Financial Management-I (FM)

Course Objectives
 Understand the financial objectives of business organizations, the relationship
between financial management and accounting, and how to balance and align
stakeholder objectives with corporate strategy.
 Learn about the macroeconomic environment, including fiscal, monetary, interest
rate, and exchange rate policies, and how these interact with business planning and
decision-making.
 Comprehend the nature and role of money and capital markets, the functions of
financial intermediaries, stock markets, and bond markets, and the impact of Fintech
on financial markets and institutions.
 Understand the elements of working capital, its management for balancing
profitability and liquidity, and the application of various models and strategies for
effective working capital financing.

Course Outcomes
 Students will be able to identify and evaluate financial objectives, balance stakeholder
interests, and link financial objectives with corporate strategy in both profit and not-
for-profit organizations.
 Students will understand the impact of macroeconomic policies on business decisions
and planning, and how government policies influence business operations and
strategy.
 Students will be able to explain the roles and functions of money and capital markets,
assess the risk/return trade-offs of different securities, and understand the influence of
Fintech on financial markets.
 Students will be proficient in managing working capital components, optimizing
inventory, receivables, and payables, and applying models like Baumol’s and Millar-
Orr for effective cash management.

Unit 1 - Role & purpose of finance function

Financial objective of a business organisation – relationship between financial management
and financial and management accounting-shareholder value maximisation v/s profit
maximisation, growth in earning per share, total shareholder return – possible conflict
between stakeholder objectives and balancing them– linkage of financial objective with
corporate strategy – financial & other objectives of a not-for-profit organisation.

Unit-2
Financial Management environment
Economic environment for business- macroeconomic policy targets, role of fiscal, monetary,
interest rate and exchange rate policies in achieving macroeconomic policy targets,
government economic policy interacts with planning and decision-making in business,
 planning and decision-making in business of (competition policy, government assistance for
business, green policies, corporate governance regulation)

Unit-3
Financial markets and institutions
Nature and role of money and capital markets, both nationally and internationally- role of
financial intermediaries, functions of a stock market and a corporate bond market, nature and
features of different securities in relation to the risk/return trade-off, Fintech in changing the
nature and role of financial markets and institutions, nature and role of money markets,
characteristics and role of the principal money market instruments(interest-bearing
instruments, discount instruments, derivative products)

Unit-4
Working capital management
Elements and composition of working capital – objective of working capital management
through balancing of profitability v/s liquidity – cash operating cycle, factors influencing it
and computation thereof – management of inventory through EOQ, inventory levels,
availing bulk discounts, early payment discounts and Just-In-Time (JIT) techniques –
management of receivables through credit policy, early settlement discounts, extending
credit period, factoring & invoice discounting – managing accounts payables through bulk
discounts, early payment discounts – managing cash using Baumol’s model and Millar-Orr
model – working capital financing strategies.

Text Books:
Financial Management, Kaplan Publications

Reference Books:
Financial Management, BPP Publications
 Financial Management-II (FM)
Course Objectives
 Understand and apply various investment appraisal techniques, including sensitivity
analysis, probability analysis, and other methods to adjust for risk and uncertainty, as
well as make specific investment decisions such as lease or buy, asset replacement,
and capital rationing.
 Learn about the sources and methods of raising business finance, both short-term and
long-term, estimate the cost of capital using different models, and understand the
theories and practical considerations related to capital structure and finance for SMEs.
 Comprehend the nature, purpose, and models of business and financial asset
valuation, including asset-based, income-based, and cash flow-based models, and
understand the Efficient Market Hypothesis and its implications for share valuation.
 Understand the nature and types of risk, approaches to risk management, and
techniques for hedging foreign currency and interest rate risks.

Course Outcomes
 Students will be able to evaluate investment projects using sensitivity analysis,
probability analysis, and other risk-adjustment methods, and make informed
investment decisions regarding leasing, buying, and capital rationing.
 Students will understand the various sources of finance, methods of raising capital,
estimate the cost of capital using models like CAPM and dividend growth, and apply
capital structure theories in practical scenarios, including finance for SMEs.
 Students will be able to perform business and financial asset valuations using different
models, understand the requirements and limitations of valuation information, and
apply the Efficient Market Hypothesis in practical share valuation considerations.
 Students will be able to identify different types of risk, understand the causes of
exchange rate and interest rate fluctuations, and apply appropriate hedging techniques
for managing foreign currency and interest rate risks.

Unit-1
Investment appraisal techniques
Sensitivity analysis to investment projects, usefulness of sensitivity analysis, probability
analysis, usefulness of probability analysis, other techniques of adjusting for risk and
uncertainty in investment appraisal (simulation, adjusted payback and risk-adjusted
discount rates) Specific investment decisions (Lease or buy, asset replacement, capital
rationing) leasing and borrowing to buy using the before- and after-tax costs of debt- asset
replacement decisions using equivalent annual cost and equivalent annual benefit,
investment decisions under single-period capital rationing(problems on profitability
indexes for divisible investment projects, NPV of combinations of non-divisible
investment projects and discussion of the reasons for capital rationing)
 Unit-2
Business finance
Sources of, and raising, business finance- range of short-term sources of finance (overdraft,
short-term loan, trade credit and lease finance) range of long-term sources of finance
(equity finance, debt finance, lease finance and venture capital) methods of raising equity
finance-(rights issue placing, public offer and stock exchange listing) Estimating the cost of
capital- dividend growth model, capital asset pricing model (CAPM) – problems on cost of
debt- problems overall cost of capital- Sources of finance and their relative costs- Capital
structure theories and practical considerations- Finance for small and medium sized entities
(SMEs)

Unit-3
Business valuations
Nature and purpose of the valuation of business and financial assets- requirements for
valuation, limitations of different types of information, Models for the valuation of shares-
asset-based valuation models, income-based valuation models, cash flow-based valuation
models, valuation of debt and other financial assets- Efficient Market Hypothesis (EMH)
and practical considerations in the valuation of shares.

Unit-4
Risk Management
Nature and types of risk and approaches to risk management- different types of foreign
currency risk, different types of interest rate risk, Causes of exchange rate differences and
interest rate fluctuations- Hedging techniques for foreign currency risk (No numerical
questions will be set on this topic)- Hedging techniques for interest rate risk(No numerical
questions will be set on this topic).

Text Books:
Financial Management, Kaplan Publications

Reference Books:
Financial Management, BPP Publications