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C H A R T E R E D L E VE L

S T R A T E G I C F I N A N C I A L M A N A G E M EN T (C - 3 )

G RI D WEIG HTAG E
PART-A
15%
Finance, Fin ancial Analysis and Financial Strategy Formulation
PART-B
15%
Working Capital Management
PART-C
15%
Valuation of Securities
PART-D
25%
Cost of Capital, Capital Structure and Financing Decisions
PART-E
15%
Business Valuations, Mergers & Acquisitions and Dividend Policy
PART-F
15%
Treasury Function
To t a l 100%

SYLLABUS OVERVIEW: Learn role of financial information in financial


This course is designed to equip students with the control process
skills that would be expected from a finance manager Identify various financial techniques and
responsible for the finance function of a business. describe their applications,
The course starts by introducing the role and Understand and evaluate the advanced issues
purpose of the financial management function within in capital budgeting and recommend methods
a business. Before looking at the three key financial of funding investments,
management decisions of investing, financing, and Suggest optimal capital structure
dividend policy, the syllabus explores the economic Explain the criteria that management uses to
environment in which such decisions are made. The determine whether profit should be reinvested
next section of the syllabus is the introduction of or paid out as dividends,
investing decisions. This is done in two stages - Outline the factors to be considered in the
investment in (and the management of) working development of dividend policy,
capital and the appraisal of long-term investments. Describe how to manage financial risks of
The next area introduced is financing decisions. This proposals for mergers and acquisitions,
section of the syllabus starts by examining the Explain various steps involved in mergers &
various sources of business finance, including acquisitions & corporate restructuring,
dividend policy and how much finance can be raised Describe the procedures for transfer of money
from within the business. It also looks at the cost of from one country to another,
capital and other factors that influence the choice of Describe the procedures for foreign exchange
the type of capital a business will raise. The control in business,
principles underlying the valuation of business and Manage short term financing activities.
financial assets, including the impact of cost of Identify and evaluate the financial and
capital on the value of business, is covered next. strategic implications
Distinguish concepts of portfolio theory and
LEARNING OUTCOMES: apply its principles in the process of
On completion of this course, students will be able to: investment portfolio formation;
Identify the objectives of the business in Execute the portfolio performance measures
financial terms and evaluate their attainment

DETAILED CONTENTS WEIGHTAGE IN %


PART-A
FINANCE, FINANCIAL ANALYSIS AND FINANCIAL STRATEGY FORMULATION
1. Role of Finance in Introduction to Corporate Finance
Business Major areas and functions of Financial
Management
Goals of the firm
Introduction to Corporate Governance
Organization of Financial Management 15
Function
2. Financial Markets Forms of Business Organizations
The purpose of Financial Markets
Classification of Financial Markets
Financial Intermediaries
1
Determination of interest rates
Term structure of interest rates, the yield
curve
3. Analysis of Financial Financial Statements
Statements Balance Sheet Ratios
Income Statement and Income
Statement/Balance Sheet Ratios
Market Ratios
Trend analysis
Common size and Index analysis
4. Cash flow analysis and Sources and Uses of funds
Financial Planning Statement of cash flows
Cash flow forecasting
Forecasting Financial Statements
Sustainable growth modelling
5. An Introduction to Strategic Objectives of an organization
Financial Strategy Importan ce of Financial Strategy to the
organization
Relationship between investment, financing
and dividend decisions
Internal and external constraints of strategy
Stakeholder conflicts
Impact of regulation on business
combinations
6. Performance Performance evaluation
measurement in Strategic Evaluation for attainment of organizations
Finance financial objectives
Forecasting financial statements
Evaluation of alternative financial strategies
for an organization
PART-B
WORKING CAPITAL MANAGEMENT
7. Overview of Working Working Capital concepts
Capital Management Working Capital issues, significance of
working capital management
Profitability and risk: Optimal level of
Current Assets
Financing currents assets: Short term and
long term mix
Combining liability structure and Current
asset decisions
8. Cash and Marketable Motives for holding cash
Securities Management Speeding up Cash receipts
Slowing down cash payments
Electronic Commerce
Cash balances to maintain
Investment in marketable securities
15
Money market instruments
Miller and Orr Model of Cash Management
Baumol Model of Cash Management
9. Receivables, Payables and Credit and Collection policies
Inventory Management Costs and Benefits
Credit Standards, terms and analysis
Payment Terms and Settlement Discounts
Inventory management and control
Costs and ben efits of holding inventory
Economic order quantity, re-order levels
and safety stocks
10. Short Term Financing Spontaneous Financing
Negotiated Financing
Factoring Account Receivable
Composition of Short Term Financing

2
PART-C
VALUATION OF SECURITIES
Gross and net realized returns, and the
realized return for a bond over a holding
period including reinvestments
Spread of a bond, and how a spread is
derived from a bond price and a term
structure of rates
Bonds yield-to-maturity (YTM) to bond
pricing
Bonds YTM given a bond structure and
11. Returns, Spreads and price
Yields Price of an annuity and a perpetuity
Relationship between spot rates and YTM
Coupon effect and the relationship between
coupon rate, YTM, and bond prices.
Decomposition of P&L for a bond into
separate factors including carry roll-down,
15
rate change, and spread change effects
Most common assumptions in carry roll-
down scenarios, including realized forwards,
unchanged term structure, and unchanged
yields
12. The Valuation of Long Valuation concepts
Term Securities Bonds valuation: Perpetual bonds, bonds
with finite maturity, zero coupon bonds
Preferred Stock valuation
Common Stock valuation
Dividend discount models (no growth,
constant growth and phased growth)
Earnings Multiplier approach
Rates of return (Yields): Common Stock,
Preferred Stock, Bonds (YTM, YTC)
PA R T- D
COST OF CAPITAL, CAPITAL STRUCTURE AND FINANCING DECISIONS
13. Risk and Return Defining risk and return
Measures of risk and return
Using probability distribution to measure
expected return and risk
Attitude towards risk
Risk and return in a portfolio context
Systematic and Unsystematic risk
Diversification
The Capital Asset Pricing Model (CAPM)
The Efficient Market Hypothesis, forms of
market efficiency
14. Operating and Financial Concept of Leverage
Leverage Operating Leverage
Operating Break Even Analysis
25
Degree of Operating Leverage and Business
Risk
Financial Leverage
EBIT-EPS Analysis
Degree of Financial Leverage and Financial
Risk
Total Leverage
Cash Flow ability to service debt
15. Capital Structure Capital Structure Concept and Overview
Net Operating Income approach
Traditional approach
The total value principle
Presence of market imperfections and
incentive issues

3
The effect of taxes
Financial signalling
16. Cost of Capital Creation of value
Sources of finance
Determining component cost of funds
Determining component weights
Determining Overall Weighted Average Cost
of Capital (WACC)
Risk Adjusted WACC
17. Financing Equity Introduction to financing and sources of
Finance Finance
Criteria for selecting sources of finance
Equity Finance
Capital Markets and their types
Methods of issuing new shares
Right issues
Theoretical Ex-Right Price (TERP)
18. Financing Debt Finance Debt Finance: Security, Covenants
Types of Debt Finance
Interest rate risk and refinancing risk
exposures
Other sources of fin ance
Lease Vs Buy decisions
19. Financing Capital Changing Capital Structure
Structure Decisions Financing Mix and the cost of capital
Capital Structure - Traditional view
Capital Structure Modigliani and Millers
view
Homemade Leverage
Gearing and de-gearing of beta factors: Asset
betas, equity betas and debt betas
Real World practical implications
Taxes and Capital Structure
Agency theory, pecking order hypothesis,
information asymmetry, bankruptcy costs
PART-E
BUSINESS VALUATIONS, MERGERS & ACQUISITIONS AND DIVIDEND POLICY
20. Business Valuation Introduction to business valuation
Different valuation methods: Asset based
models, Market relative (Earning multiple)
models, Divided discount models, Free Cash
flow models FCFF,FCFE, Market value based
approach, Market value added (MVA),
Economic value added (EVA)
Valuation of intangible assets: Calculated
Intangible Value (CIV)
21. Financial and Strategic Types of Mergers/Acquisitions
Implications of Mergers Reasons for mergers or acquisitions
and Acquisitions The exchange ratio
15
Bootstrapping and post acquisition values
Defence against hostile takeover bids
Form of consideration for a takeover
Post-merger or post-acquisition integration
process
The role and scope of competition
authorities
Divestment
Management buyouts (MBOs), Leverage
buyouts (LBOs)
Exit Strategies
22. Dividend Policy and Dividend policy an introduction
decision making: Theory Passive versus Active Dividend policies

4
and Practice Irrelevance of dividend: Modigiliani and
Miller (MM) Hypothesis anmd model
Hamada equation
Relevance of dividends: Walters Model and
Gordans Model
Factors influencing dividend policies
Dividend stability
Administrative Considerations
Practical implications: Taxes, Clientele
effect, Bird in hand argument, Sign alling
effect
Dividend policies in practice
Stock dividends, Stock splits and share
repurchase as a part of dividend policy
Managerial considerations as to
dividend/share repurchase policy
PART-F
TREASURY FUNCTION
23. Treasury An Treasury - evolution, importance, theories,
Introduction functions, classification
Liquidity Management in Treasuries Cash
Forecasting
Banking Relationships
Credit Management
Treasury Products and Services
Risk management policy

24. The Mathematics of Cross-currency forwards calculation of


Treasury Management premium / discount etc. pre-utilization of
contracts
Exchange Rate and Interest Rate arbitrage
NDF markets. 15

25. Financial Derivatives Forwards, Futures and FRAs


Use of derivative products like interest rate
futures and currency futures
Collars & Options
Futures & Options their uses

26. Accounts and Audit of Treasury Units - accounting, administration,


Treasury Operations planning, MIS
Internal Audit of Treasury functions and
departments
Audit of regulatory compliance
Issues in the management of integrated
treasury function
TOTAL WEIGHTAGE 100

Recommended Books & Other Resources


CORE READINGS
TITLE AUTHOR PUBLISHER
Financial Management: Theory and Eugene F. Brigham/ Joel F.
South Western/ Cengage Learning
Practice Houston
Financial Management and Policy James C. Van Horn Prentice Hall/Pearson
Financial Strategy (CIMA F-3) Study Text Kaplan Publishing
Advanced Financial Management (ACCA
Kaplan Publishing
P-4) Study Text
ADDITIONAL READING
Principles of Managerial Finance Lawrence J. Gitman Prentice Hall /Pearson / Financial Times

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