1.
0 SUBJECT CODE AND NAME: B1: FINANCIAL MANAGEMENT
2.0 LEVEL: INTERMEDIATE LEVEL
3.0 PRE-REQUISITE SUBJECT: A2: BUSINESS AND MANAGEMENT
4.0 CONTACT HOURS: 120
5.0 SUBJECT DESCRIPTION
The subject provides knowledge and skills in financialmanagement. It
acquaints learners to the corporate financialdecision environment,
principles of valuation, investment analysis, and financing decisions. It
also expounds on dividend decisions, financial planning, working
capital management, and forecasting.
6.0 PRINCIPAL LEARNING OUTCOME
Apply financial management knowledge and skills to assess investment
opportunities, make accurate financial projections and effectively
plan for the financial needs of an organization. It also enables
individuals to make informed decisions on capital structure by
applying debt and equity financing techniques, as well as determine
the optimal level of working capital for a business. Moreover, the
subject provides an understanding of dividend policy that helps
individuals make informed decisions related to dividend.
7.0 INDICATIVE CONTENT AND SUPPORTING LEARNING OUTCOMES
7.1 Fundamentals of Financial Management
7.1.1 Financial Management Functions
Learners will be able to:
(a) Describe financial management, its scope and role(s) in
corporate management
(b) Describe financial objectives and its relationship with
corporate strategy
(c) Describe financial objectives and other objectives in
not-for-profit organizations.
(d) Evaluate the relationship between business objectives
and financial management objectives.
(e) Evaluate the roles, motivations and interests of
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different stakeholders (finance managers, treasury
managers, owners e.t.c) in financing decisions.
(f) Assess agency theory and its relevance to financial
management.
7.1.2 Financial Management Environment
Learners will be able to:
(a) Describe an overview of the financial management
environment
(b) Evaluate the financial system and fund flow in an
economy and its relevance to Tanzanian context.
(c) Describe and apply the nature and roles of financial
markets and institutions
(d) Apply Efficient Market Hypothesis (EMH) in corporate
decision-making process
(e) Evaluate the professional and regulatory environment
relevant to financial management including:
i. Bank of Tanzania (BoT)
ii. Capital Market and Securities Authority (CMSA)
iii. Tanzania Insurance Regulatory Authority (TIRA)
7.1.3 Risk and Return Analysis
Learners will be able to:
(a) Describe and measure return and expected returns.
(b) Evaluate different types of risks.
(c) Describe and use the relationship between risk and
return.
(d) Use market information to compute rate of return,
variances and standard deviation ofreturns.
(e) Describe and measure risk and expected returnin a
portfolio context.
(f) Analyse the power of diversification in achieving
superior return for a given level of risk or minimum risk
for a given level of expected return.
(g) Determine and perform optimal portfolio weights.
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7.1.4 Time Value of Money
Learners will be able to:
(a) Define the time value of money concept, its two main
perspectives and explain the role it playsin financial
management.
(b) Apply the time value of money concept to determine
future and present values of different cash flow
patterns.
(c) Apply the time value concept to evaluate different cash
flow options and plan for various activities such as
sinking funds, deferred annuity, retirement plan and
capital recovery plans.
(d) Apply the time value of money to value real securities
like, ordinary shares, preferred shares and debentures.
7.2 Financial Statement Analysis and Interpretation
Learners will be able to:
(a) Identify and use annual reports, financial statements
andtheir components.
(b) Outline the factors that influence the contents of
financial statements.
(c) Identify various tools for financial statement analysis
to determine the financial performance and position of
a company.
(d) Identify other analysis techniques such as Du Pont
system, time series and trend analysis and multiple
discriminant analysis.
(e) Compute and interpret various stock market ratios.
7.3 Financing Decisions
7.3.1 Short, medium- and long-term financing alternatives
Learners will be able to:
(a) Assess short term sources of finance –overdraft, trade
credit, factoring, bills of exchange, and trade credit.
(b) Evaluate forms of medium-term sources of finance –
term loan, hire purchase, and leasing.
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(c) Assess the range of long-term sources of finance
available to businesses, including equity, debt and
venture capital.
(d) Assess the advantages and disadvantages of each type
of security as a method of raising the capital required
by the corporation.
(e) Describe and use the processes involved in issuance of
corporate securities and discuss the choice and roles of
investment advisers in the processes.
7.3.2 Cost of Capital
Learners will be able to:
(a) Describe cost of capital and its significance in financial
decision making.
(b) Assess options for financing an entity based on a given
business scenario and environment.
(c) Evaluate the implication of tax on debt financing in
relation to cost of capital.
(d) Explain the application of CAPM in relation to cost of
capital and describe its assumptions and limitations.
(e) Evaluate costs of different financing methods used by a
company.
(f) Estimate the company’s overall cost of capital and that
of a project and identify the situations in which each is
used as a valuation and decision tool.
(g) Describe and use the roles of market and book values
in computing cost of capital.
(h) Describe the determinants of the level of cost of capital.
(i) Analyse different uses of cost of capital in finance.
7.3.3 Financial Gearing and Capital Structure
Learners will be able to:
(a) Explain financial gearing and capital structure.
(b) Explain and compute operational gearing, and financial
gearing.
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(c) Describe the relationship between financial gearing
and operating gearing in assessing business and
financial risk.
(d) Describe the basic capital structure theories (the
traditional theories, the net operating income theory,
the Modigliani and Miller theories, signaling theory,
Pecking order, bankruptcy and agency cost.
(e) Evaluate whether or not capital structure has influence
on value or cost of capital of a company.
(f) Assess the effect of capital gearing on investors’
perception of financial risk and return.
(g) Determine the implications of debt financing on the
return to shareholders under various financing
alternatives.
(h) Explain and compute the geared and ungeared betas
and its implication to cost of equity.
(i) Evaluate the determinants of capital structure of a firm.
7.4 Investment Decisions
7.4.1 Investment Appraisal (Capital Budgeting)
Learners will be able to:
(a) Describe the nature of long-term investments and their
roles in corporate development.
(b) Explain the investment process and the framework for
evaluating investment projects.
(c) Assess investment appraisal techniques based on a
given business, its objectives and circumstances.
(d) Compare various appraisal techniques.
(e) Assess appropriate discount factors or rates used to
undertake an investment appraisal based on a given
business scenario, data and information.
(f) Apply appraisal techniques (discounted and non-
discounted cash flow) and discount factors or rates to
appraise various investment project scenarios
(g) Assess appropriate data that may be used in cash
flow calculations based on given business scenario
data and information.
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(h) Estimate cash flows for investment appraisal.
(i) Perform investment appraisal under inflationary
condition.
7.4.2 Advanced investment appraisal
Learners will be able to:
(a) Assess factors that may need to be considered beyond
basic investment appraisal analysis including
assessment of risk, subjective factors, intangible
factors, and limitations in data and information which
may affect the advice given.
(b) Incorporate risk and inflation into the investment
appraisal using various techniques/ models.
(c) Perform investment appraisal (calculating optimal
investment plan) under capital restrictions and
limitations.
(d) Perform investment appraisal under asset replacement
and abandonment conditions.
(e) Evaluate the impact of non- financial factors such as
economic, social and environmental issues on making
an appropriate investment decision.
7.4.3 Investments in Securities and Portfolio Theory
Learners will be able to:
(a) Describe and use the portfolio investment and
management process, indifference curves and
investors, preferences, investment policies and
strategies.
(b) Analyse the objectives and constraints of individual
investors.
(c) Describe and apply the theory of portfolio allocation –
asset allocation across risky and risk- free assets.
(d) Describe and use the principle of diversification – the
Markowitz portfolio theory.
(e) Determine the minimum variance portfolio and
efficient frontier.
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(f) Describe and apply capital market line and the
separation theory.
(g) Differentiate between SML and CAPM; and between
CAPM and Asset pricing Theory (APT).
(h) Differentiate between SML and capital market line; and
between CAPM and capital market line.
(i) Describe and apply the capital market line and the
separation theory.
(j) Compute the beta factor and alpha values.
(k) Compare the CAPM and the Arbitrage Pricing theory
(APT).
(l) Assess performance of a portfolio using the risk
adjusted benchmarks – The Treynor, Jensen and Sharpe
Measures.
7.5 Dividend Policy
Learners will be able to:
(a) Describe and use the alternative dividend policies that
companies can adopt and their significance.
(b) Discuss and apply the various arguments put forward
by different schools about dividend policy – dividend
irrelevance, dividend relevance, mid-roaders schools as
well as the role of market imperfections in the debate.
(c) Compute and interpret share price under the models
representing each school of thought.
(d) Examine the factors which determine a company’s
dividend policy, with some reflections on the evidence
in Tanzanian market and beyond.
(e) Analyse the alternatives to cash dividends such as share
repurchases, and script dividend showing the
advantages and disadvantages of each alternative.
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7.6 Working Capital Management
Learners will be able to:
(a) Demonstrate understanding of the principles
underlying effective management of working capital.
(b) Describe application of different working capital
policies and the impact of each on the profitability and
liquidity position of the business.
(c) Assess the determinants of the working capital policy
of businesses.
(d) Apply relevant accounting ratios to estimate the
working capital requirements of a firm.
(e) Evaluate the use of economic order quantity model and
just in time techniques in managing inventory.
(f) Apply different techniques in managing receivables
including assessment of credit worthiness, early
settlement discounts as well as factoring and invoice
discounting.
(g) Apply different techniques in managing payables
including using trade credit effectively, evaluating the
benefits of early settlement, purchases discounts etc.
(h) Determine the optimal cash balance and its effects on
the profitability-liquidity position of the firm (Baumol’s
and Miller-Orr Models).
7.7 Financial Planning and Forecasting
7.7.1 Financial Planning
Learners will be able to:
(a) Describe and use the nature and scope of financial
planning.
(b) Explain and use the relationship between short term
andlong-term financial planning.
(c) Analyse planning requirements for financialcontrol.
(d) Prepare a short-term plan using relevant techniques.
(e) Evaluate and explain the implications of given terms in
a loan or financing agreement including covenants,
warranties and guarantees.
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7.7.2 Financial Forecasting
Learners will be able to:
(a) Prepare cash flow forecasts
(b) Link external financing and the company growth.
(c) Evaluate suitable source(s) to finance fund needs
(d) Prepare proforma financial statements
8.0 LEARNING CONTEXT
a. Lecturing, presentations and Guest speaking.
b. Classroom discussions, role playing and brain storming.
c. Group works and Individual assignments.
d. Practical problem solving.
e. Surfing/browsing (Web based materials).
9.0 RECOMMENDED LEARNING MATERIALS
NBAA, (2023). Financial Management Study Text. NBAA. Dar- es-
Salaam, Tanzania.
10.0 OTHER RECOMMENDED LEARNING MATERIALS
ACCA Financial Management, Study Text Arnold, G. (2008).
Corporate financial management. 4th edition. Harlow: FT Prentice
Hall.
Bodie, Z., Kane, A. and Marcus, A.J. (2018). Investments. 11thedition.
Boston: McGraw Hill.
Brealey, R. A., Myers, S. C. & Marcus, A.J. (2015) Fundamentals
of corporate finance. 8th edition. Boston: McGraw-Hill, Irwin.
Brigham, E. F. & Houston, J. F. (2018) Fundamentals of Financial
Management. 15th Edition. Cengage Learning, USA.
Gitman, L. J. (2015) Principles of managerial finance. 14th edition.
Pearson.
Pandey, I. M. (2018) Financial management. 11th edition. New Delhi:
Vikas Publishing House Pvt Ltd.
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Van Horne, J.C and Wachowicz Jr,J.M (2009). Fundamentals of
Financial Management, 13th Edition, FT Prentice Hall- Pearson
Education Ltd., England.
Ross, S. A., Westerfield, R. W. and Jordan, B. D. (2021). Fundamentals
of Corporate Finance. 14th edition. Boston: McGraw-Hill - Irwin.
Ross, S.A., Westerfield, R.W. and Jaffe, J. (2019). Corporate finance.
13th edition. New York: McGraw Hill – Higher Education.
Srivastava, R. and Misra, A. (2010). Financial management. 6th
impression. New Delhi: Oxford University Press.
Watson, D. and Head, A. (2010). Corporate finance: Principles and
practice. 5th edition. Harlow: FT Prentice Hall – Pearson Education
Ltd.
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