Financial Management for Students | 3rd Year | Semester VI

Financial Management – Syllabus Summary

Unit 1: Introduction and Basic Concepts
Functions of financial management
Objectives of the firm: Profit maximization vs Value maximization
Role of the Chief Financial Officer (CFO)
Financial environment of a firm
Time Value of Money – concept, annuity and perpetuity
Risk–return relationship

Unit 2: Sources of Finance & Cost of Capital
Long-term and short-term sources of finance
Concept and importance of cost of capital
Types of cost:
Explicit cost
Implicit cost
Specific cost
Weighted Average Cost of Capital (WACC)
Marginal Cost of Capital

Unit 3: Financing Decision
EBIT–EPS analysis and its limitations
Financial break-even and indifference point
Leverage:
Business risk
Financial risk
Operating leverage
Financial leverage
Trading on equity
Capital structure decisions
Optimum capital structure and constraints
Capital structure theories (excluding Modigliani–Miller model)

Unit 4: Working Capital
Meaning and concepts of working capital
Estimating working capital needs
Operating / Working capital cycle
Policies for current assets:
Conservative
Aggressive
Balanced
Financing strategies:
Matching
Conservative
Aggressive
Management of working capital components
Debtors management (simple type)

Unit 5: Investment Decision (Capital Budgeting)
Purpose and objectives of capital budgeting
Cash flow concepts
Determination of cash flow
Techniques of decision making:
Non-discounted methods
Payback Period
Accounting Rate of Return
Discounted methods
Discounted Payback Period
Net Present Value (NPV)
Profitability Index
Benefit Cost Ratio
Internal Rate of Return (IRR)

Unit 6: Dividend Decisions
Meaning and types of dividend
Dividend and retention
Pay-out ratio, retention ratio and growth
Dividend policy and formulation
Dividend theories:
Walter’s Model
Gordon’s Model