Unit 1

Scope of financial management, relationship of finance function with other business functions, objectives of Financial Management—Profit Maximisation v/s. Wealth Maximisation. Financial Plan, Characteristics of a good financial plan, steps in financial planning, limitations of a financial plan, Financial Institutions.
Note: There will be only theory questions covering UNIT 1

Unit 2

Working Capital Management: Meaning of working Capital, gross working capital, networking capital, Permanent working capital, temporary working capital, importance of working capital, factors that determine working capital, working capital cycle, determination of projected Current Assets and Current Liabilities, determination of working capital requirements using working capital cycle, projected Current Assets and Current Liabilities and also using budgeted cash flows. Management of cash using cash budgets, receivables management, factoring, forfaiting, strategies for managing surplus funds.
Problems only on: Determination of working capital requirements using working capital cycle, projected Current Assets and Current Liabilities and also using budgeted cash flows. Problems on preparing Cash Budgets and Factoring.

Unit 3

Risk and Leverage analysis and Capitalization:
Risk: Business risk, Financial risk, risk and return, components of financial risk. Leverages and Capitalisation.
Meaning of leverage, applications of leverages, Operating leverage, Financial leverage, Combined leverage, the concept of a firm being financially favourably leveraged, trading on equity, ideal combination for combined leverage. Relationship between Sales and EBIT using Degree of operating leverage (DOL), relationship between Sales and EBT/EPS using Degree of combined leverage (DCL). The concepts of Over capitalization and undercapitalization.
Problems only on: Computing ROCE, DOL, DFL, DCL and their related applications.

Unit 4

Time Value of money and Capital budgeting:
Time Value of Money: Meaning, Time preference of Money, concept of Present Value, application of present value concept, finding out present value interest factors (PVIF) and Present Value Interest Factor Annuity (PVIFA), concept of discounting using PVIF and PVIFA. Capital Budgeting: Meaning, importance, capital budgeting process, types of capital investment decisions, main project evaluation techniques, simple pay back method, discounted pay back method, Accounting or Average rate of Return (ARR), Net Present Value Method (NPV), desirability factor or profitability index method, Internal rate of return method (IRR), the superiority of NPV over other methods, Capital rationing and social cost benefit analysis.
Problems only on: Simple payback method, discounted pay back method, Accounting or Average rate of Return (ARR), Net Present Value Method (NPV), desirability factor or profitability index method, Internal rate of return method (IRR), capital rationing.

Unit 5

Cost of Capital and Capital structure Theories:
Cost of Capital: Meaning, Cost of Debt, Preference Share capital, Equity share capital, retained earnings or reserves. Weighted average cost of capital (WACC) using book values and market values as weights, importance of WACC and marginal cost of capital. Financial break-even point.
Capital structure theories: Meaning of capital structure, optimal capital structure, major considerations in capital structure planning, Capital structure theories, assumptions in capital structure theories, net income approach, net operating income approach, The traditional theory, Modigliani and Miller approach, the concept of arbitrage in Modigliani and Miller approach.
Financing decision. Equity vs. Debt and its effect on EPS maximization. EBIT EPS indifference point between different capital structure alternatives. Financial break even point.
Problems only on: Calculation of cost of different components of capital and WACC, all capital structure theories, finding out EBIT EPS indifference points for different capital structures, finding out effect of capital structure on EPS and related applications.

Course Objective:
In our present day economy, finance is defined as the life blood of any business. Finance has been rightly termed as the universal lubricant that keeps every enterprise dynamic. As a commerce student, one must be able to manage this important resource of any business. Thus, the relevance of the course in the curriculum.

Course Outcomes:

Textbooks:

1. Prasanna Chandra – Financial Management – McGraw Hill
2. I. M. Pandey – Financial Management – Vikas Publishing House

Reference Books:

1. M.Y. Khan, P.K. Jain – Financial Management – McGraw Hill
2. Sharma, Shashi K Gupta – Financial Management – Kalyani Publishers
3. Rajiv Srivastava, Anil Misra – Financial Management – Oxford University Press