Financial Management

Financial Management

Paper-20

M Com (Final)

Directorate of Distance Education Maharshi Dayanand University ROHTAK ? 124 001

2

jktuhfr foKku

Copyright ? 2004, Maharshi Dayanand University, ROHTAK All Rights Reserved. No part of this publication may be reproduced or stored in a retrieval system

or transmitted in any form or by any means; electronic, mechanical, photocopying, recording or otherwise, without the written permission of the copyright holder.

Maharshi Dayanand University ROHTAK ? 124 001

Developed & Produced by EXCEL BOOKS PVT. LTD., A-45 Naraina, Phase 1, New Delhi-110028

Qklhokn

3

CONTENTS

Chapter-1: Introduction to Financial Management

5

Chapter-2: Cost of Capital

25

Chapter-3: Operating and Financial Leverage

77

Chapter-4: Capital Budgeting

94

Chapter-5: Capital Budgeting Evaluation Techniques

112

Chapter-6: Capital Budgeting under Risk and Uncertainties

130

Chapter-7: Working Capital Management

165

Chapter-8: Cash Management and Marketable Securities

196

Chapter-9: Management of Receivables

223

Chapter-10: Inventory Management

244

Chapter-11: Capital Structure Theories

262

Chapter-12: Dividend Decisions

330

Chapter-13: Working Capital Financing

346

Chapter-14: Regulation of Bank Finance

380

4

jktuhfr foKku

FINANCIAL MANAGEMENT MCom (Final) Paper-20

M. Marks : 100 Time : 3 Hrs.

Note: There will be three sections of the question paper. In section A there will be 10 short answer questions of 2 marks each. All questions of this section are compulsory. Section B will comprise of 10 questions of 5 marks each out of which candidates are required to attempt any seven questions. Section C will be having 5 questions of 15 marks each out of which candidates are required to attempt any three question. The examiner will set the questions in all the three sections by covering the entire syllabus of the concerned subject.

Course Inputs

UNIT?I

Evaluation of Finance, Objectives of the Firm-Profit Max, And Wealth Max, Functions of Financial Management, Organisation of the Finance Function, Cost of Capital: Definition and Concepts, Measurement, the weighted average cost of Capital; Leverage: Operating and Financial, Combined Leverage.

UNIT?II

Capital Budgeting, Meaning, Importance, Rational of Capital Budget, Nature of Investment Decision, The Administrative framwork, methods of appraisal, Capital Rationing, Inflation and Capital Budgeting; Capital budgeting underRisk and Uncertainties.

UNIT?III

Working Capital Management, Concept, Need, Determinants, Finance mix for working capital, Estimating working capiktal needs, Cash management; The Cash Budget, Techniques of cash management and marketable securities; Management of reseivables; Objectives, Factors affecting policies for managing accounts receivables; Inventory Management; Objectives, Inventory Management techniques.

UNIT?IV Financing Decisions: Capital Structure Theories, taxation and capital structure; Planning the capital structure, Factors affecting capital structure, E.B.I.T.-E.P.S. anslysis, ROI-ROE analysis, Assessment of Debt Capacity, Capital Structure Policies in Practice.

Dividend Decision: Theories of Dividends-traditional position, Gordon Model, Walter model, M.M. Model, Radical Model, Factors affecting dividend policy, stock dividends and stock splits, Repurchase of stock procedural and legal aspects of dividends.

UNIT?V

Sources of Working Capital Funds: Accurals, trade, credit, commercial banks advances, public deposits, Inter corporate deposits, short term loans from financial institution, right debentures for working capital, commercial papers and factoring.

Regulation of Bank Finance:-Recommendations of Latest Committee.

Introduction to Financial Management

5

Chapter-1 Introduction to Financial Management

Companies do not work in a vacuum, isolated from everything else. It interacts and transacts with the other entities present in the economic environment. These entities include Government, Suppliers, Lenders, Banks, Customers, Shareholders, etc. who deal with the organisation in several ways. Most of these dealings result in either money flowing in or flowing out from the company. This flow of money (or funds) has to be managed so as to result in maximum gains to the company.

Managing this flow of funds efficiently is the purview of finance. So we can define finance as the study of the methods which help us plan, raise and use funds in an efficient manner to achieve corporate objectives. Finance grew out of economics as a special discipline to deal with a special set of common problems.

The corporate financial objectives could be to:

1. Provide the link between the business and the other entities in the environment and

2. Investment and financial decision making

Let us first look at what we mean by investment and financial decision making.

1. Investment Decision: The investment decision, also referred to as the capital budgeting decision, simply means the decisions to acquire assets or to invest in a project. Assets are defined as economic resources that are expected to generate future benefits.

2. Financing Decision: The second financial decision is the financing decision, which basically addresses two questions:

a. How much capital should be raised to fund the firm's operations (both existing & proposed)

b. What is the best mix of financing these assets?

Financing could be through two ways: debt (loans from various sources like banks, financial institutions, public, etc.) and equity (capital put in by the investors who are also known as owners/ shareholders). Shareholders are owners because the shares represent the ownership in the company.

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download