MIFP

FN5014- FINANCIAL MANAGEMENT

Course Content

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 Key Areas in Financial Management
1. Fundamental Concepts in Financial Management

A. Overview of Financial Management

i. Financial Management: management of the financial affairs of

various types of business. Three broad areas
Capital Budgeting
- The process of planning and managing a firms long-term
investments
Capital Structure
- Deciding the mixture of debt and equity maintained by a
firm
Working Capital Management
- Managing a firms short-term assets and short-term
liabilities.

ii. Key Activities of the Financial Manager

1. Financial Analysis and Planning
2. Investment Decisions (spending money)
3. Financing Decisions (raising money)

iii. Goal of Financial Management

- Profit Maximization?
- Maximization of the current value per share of the existing
shares (in a corporation).
- More generally, it is the maximization of the market value of
the existing owners equity.
- What about stakeholders?

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B. Risk and Return

i. Concept of Expected Return on:

a. Single Asset
b. Portfolio

ii. Concept of Risk for:

a. Single Asset
b. Portfolio

iii. Sources of Risk

a. Unique Risk
b. Market Risk

iv. Concept of Diversification

v. Capital Asset Pricing Model
vi. Required vs. Expected Rate of Return
vii. Relationship between Risk and Return
a. Market risk Premium
b. Security Market Line
c. Impact of changes in Inflations and Risk Aversion

C. Concepts in Valuation

i. Concept of time Value Of Money

ii. Concept of Compounding

a. Future Value Lump Sum
b. Future Value Annuity
c. Future Value Uneven Series of Payments

iii. Concept of Discounting

a. Present Value Lump Sum
b. Present Value Annuity
c. Present Value Uneven Series of Payments

D. Valuation of Financial Assets

i. Bonds
a. Valuation Models
b. Bond Yields

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 ii. Common Stocks
a. Valuation Models
b. Yields

2. The Investment Decision

A. Cost of Capital

i. Cost of Debt

ii. Cost of Preferred

iii. Cost of Equity

a. Cost of Retained Earnings
b. Cost of Common Stock

iv. Weighted Average Cost of Capital

B. Capital Budgeting

i. Definitions

ii. Valuation Process

a. Estimating Net Cash Outlay
b. Estimating Net Cash Inflow
c. Estimating Discount Rate

iii. Investment Decision Criteria

a. Payback
b. Discounted Payback
c. Internal Rate of Return
d. Modified Internal Rate of Return
e. Net Present Value

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3. The Financing Decision

A. Capital Structure and Leverage

i. Definitions
a. Target Capital Structure
b. Business Risk
c. Financial Risk
d. Breakeven

ii. Leverage
a. Operating Leverage
b. Financial Leverage
c. Total Leverage

B. Working Capital

i. Definitions

ii. Working Capital Cash flow Cycle

iii. Working Capital Financing Policies

iv. Cash Budgeting

v. Inventory Management

vi. Short-term Financing Alternatives

4. Special Topics

A. Derivatives

B. Islamic Financial Management