FINANCIAL MANAGEMENT-I

FINANCIAL MANAGEMENT-I
AREA OF STUDY:
BBA-208

Year: 2
Semester: 3

________________________________________
* Continuous
** Duration: 3 hours

Objectives:
To acquaint students with the basic concepts of financial management and tools.
Contents
Unit 1: The Role of Finance and the Financial Manager L. H. 3
a. Finance as an area of study, the Managerial Finance Function
b. Goal of the Financial Manager, Agency Issue
Unit 2: The operating Environment of the Firm L. H. 3
a. Basic forms of Business Organization, Business Taxation
b. Financial Institutions & Markets: An Overview
c. The Capital markets, Interest rates & Required returns
Unit 3: The Analysis of Financial Statements L. H. 7
a. Types of ratios: the use of Financial ratios
b. Solvency ratios: Activity ratios: Profitability ratios: Operating & Market ratios
c. Limitations of ratio analysis
d. Financial Statement Analysis: Common size analysis: Du Pont analysis
Unit 4: Financial Planning L. H. 4
a. The Financial Planning Process
b. Cash Planning: Cash Budgets
c. Profit Planning: Pro forma statements, Preparing the pro forma income statement, Preparing the pro forma balance sheet, Evaluation of pro forma statements
Unit 5: The Time Value of Money L. H. 6
a. Future value & Present value, Solving for time & interest rates.
b. Future & Present Value of annuity: Perpetuities, Present Value of an uneven series of payments
c. Semi annual and other compounding periods
d. Continuous compounding: Fractional time periods: Amortization
Unit 6: Risk & Return L. H. 7
a. Defining & measuring risk
b. Probability Distributions and expected rates of return
c. Total risk versus market risk
d. Total risk analysis: assets held in isolation
e. Market risk analysis: assets held in portfolios.
f. Efficient portfolio: Optimal portfolio: CAPM: CML: SML
Unit 7: Valuation L. H. 6
a. Valuation Fundamentals
b. Bond Valuations: Bond fundamentals, YTM, semiannual interest & bond values
c. Preferred stock valuations
d. Common stock valuations: Basic stock valuation equation, Zero growth, Constant growth, Multiple growth, Models based on P/E ratios.
Unit 8: Cost of capital L. H. 6
a. An overview of the cost of capital
b. Cost of debt: Before tax & after tax cost of debt
c. Cost of preferred stock
d. Cost of common stock: (Dividend yield method: Dividend growth model: Price earning method.)
e. Cost of retained earnings: Cost of newly issued common equity
f. Weighted average cost of capital: The marginal cost of capital
Unit 9: Leverage & Capital Structure L. H. 6
a. Business & financial risk, Breakeven analysis
b. Operating leverage: Degree of operating leverage: Degree of financial leverage: Combined operating & financial leverage, Impact of financial leverage.
c. Types of capital: Capital Structure theory, The optimal capital structure
d. The EBIT- EPS approach to capital structure
e. Choosing the optimal capital structure
Suggested Readings:
1. Gitman, J. Lawrence, Principal of Managerial Finance, Harper Collins Publishers
2. Van Horne & Wachowicz, Fundamentals of Financial Management
3. Ross, Wethersfield, Jaffe, Corporate Finance
4. Copeland & Weston, Financial Theory & Corporate Policy, Addison Wesley
5. Pradhan, Financial Management, Buddha Academic Enterprises, Kathmandu, Nepal