Financial Management - | University Of Al-Qadisiyah

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 Preface

Financial Management is an essential part of the economic and non economic activities which leads to decide the efficient procurement and utilization of finance with profitable manner. In the olden days the subject Financial Management was a part of accountancy with the traditional approaches. Now a days it has been enlarged with innovative and multi dimensional functions in the field of business with the effect of industrialization, Financial Management has become a vital part of the business concern and they are concentrating more in the field of Financial Management. Financial Management also developed as corporate finance, business finance, financial economics, financial mathematics and financial engineering. Understanding the basic concept about the financial management becomes an essential part for the students of economics, commerce and management.

This book provides detailed information about the finance and finance related area with simple language and the concepts are explained with easy examples. This book is also prepared based on the ., B.B.A., B.B.M., ., and M.B.A. syllabus of various universities for the benefits of the students.

AUTHORS

Contents

Preface

1 CHAPTER - INTRODUCTION TO FINANCIAL MANAGEMENT

Introduction Meaning of Finance Definition of Finance Definition of Business Finance Types of Finance Definition of Financial Management Scope of Financial Management Objectives of Financial Management ? Profit maximization ? Favourable arguments for profit maximization ? Unfavorable arguments for profit maximization ? Drawbacks of profit maximization ? Wealth maximization ? Favourable arguments for wealth maximization ? Unfavourable arguments for wealth maximization Approaches to Financial Management ? Traditional approach Functions of Finance Manager Importance of Financial Management ? Financial planning ? Acquisition of funds ? Proper use of funds ? Financial decision ? Improve profitability

(v)

1?10

1 1 1 2 2 3 4 5 5 6 6 6 6 7 7 7 8 8 9 9 9 10 10 10

? Increase the value of the firm ? Promoting savings Model Questions

2 CHAPTER - FINANCIAL STATEMENT ANALYSIS

Introduction Meaning and Definition ? Income statement ? Position statement ? Statement of changes in owners equity ? Statement of changes in financial position Types of Financial Statement Analysis Techniques of Financial Statement Analysis ? Comparative statement analysis ? Comparative balance-sheet analysis ? Comparative profit and loss account analysis ? Trend analysis ? Common size analysis Funds Flow Statement Cash Flow Statement ? Difference between funds flow and cash flow statement Ratio Analysis ? Liquidity ratio ? Activity ratio ? Solvency ratio ? Profitability ratio Model Questions

3 CHAPTER - SOURCES OF FINANCING

Introduction ? Long-term financial requirements or Fixed capital requirement ? Short-term financial requirements or Working capital requirement Sources of Finance Security Finance ? Characters of security finance ? Types of security finance ? Ownership securities Equity Shares ? Features of equity shares ? Advantages of equity shares ? Disadvantages of equity shares Preference Shares ? Irredeemable preference shares

Contents

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11?24

11 11 12 12 12 12 13 14 15 15 16 17 17 18 19 19 20 21 21 22 22 24

25?39

25 25 25 26 28 28 28 28 28 28 29 30 30 31

Contents

? Participating preference shares ? Non-participating preference shares ? Convertible preference shares ? Non-convertible preference shares ? Features of preference shares ? Advantages of preference shares ? Disadvantages of preference shares Deferred Shares No Par Shares Creditorship securities ? Debentures ? Types of debentures ? Features of debentures ? Advantages of debenture ? Disadvantages of debenture Internal Finance ? Depreciation funds ? Retained earnings ? Advantages of retained earnings ? Disadvantages of retained earnings Loan Financing ? Financial institutions ? Commercial banks ? Short-term loans ? Development banks Model Questions

4 CHAPTER - CAPITALIZATION

Introduction Meaning of Capital ? Fixed capital ? Definition of fixed capital ? Character of fixed capital ? Working capital Capitalization ? Meaning of capitalization ? Definition of capitalization Types of Capitalization ? Over capitalization ? Causes of over capitalization ? Effects of over capitalization ? Remedies for over capitalization ? Under capitalization ? Causes of under capitalization

31 31 31 31 31 31 32 32 32 33 33 33 34 34 34 35 35 35 36 36 37 37 37 38 38 38

41?45

41 41 41 41 42 42 42 42 43 43 43 43 44 44 44 44

? Effects of under capitalization ? Remedies of under capitalization ? Watered capitalization ? Causes of watered capital

5 CHAPTER - CAPITAL STRUCTURE

Introduction ? Meaning of capital structure ? Definition of capital structure Financial Structure Optimum Capital Structure ? Objectives of capital structure ? Forms of capital structure Factors Determining Capital Structure ? Leverage ? Cost of capital Capital Structure Theories ? Traditional approach ? Assumptions ? Comments ? Net Income (NI) approach ? Net Operating Income (NOI) approach ? Modigliani and Miller approach Model Questions

6 CHAPTER - COST OF CAPITAL

Introduction 65 ? Meaning of cost of capital ? Definitions ? Assumption of cost of capital Classification of Cost of Capital ? Explicit and implicit cost ? Average and marginal cost ? Historical and future cost ? Specific and combine cost Importance of Cost of Capital ? Importance to capital budgeting decision ? Importance to structure decision ? Importance to evolution of financial performance ? Importance to other financial decisions Computation of Cost of Capital ? Measurement of cost of capital ? Cost of equity

Contents

45 45 45 45

47?64

47 47 47 48 49 49 49 50 50 50 50 51 51 53 53 55 58 64

65?82

65 65 66 66 66 67 67 67 67 67 67 68 68 68 68 68

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