V. Balance of Payments IV. Financial Environment Structure of Indian Financial System 3. Monetary Policy in India I. Concept and Meaning of Monetary Policy II. Objectives of the Monetary Policy III. Impact of Monetary Policy on Business IV. Monetary Policy in India 4. Fiscal Policy in India

5 I. Concept and Meaning of Fiscal Policy II. Objectives of the Fiscal Policy III. Impact of Fiscal Policy on Business IV. Fiscal Policy in India 5. Global Economic Environment of Business I. Globalization II. Trends in Global Economy III. Role of World Trade Organization IV. Foreign Trade Policy of India

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