FINANCIAL AND STRATEGIC MANAGEMENT - ICSI

STUDY MATERIAL

EXECUTIVE PROGRAMME

FINANCIAL AND STRATEGIC

MANAGEMENT

MODULE 2 PAPER 8

ICSI House, 22, Institutional Area, Lodi Road, New Delhi 110 003 tel 011-4534 1000, 4150 4444 fax +91-11-2462 6727 email info@icsi.edu website icsi.edu

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? THE INSTITUTE OF COMPANY SECRETARIES OF INDIA

TIMING OF HEADQUARTERS

Monday to Friday Office Timings ? 9.00 A.M. to 5.30 P.M.

Public Dealing Timings Without financial transactions ? 9.30 A.M. to 5.00 P.M.

With financial transactions ? 9.30 A.M. to 4.00 P.M.

Phones 41504444, 45341000

Fax 011-24626727

Website icsi.edu

E-mail info@icsi.edu

Laser Typesetting by AArushi Graphics, Prashant Vihar, New Delhi, and Printed at MP Printers

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EXECUTIVE PROGRAMME ? FINANCIAL AND STRATEGIC MANAGEMENT

The company secretaries by virtue of their expertise in the corporate laws and procedure are in eminently suitable position to:

(a) Present to the Board of Directors, the financial, legal and personnel aspects of modernisation, expansion, diversification of the existing projects of new projects;

(b) Obtain the decision from the Board; and

(c) Interact effectively with the financial institutions in the process of procuring the finance.

The legal aspects of finance are becoming increasingly important and a Company Secretary is expected to successfully and effectively handle, amongst other things, important aspects such as management of public issues, syndication of loans, obtaining project approvals, raising of finance through public deposits and debentures or bonds etc. All these essentials require expert knowledge of diverse and complex procedures involved. Realising that the services of a Company Secretary could be of immense use in this important area, it was thought necessary to include this paper with a view to equip the students with the requisite fundamentals of the Financial and Strategic Management.

It has been the endeavour to provide a blend of theoretical concepts and practical orientation. Topics, such as, raising finance from financial institutions, dividend policies, etc. requiring legal expertise and procedural knowledge have been written. Topics such as, project appraisal, financial planning, portfolio management and securities analysis, working capital management and capital budgeting decisions, strategic management, business policy; strategic analysis & planning have been written keeping in view the financial and strategic management principles and the practical utility. Ample number of practical problems and case studies have been added to aid the student in their learning process.

Strategy is a broad concept that covers a multitude of different issues, concepts and methods. Strategy requires a significant amount of work to understand and even the experts often find themselves searching for new ways to research and think about the topic. For managers and leaders, strategy is at the centre of the effort to create value for customers to respond to competitive challenges and to build strong organizations. All this leads to make optimum utilization of organization's material and human resources in order to achieve better financial performance, improved qualitative decisions, employee motivation, minimum resistance to change, etc. by using various theories, models and management techniques. An organization always operates in the environment of risk and uncertainty which is the result of operation of multiple forces i.e. economic, technological, legal, political, social and global. Strategic management helps the organization to develop set of decisions and actions resulting in formulation and implementation of strategies designed to achieve the objectives of an organization in a given frame work.

Though efforts have been made to provide a self-contained study material yet it may require regular supplementation as the subject is of a dynamic and fast changing nature. Students are advised to update their knowledge continuously by reading economic dailies, financial magazines and journal and other relevant literature including reference and suggested readings on the subject. Students are expected to learn the art of applying the principles of financial management and strategic management to real business situations and for this case studies in these area would prove to be of immense use.

Although care has been taken in publishing this study material, yet the possibility of errors, omissions and/or discrepancies cannot be ruled out. This publication is released with an understanding that the Institute shall not be responsible for any errors, omissions and/or discrepancies or any action taken in that behalf.

Should there be any discrepancy, error or omission noted in the study material, the Institute shall be obliged if the same are brought to its notice for issue of corrigendum in the Student Company Secretary e-bulletin. In the event of any doubt, students may write to the Directorate of Professional Development, Perspective Planning and Studies in the Institute for clarification at academics@icsi.edu.

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EXECUTIVE PROGRAMME Module 2 Paper 8

Financial and Strategic Management (Max Marks 100)

Objective:

Part I: To provide knowledge of practical aspects of financial management so as to develop skills in taking financial and investment decisions.

Part II : To enable students to acquire multidimensional skills as to equip them to comprehend the process of strategy formulation.

Part I : Financial Management (60 marks)

Detailed Contents

1. Nature and Scope of Financial Management: Nature, Scope and Objectives of Financial Management; Risk-Return and Value of the Firm; Objectives of the firm; Profit Maximisation vs. Wealth Maximisation; Emerging roles of Finance Managers.

2. Capital Budgeting: Compounding and Discounting techniques ? Concepts of Annuity and Perpetuity; Capital Budgeting Process; Techniques of Capital Budgeting- Discounted and Non- Discounted Cash Flow Methods; Capital Rationing; Risk Evaluation and Sensitivity Analysis.

3. Capital Structure: Introduction- Meaning and Significance; Optimal Capital Structure; Determinants of Capital Structure; Theories of Capital Structure; EBIT - EPS Analysis; EBITDA Analysis; Risk and Leverage; Effects of Leverage on Shareholders' Returns.

4. Sources of raising long-term finance and Cost of Capital: Sources, Meaning, Factors Affecting Cost of Capital; Methods for Calculating cost of capital; Weighted Average Cost of Capital (WACC); Marginal Cost of Capital.

5. Project Finance : Project Planning - Preparation of Project Report, Project Appraisal under Normal Inflationary and Deflationary Conditions; Project Appraisal by Financial Institutions - Lending Policies and Appraisal Norms by Financial Institutions and Banks; Project Review and Control; Social Cost and Benefit Analysis of Project. Term loans from Financial institutions and Banks; Lease and Hire Purchase Finance; Venture Capital Funds; Private Equity; International Finance and Syndication of Loans, Deferred Payment Arrangements; Corporate Taxation and its Impact on Corporate Financing; Financing Cost Escalation.

6. Dividend Policy: Introduction- Types; Determinants and Constraints of Dividend Policy; Forms of Dividend; Different Dividend Theories. iv

7. Working Capital : Meaning, Types, Determinants and Assessment of Working Capital Requirements, Negative Working Capital; Operating Cycle Concept and Applications of Quantitative Techniques; Management of Working Capital - Cash Receivables Inventories; Financing of Working Capital; Banking Norms and Macro Aspects; Factoring and Forfaiting.

8. Security Analysis: Measuring of Systematic and Unsystematic Risk; Fundamental Analysis (Economic, Industry and Company); Technical Analysis and Efficient Market Hypothesis.

9. Portfolio Management: Meaning, Objectives; Portfolio Theory -Traditional Approach; Markowitz Portfolio Theory; Modern Approach - CAPM Model; Economic Value Added; Sharpe Single & Multi Index Model; Risk Adjusted Measure of Performance.

10. Introduction to Management: An Overview of functions of management.

Part II : Strategic Management (40 Marks)

11. Introduction to Strategic Management: An Overview- Meaning & Process; Strategic Leadership; Functions and Importance for Professionals like Company Secretaries; Environmental Influences of BusinessCharacteristics and Components of Business Environment, Factors of Micro & Macro Environment of Business; Competitive Environment and Porter's Five Force Model.

12. Business Policy and Formulation of Functional Strategy: Introduction to Business Policy; Framework of Strategic Management; Strategic Decision Model; Vision; Mission; Objectives and Goals; Strategic Levels of the Organization; Formulation of Functional Strategy-Formulation of Financial; Marketing; Production; Human Resource and Logistics strategies.

13. Strategic Analysis and Planning: Situational Analysis, Strategic Choices-SWOT and TOWS Analysis; PERT (Programme Evaluation Review Technique) and CPM (Critical Path Method); Portfolio analysisBoston Consulting Group (BCG) growth-share Matrix, Ansoff's Product Growth Matrix, ADL Matrix and General Electric (GE) Model; Strategic Planning; Strategic Alternatives-Glueck and Jauch and Michael Porter's Generic Strategies.

14. Strategic Implementation and Control: Issues in Strategy Implementation; Various Organizational Structures and Strategy Implementation; Leadership and its forms ; Strategic Change and Control.

15. Analysing Strategic Edge : Introduction to Business Process Reengineering; Concept of Benchmarking; Introduction to Total Quality Management and Six Sigma.

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