Essentials of Financial Management

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Published by Vijay Nicole Imprints Private Limited

Publication Date: Thu Jun 01 00:00:00 UTC 2017 Available in all formats

ISBN: 9789393161925

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ISBN: 9788182095076 Price: INR 225.00

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Table of contents

Biographical note

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This book,essentials of Financial Management is designed for undergraduate students of commerce and management.

SALIENT FEATURES

covers important topics such as time value of money,cost of capital,capital structure,Leverage Analysis,divident policy and working capital management.

Includes numerous illustrations-most from recent previous year question papers-step-by-step solutions with working notes.

Provides essential theory,graded problems and solutions ana a large number of unsolved problems,

Cover
Halftitle Page
Title Page
Copyright Page
Contents
Preface
Chapter 1: Financial Management — Nature, Scope and Basic Concepts
- Introduction
  - Meaning
- Definition of Financial Management
  - Importance of Financial Management
  - Major Areas of Financial Management
- Scope and Functions of Financial Management
  - Traditional Approach of Financial Management
  - Modern Approach of Financial Management
  - Role of Chief Financial Officer
  - Functions of the Financial Manager
- Goals or Objectives of Financial Management
  - Profit Maximisation Decision Criterion
  - Wealth Maximisation Decision Criterion
  - Other Important Decision Criterion
  - Methods and Tools
- Finance and Other Related Disciplines
- Organization of Financial Management
  - Changing Scenario of Financial Management in India
  - Role of Finance Manager in the Changing Scenario of Financial Management in India
- Questions
Chapter 2: Time Value of Money
- Introduction
  - Definition
  - Methods of Analysis
  - Meaning of Interest
  - Meaning of Future Value of Money
- Simple Interest
  - Calculation of Future Value and Principal
- Compound Interest
  - Doubling Period
  - Future Value of an Annuity
- Present Value
  - Present Value of Perpetual Annuity
- Annuities
- Practical Problems
- Questions
Chapter 3: Cost of Capital
- Introduction
  - Meaning
  - Definition of Cost of Capital
  - Basic Aspects of Cost of Capital
  - Components of Cost of Capital
  - Factors Affecting Cost of Capital
  - Importance of Cost of Capital
- Classification of Cost of Capital
  - Explicit Cost and Implicit Cost
  - Future Cost and Historical Cost
  - Specific Cost and Combined Cost
  - Average Cost and Marginal Cost
- Assumptions of the Cost of Capital
- Methods of Computation of Cost of Capital
  - I. Measurement of Specific Cost of Capital for Different Sources of Funds (Cost of Specific Sources)
  - II. Computation of Weighted Average Cost of Capital or Overall Cost of Capital (Combining the Specific Costs)
  - Measurement of Specific Cost of Capital
- CAPM
  - Weighted Average Cost of Capital or Overall Cost of Capital
- Practical Problems
- Questions
Chapter 4: Capital Structure Theories
- Introduction
  - Capital Structure
- Patterns of Capital Structure
  - Financial Structure
  - Total Capital Structure
- Optimum or Ideal Capital Structure
  - Features of Optimum Capital Structure
  - Factors to be Considered in Determining Capital Structure
  - Trading on Equity
- EBIT-EPS Analysis
  - Techniques of Planning the Capital Structure
  - Merits of EBIT-EPS Analysis
- Theories of Capital Structure
  - Net Income (NI) Approach (Relevance of Capital Structure)
  - Decision
  - Net Operating Income (NOI) Approach (Irrelevance of Capital Structure)
  - Traditional Approach
  - Modigilani-Miller (MM) Approach (Irrelevance of Capital Structure)
- Practical Problems
- Questions
Chapter 5: Leverage Analysis
- Introduction
  - Meaning of Risk and Leverages
    - Business Risk
    - Financial Risks
  - Meaning of Leverage
  - Operating Leverage and Business Risks
  - Operating Leverage
  - Degree of Operating Leverage
  - Format of Operating Profit /EBIT and EPS for Calculation of Leverage
- Financial Leverage
  - Meaning and Definition
  - Financial Leverage and Financial Risks
  - Use of Financial Leverage Affects the Financial Risk
  - Difference between Financial Leverage and Operating Leverage
  - Significance of Financial Leverage
  - Determination of Financial Leverage
- Combined or Composite Leverage (Total Risk)
  - Combined Leverage and Total Risks
  - Measurement of Combined Leverage Indicates
  - Calculation of Leverage
- Practical Problems
- Questions
Chapter 6: Dividend Policy
- Introduction
  - Meaning of Dividend
  - General Rules for Recording Dividend
  - Types of Dividend
  - Sources Available for Dividends
- Dividend Policy
  - Meaning
  - Definition
  - Nature
  - Objective
  - Types of Dividend Policy
  - Major Aspects of Dividend Policy
- Factors Affecting Dividend Policy
- Theories of Dividend Policy
  - Relevance Concept of Dividend
- I. Walter Model
  - (a) Growth Firm
  - (b) Normal Firm
  - (c) Declining Firm
- II. Gordon's Model
  - (a) Growth Firm
  - (b) Normal Firm - Gordon's Model
  - (c) Declining Firm - Gordon's Model
  - Irrelevance Concept of Dividend
- Practical Problems
- Questions
Chapter 7: Working Capital Management
- Introduction
  - Meaning
  - Definition
- Components of Working Capital
  - Need for Working Capital
- Types of Working Capital
  - Gross Working Capital
  - Net Working Capital
  - Permanent Working Capital
  - Temporary Working Capital
  - Balance Sheet Working Capital
  - Cash Working Capital
  - Reasons for Changes in Working Capital
  - Dangers of Excess Working Capital
  - Dangers of Inadequate Working Capital
- Determinants of Working Capital
  - Internal Factors
  - External Factors
- Assessment of Working Capital Requirements
  - Percentage of Sales Method
  - Operating Cycle (or) Cash Working Capital Method
  - Estimation of Components of Working Capital Method
  - Objectives of Working Capital
  - Adequacy of Working Capital Management
- Sources of Working Capital
  - Long-Term Sources of Working Capital
  - Medium and Short-Term Sources of Working Capital
  - Working Capital Control and Banking Policy
  - Liquidity and its Test
- Practical Problems
- Questions
Chapter 8: Cash Management
- Introduction
- Meaning of Cash
  - Nature of Cash
- Objectives of Cash Management
- Motives for Holding Cash
- Functions of Cash Management
  - Controlling Inflow of Cash or Sources of Cash
  - Control Over Cash Outflows or Application of Cash
  - Optimum Investment of Surplus Cash
  - Controlling Level of Cash
- Cash Cycles and Cash Turnover
  - Different Stages in Cash Cycle Model
- Cash Forecasts
  - Types of Cash Forecasts
  - Methods of Cash Forecasts
  - Difference between Cash Forecast and Cash Budgets
  - Items of Cash Receipts and Cash Payments
- Questions
- Practice Problems
Chapter 9: Inventory Management
- Introduction
  - Meaning and Definition of Inventories
  - Need to Hold Inventories
  - Types of Inventory
  - Factors Affecting the Volume of Inventories
  - Advantages of Holding Inventory
  - Disadvantages of Excessive or Inadequate Inventories
- Meaning and Definition of Inventory Control
  - Objectives of Inventory Control Management
  - Inventory Costs
- Inventory Control Techniques
  - Economic Order Quantity (EOQ)
- Fixation or Determination of Stock Levels
  - Re-order Level
  - Minimum Stock Level
  - Maximum Stock Level
  - Danger Level
  - Average Stock Level
- ABC Analysis
  - Procedure for implementing ABC analysis
- VED Analysis
- FSN Analysis
- Pareto Analysis
- Just-In-Time (JIT) Inventory System
  - Basic Elements Required to JIT Inventory System
  - Benefits of Just-In-Time (JIT)
- Classification and Codification of Materials
  - Advantages of Codification
  - Methods of Coding
- Inventory System
  - Periodic Inventory System
  - Perpetual Inventory System
  - Continuous Stock Verification
- Material Storage Losses
- Inventory Turnover Ratio
  - Calculation of Inventory Turnover Ratio
  - Advantages
- Practical problems
- Questions
Chapter 10: Source of Finance
- Introduction
  - Short-Term Finance
  - Purpose of Short-Term Finance
  - Long-Term Finance
  - Purpose of Long-Term Finance
- Security Financing-Shares and Debentures
- Issue of Shares
  - Meaning of Shares
  - Kinds of Shares
- Issue of Debentures
  - Features of Debentures
  - Kinds of Debentures
  - Advantages of Debentures
  - Disadvantages of Debentures
- Loan Financing from Financial Institutions-National
  - Industrial Financial Institutions
  - Investment Financial Institutions
  - Institutions for Small-Scale Industries
- Loan Financing from Financial Institutions International
  - International Bank for Reconstruction and Development (IBRD) or World Bank
  - International Finance Corporation (IFC)
  - International Development Association (IDA)
  - Multinational Investment Guarantee Agency (MIGA)
  - Asian Development Bank (ADB)
- Questions
Chapter 11: Capital Budgeting
- Meaning
- Definition of Capital Budgeting
- Features of Capital Expenditure
  - Importance of Capital Budgeting / Expenditure
  - Objectives of Capital Budgeting / Expenditure
  - Planning (or) Decisions Capital Expenditure / Investment Proposals
  - Principles or Factors of Capital Budgeting Decisions
- Capital Budgeting / Expenditure Process
  - Accept or Reject Decisions
  - Rationale of Capital Expenditure
  - Types of Capital Expenditure
- Types of Capital Budgeting Proposals
- Methods of Evaluating Capital Investment Proposals
- Traditional Methods
  - Pay-Back Period Method
  - Rules of Acceptance
  - Improvement of Traditional Approach to Pay-back Period Method
  - Average Rate of Return Method (ARR) or Accounting Rate of Return Method
  - Rules of Acceptance
  - Advantages
  - Disadvantages
- Discounted Cash Flow Method (or) Time Adjusted Method
  - Disadvantages
  - Net Present Value (NPV) Method
  - Advantages of Net Present Value Method
  - Disadvantages
  - Internal Rate of Return (IRR) Method
  - Rules of Acceptance
  - Profitability Index (PI) Method
  - Rules of Acceptance
  - Advantages of Profitability Index
  - Disadvantages
- Practical Problems
- Questions
Chapter 12: Financial Planning
- Meaning
- Definition of Financial Planning
  - Characteristics of a Sound Financial Plan
  - Factors Affecting Financial Plan
- Theories of Capitalisation
  - Cost Theory of Capitalisation
  - Earning's Theory of Capitalisation
- Fair Capitalisation
- Over-capitalisation
  - Features of Over-Capitalisation
  - Causes of Over-Capitalisation
  - Effects of Over-Capitalisation
- Under-Capitalisation
  - Effects of Under-Capitalisation
  - Remedies for Under-Capitalisation
- Conclusion
- Questions
Chapter 13: Management of Accounts Receivable
- Meaning and Definition
- Objectives of Accounts Receivable Management
- Advantages or Benefits of Accounts Receivable Management
- Cost of Maintaining Accounts Receivables
- Formulation of Credit Policies
  - Credit Standard
  - Liberal Credit Standard:
  - Strict or Restrictive Credit Standard
  - Effects of Liberalizing Credit Standards on Profit
  - Credit Terms
  - Credit Analysis (or) Evaluation of Credit
  - Credit Decisions and Line of Credit
- Factors Influencing the Size of Receivables
  - Control of Accounts Receivable
  - Traditional Approach
  - Modern Approach
- Practical Problems
- Questions
University Question Papers
Index

Dr. P Periasamy is Reader in the Department of Business Management, Erode Arts College (Autonomous), Erode. He has more than 25 years of teaching and research experience. He has contributed innumerable research papers published in various reputed journals. He has authored books like Financial Management, Insurance: Principles & Practice, Risk and Insurance Management and Working Capital Management.

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