cial Managem
an ent
Fin
TOPIC NUMBER 5
Objectives and Scope of Financial
Management
2.1.1 Nature, Purpose and Scope
Goals like maximizing shareholder wealth, ensuring
profitability, and maintaining liquidity.
2.1.2 Role of Financial Managers
Investment Decisions: Allocating resources,
analyzing ROI, and risk assessment.
Operating Decisions: Overseeing daily cash flow,
budgeting, and cost control.
Financing Decisions: Debt vs. equity choices,
capital structure management.
Financial Management Concepts and
Techniques for Planning, Control & Decision
Making
2.2.1 Financial Statement Analysis
2.2.1.1 Vertical Analysis: Common-size financial
statements.
2.2.1.2 Horizontal Analysis: Trend percentages and
index analysis.
2.2.1.3 Cash Flow Analysis: Interpretation of cash
flows including free cash flow concept.
2.2.1.4 Gross Profit Variance Analysis: Impact of
price, cost and volume factors.
2.2.1.5 Financial Ratios: Liquidity, solvency, activity
profitability, growth and other ratios, Du Pont model.
2.2.1.6 Financial Forecasting: Additional funds
needed (AFN).
Working Capital Management
2.2.2.1 Concepts and Significance: Why
working capital is essential?
2.2.2.2 Investment and Financing Policies:
Conservative, aggressive and the hedging or
moderate approach.
2.2.2.3 Cash and Marketable Securities: Cash
conversion cycle, optimal cash balance,
collection and disbursement float, cash
management system.
2.2.2.4 Receivables Management: Average
balance of and investment in accounts
receivable, incremental analysis and evaluation
of discount, collection and credit policies.
2.2.2.5 Inventory Management: Carrying,
ordering and stock-out costs, inventory control
system including EOQ model, safety stock,
reorder point.
2.2.2.6 Sources of Short-Term Funds: Trade
credit, bank loans, commercial papers, receivable
factoring credit lines and revolving credit.
2.2.2.7 Estimating Cost of Short-Term Funds:
Annual cost of trade credit, effective and
nominal annual rate of short-term funds.
