BBA | 4th Semester
BBA-BI | 6th Semester
BBA-TT | 6th Semester
Pokhara University – PU
Course Title: Financial Management
Course code: FIN 231
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This course aims to provide students with the basic understanding of important aspects of financial management and critically evaluate financial information. Students are introduced to concepts and tools that enable them to think critically about the financial opportunities and challenges faced by an organization. The course thus lays the foundation in students for further study in finance and equip them adequately to undertake financial decisions.
This course will deal with the basics of financial management, especially, introduction to financial management, concept of capital structure, effects of leverage, elementary knowledge on theory of capital structure, dividend policy, long-term and short-term financing, working capital management, and elementary knowledge on special topics such as derivatives, financial distress, merger and acquisition. Through lectures, readings and case studies students learn fundamentals of financial management and the skills and their application in financial decision making.
By the end of this course, students should be able to:
understand the nature of financial management;
understand the basic concept and issues of capital structure, effect of leverage; capital structure theories, and dividend policy as a part of capital structure decision;
identify the sources of long-term and short-term financing, short-term financing policies, and be familiar with the concept of venture capital, public offering and investment banking;
understand the concept of working capital and working capital management, and components of working capital;
understand the concept of derivatives, types of options, and gain the skill to calculate the value of options; and
understand the basic concept of financial distress, merger and acquisition, and international aspect of financial management.
Unit 1: Introduction 5 hours
Meaning of financial management; Financial management decisions; Financial manager’s responsibilities; Value maximization goal as a financial management decision criterion; The agency relationship; Concept of corporate governance.
Unit 2: Capital Structure and Leverage 6 hours
Concept of capital structure; Target capital structure; Business and financial risk; Break even analysis; Leverage: concept, operating leverage, financial leverage, total leverage, impact of financial leverage; Capital structure theories: traditional approach, net income approach, net operating income approach, the Modigliani-Miller’s proposition.
Unit 3: Dividend and Dividend Policy 5 hours
Nature of dividend policy; Cash dividend and dividend payment; Factors affecting dividend policy; Establishing a dividend policy; Stock repurchase; Stock dividend, stock split and reverse split.
Unit 4: Raising Capital 6 hours
Term loan; Bonds: meaning and features, types, bond innovation; Preferred stock: features, advantages and disadvantages; Common stock: equity account in balance sheet, Rights and privileges of common stockholders; features of common stock; Cost and benefit of debt versus equity; Methods of selling securities; Initial public offerings; Concept and functions of investment bankers; Concept of venture capital; Concept of lease financing.
Unit 5: Short-Term Financial Planning 6 hours
Concept of short-term financial management; Tracing cash and net working capital; The operating cycle and the cash cycle; Important aspects of short-term financial policy: The size of the investment in current assets, alternative financing policies for current assets; Cash budget.
Unit 6: Short-term Financial Management 11 hours
Float and cash Management: reasons for holding cash and understanding float; Cash management: collection, disbursement and investment; Credit and receivables: components of credit policy, terms of sales, optimal credit policy, credit analysis, collection policy; Inventory management: concept and types, inventory management techniques—ABC approach, and EOQ.
Unit 7: Introduction to Derivatives 5 hours
Concept of derivative and underlying assets; Option: meaning, types, determinants of option value, valuation of call option and put option; Futures contract and forward contract; Warrants: meaning, features, valuation; Convertibles: meaning, Conversion ratio, conversion price and conversion value.
Unit 8: Special Topics 4 hours
Merger and acquisition: meaning, motives, types, difference between merger and acquisitions; Financial distress: concept of financial distress, bankruptcy and liquidation.
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