Financial Management - LPU Distance Education (LPUDE)

[Pages:318]/DMGT405/DCOM406

Edited by: Dr. Mahesh Kumar Sarva

FINANCIAL MANAGEMENT

Edited By Dr. Mahesh Kumar Sarva

Printed by EXCEL BOOKS PRIVATE LIMITED

A-45, Naraina, Phase-I, New Delhi-110028 for

Lovely Professional University

Phagwara

SYLLABUS Financial Management

Objectives: To make the students aware regarding the basic concepts of financial management i.e capital budgeting, cost of capital, sources of finance, capital structure etc.

DMGT405 FINANCIAL MANAGEMENT

Sr. No. 1.

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

Description

Financial Management: Meaning , Objective and scope, Finance functions ? Investment, financing and dividend decisions, Financial goal- Profit Maximization vs. Wealth Maximization

Concept of time value of money: Present & future value of annuities & Single Amount, perpetuity, Growth rate calculations

Source of Finance: Short term and long term Source of Finance, Leasing as a Source of Finance

Concept of economic value added

Risk and return analysis: Risk Measurement

Cost of Capital: Concept and its significance, Measurement of cost of capital of various source of funds, Weighted average cost of capital

Capital structure decision: theories of Capital Structure, Optimum Capital Structure Leverage: Operating and Financial Leverage

Capital budgeting: Meaning and Process, Methods of analyze capital budgeting decisions, Capital rationing, Capital decision under risk and uncertainty

Working Capital: Concept and significance, Determining working capital requirements, Management of Inventory , debtors and cash, Financing of working capital needs

Management of surplus: Retained earning and dividend policy, Theories of dividend, Forms of dividend and corporate dividend behavior.

DCOM406 FINANCIAL MANAGEMENT

Sr. No. 1.

Description

Financial management: meaning, scope and objectives Financial decision making and planning: objectives types and steps in financial planning; Investment, financing and dividend decisions

2.

Time value of money: compounding and discounting techniques.

3.

Capital Budgeting: methods, capital rationing, risk and uncertainty in capital budgeting decisions

4.

Sources of finance: short-term and long-term, leasing as a source of finance

5.

Capital structure decisions: theories of capital structure, optimum capital structure

6.

Cost of capital: Significance and computation of cost of capital equity, preference, debt and retained

earnings, weighted average cost of capital

7.

Leverage: operating, financial and combined.

8.

Working capital: concept, significance and determinants, sources of working capital, Inventory

Management.

9.

Cash and receivable management,

10. Dividend Policy: theories and forms of dividend, controversy over supremacy between dividend and retention.

DCOM307 FINANCIAL MANAGEMENT

Sr. No.

Description

1 Financial Management: meaning, scope and objectives, Financial decision

making and planning: objectives types and steps in financial planning;

Investment, financing and dividend decisions

2 Time Value of money

3 Sources of finance: short-term and long-term

4 Cost of Capital: Significance, computation of cost of capital equity, preference,

debt and retained earnings, weighted average cost of capital.

5 Capital Budgeting: meaning, importance, limitations & methods using excel

6 Capital Structure decisions: theories of capital structure, optimum capital

structure; Leverage : operating , financial and combined.

7 Working Capital: concept, significance and determinants

8 Inventory Management

9 Receivables Management (including factoring); Management of Cash

10 Dividend Policy: theories and forms of dividend

CONTENT

Unit 1: Introduction to Financial Management

1

Mahesh Kumar Sarva, Lovely Professional University

Unit 2: Time Value of Money

17

Mahesh Kumar Sarva, Lovely Professional University

Unit 3: Sources of Finance

31

Mahesh Kumar Sarva, Lovely Professional University

Unit 4: Concept of Economic Value Added

55

Mahesh Kumar Sarva, Lovely Professional University

Unit 5: Risk and Return Analysis

66

Mahesh Kumar Sarva, Lovely Professional University

Unit 6: Cost of Capital

86

Mahesh Kumar Sarva, Lovely Professional University

Unit 7: Capital Structure Decision

121

Mahesh Kumar Sarva, Lovely Professional University

Unit 8; Concept of Leverages

141

Rupesh Roshan Singh, Lovely Professional University

Unit 9: Capital Budgeting

154

Rupesh Roshan Singh, Lovely Professional University

Unit 10: Working Capital Management

204

Rupesh Roshan Singh, Lovely Professional University

Unit 11: Inventory Management

231

Rupesh Roshan Singh, Lovely Professional University

Unit 12: Receivables Management

255

Rupesh Roshan Singh, Lovely Professional University

Unit 13: Management of Cash

270

Rupesh Roshan Singh, Lovely Professional University

Unit 14: Management of Surplus & Dividend Policy

288

Rupesh Roshan Singh, Lovely Professional University

Mahesh Kumar Sarva, Lovely Professional University

Unit 1: Introduction to Financial Management

Unit 1: Introduction to Financial Management

CONTENTS Objectives Introduction 1. 1 Meaning and Scope of Financial Management

1.1.1 Scope of Financial Management 1.1.2 Important Topics in Financial Management 1.2 Goals/Objectives of Financial Management--Profit Maximization vs. Wealth Maximization 1.3 Finance Functions 1.3.1 Place of Finance Function in the Organizational Structure 1.3.2 Relation of Finance with Economics 1.3.3 Relation to Accounting 1.3.4 Interface with other Functions 1.4 Supplementary noteworthy Aspects related to Financial Management 1.4.1 Methods and Tools of Financial Management 1.4.2 Forms of Business Organization 1.5 Summary 1.6 Keywords 1.7 Review Questions 1.8 Further Readings

Objectives

After studying this unit, you will be able to: Recognize the meaning and scope of financial management Describe the goals and objectives of financial management Explain the different Finance functions Discuss various significant aspects related to financial management

Introduction

Finance can be defined as the art and science of managing money. Virtually, all individuals and organizations earn or raise money and spend or invest money. Finance is concerned with the process, institutions, markets and instruments involved in the transfer of money among individuals, business and governments.

1. 1 Meaning and Scope of Financial Management

Financial management as an academic discipline has undergone fundamental changes with regard to its scope and coverage. In the earlier years, it was treated synonymously with the

Notes

LOVELY PROFESSIONAL UNIVERSITY

1

Financial Management

Notes

raising of funds. In the later years, its broader scope, included in addition to the procurement of funds, efficient use of resources.

1.1.1 Scope of Financial Management

Financial Management is broadly concerned with the acquisition and use of funds by a business firm. The important tasks of financial management, as related to the above, may be categorized as follows: Financial Analysis, Planning and Control Analysis of financial condition and preference Profit planning Financial forecasting Financial control

1.1.2 Important Topics in Financial Management

Balance Sheet and Topics in Financial Management

2

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