SYLLABUS
FINANCIAL MANAGEMENT
INTRODUCTION
Financial Management is a subject, which investigates in detail the core areas of the Finance
function in organizations i.e. financing decisions, investing decisions and distributions to
owners and other providers of finance. A major aim of the course is to improve the quality of
financial decision-making in private companies, government ministries and departments and
non-governmental organizations.
OBJECTIVES
After completing this course, students should be able to:
➢ Explain the financial goals of business entities and other organizations
➢ Identify and explain the 3 key areas of the management of finance
➢ Explain the management of single investments and combinations of investments
(portfolios)
➢ Explain the theoretical and practical aspects of capital structure and dividend policy
➢ Explain the international aspects of the management of finance
DETAILED SYLLABUS/ COURSE OUTLINE
SECTION 1 Overview of Corporate Financial Goals
➢ The role of financial decisions
➢ The goals of business entities
➢ Corporate social responsibility
➢ The agency problem
-components of agency costs
-dealing with the agency problem
SECTION 2 The Investment Environment
Financial markets
➢ Types of financial markets
➢ Characteristics of money market instruments
➢ Types of risk associated with money market instruments
➢ Types of money market instruments
Capital markets
➢ Types of capital market instruments
➢ Methods of raising equity capital
➢ Underwriting
Stock exchange quotations
➢ Advantages of having shares quoted on the stock exchange
➢ Disadvantages of having shares quoted on the stock exchange
SECTION 3 Stock Market Analysis
The fundamental valuation model
➢ The market valuation process
➢ The creation of excess returns
➢ The efficient markets hypothesis
➢ Tests of market efficiency
Specify methods of stock market analysis
➢ Technical analysis
➢ Fundamental analysis
Stock exchange practice
➢ Listing requirements
➢ Measuring performance on the stock exchange
SECTION 4 The Valuation of Securities
➢ The time value of money
➢ Future value and present value calculations
➢ Use of present value, future value, and annuity tables
➢ Applications of future values and present values
SECTION 5. Bond Analysis
➢ Basic terms related to bond valuation
➢ Bond characteristics
➢ Types of bonds and their characteristics
Convertibility of bonds
➢ Callable bonds
➢ Puttable bonds
Bond valuation
➢ Bond pricing theorems
➢ Bond duration and modified duration
➢ Yield to maturity
➢ Relationships among coupon rate, yield to maturity and bond value
➢ Bond convexity
Bond immunization
➢ Practical considerations with regard to bond immunization
➢ The term structure of interest rates
➢ Different types of yield curves
➢ Expectations theory
➢ Liquidity preference theory
➢ Preferred habitat theory
➢ Market segmentation theory
SECTION 6 Analysis of Risk and Return
Types of risks
Types of investors
The relationship between risk and return
Systematic and unsystematic risk
Measurement of return
➢ Expected return
➢ Probability and expected return
Measurement of risk
➢ Variance and standard deviation
➢ Mean-variance rule
Coefficient of variation
The capital asset pricing model
➢ Calculation of required return and beta
➢ Significance of beta
➢ Assumptions of the model
SECTION 7 Portfolio Analysis
Rationale for diversification
The 2-asset portfolio
➢ Portfolio return
➢ Portfolio correlation
➢ Portfolio risk
➢ Portfolio co-variance
The multi-asset portfolio
➢ Combination of risky and risk-free assets
Portfolio theory and the capital asset pricing model
➢ The arbitrage pricing model
SECTION 8 Capital Investment Appraisal
Classification of investment projects
Major steps in capital investment appraisal
Relevant cash flows in investment appraisal
Non-discounted cash flow methods and related decision rules
➢ Return on investment
➢ Simple payback
Discounted cash flow methods and related decision rules
➢ Net present value
➢ Internal rate of return (IRR)
➢ Profitability index (PI)
SECTION 9 Capital Investment Appraisal-Advanced Aspects
Assumptions of the basic model
Conflicts between IRR and NPV and their solution
Reinvestment rate assumptions under IRR and NPV
Taxation in investment appraisal
Replacement of non-current assets
➢ Mutually exclusive projects with different lives
➢ Optimal replacement cycles
➢ The lowest common multiple method
Modification’s of basic DCF methods
Effects of inflation on investment appraisal
SECTION 10 Capital Structure Theory and Company Value
Assumptions of capital structure theory
Approaches to capital structure theory
➢ The net operating profit approach
➢ The net profit approach
➢ The traditional approach
➢ The Modigliani-Miller approach
-without taxes
-with corporate tax
-with corporate and personal taxes
Financial break-even analysis
➢ Operating leverage
➢ Financial leverage
➢ Total leverage
SECTION 11 The Cost of Capital and Company Value
The target capital structure
Calculation of the cost capital
➢ Weighted average cost of capital
➢ Weighted marginal cost of capital
The dividend valuation model
Capital asset pricing model and the cost of capital
The valuation of individual securities
➢ Valuation of preference shares
➢ Valuation of equity
The valuation of companies
➢ Net assets value method
➢ Super profits method
SECTION 12 Dividend Decisions and Company Value
Issues in dividend policy
The irrelevance theory of dividends
The Miller and Modigliani view on dividends
➢ The arbitrage process
Additional models on dividends
➢ Walter‘s model
➢ Gordon’s model
Practical factors which influence the dividends decision
Other forms of dividends
SECTION 13 Working Capital Management
The matching principle
Liquidity
Investing in accounts receivable
Inventory management
Management of cash and marketable securities
Management of current liabilities
The cost of financing
SECTION 14 The Options Approach to Financial Management
Call and put options
Characteristics of call and put prices
Relationship between call and put prices
Debt and equity as options
Warrants and convertibles
SECTION 15 Mergers and Acquisitions
Factors influencing activity on the takeover market
Methods of effecting takeovers
Strategies to prevent takeovers
➢ Proactive measures
➢ Reactive measures
The economic rationale for mergers
Evaluating prospective mergers
Anti-monopoly legislation
SECTION 16 Shareholder Value Creation, Corporate Financial Policy and
Strategy
The role of financial management in corporate strategy
The interface of financial policy and strategic management
The sustainable growth approach to the achievement of financial goals
Shareholder value creation
Shareholder value analysis
SECTION 17 International Financial Management
The international financial environment
The foreign investment decision
The cost of capital for foreign investments
Sources of funds for foreign subsidiaries
Measuring foreign investment returns
Determining the composition of the optimal investment portfolio
Country and regional risk analysis
Foreign currency risk management
Types of foreign exchange risk
Methods of reducing transaction exposure.