Digital Notes
Financial Management
R20MBA12
MBA I Year II Semester
AY 2020-22
MRCET MBA
,Course Aim/s:
To give an overview of the problems facing a financial manager in the commercial
world.
It will introduce the concepts and theories of corporate finance that underlie the
techniques that are offered as aids for the understanding, evaluation and resolution of
financial manager’s problems.
Learning Outcome/s:
Provides support for decision making.
It enables to monitor their decisions for any potential financial implications and for
Lessons to be learned from experience and to adapt or react as needed.
To ensure the availability of timely, relevant and reliable financial and nonfinancial
Information. FM helps in understanding the use of resources efficiently, effectively and
economically.
Unit-I: The Finance Function
Introduction to Finance: Nature and Scope - Finance Function - It’s Role in the Contemporary
Scenario - Goals of Finance Function - Maximizing vs. Satisfying - Profit vs. Wealth vs. Welfare -
The Agency Relationship and Costs - Risk-Return Trade Off.
Time Value of Money: Concept - Future Value and Present Value and the Basic Valuation Model.
Unit-II: The Investment Decision
Investment Decision Process: Project Generation - Project Evaluation - Project Selection and Project
Implementation - Developing Cash Flows - Data for New Projects.
Capital Budgeting Techniques: Traditional and DCF methods - The NPV vs. IRR Debate. (Theory &
Problems)
Cost of Capital: Concept and Measurement of Cost of Capital - Debt vs. Equity - Cost of Equity -
Preference Shares - Equity Capital and Retained Earnings - Weighted Average Cost of Capital and
Marginal Cost of Capital (Theory & Problems) - Importance of Cost of Capital in Capital Budgeting
Decisions.
Unit-III: Capital Structure Decisions
Capital Structure vs. Financial Structure: Capitalization - Financial Leverage - Operating Leverage
and Composite Leverage. (Theory & Problems)
EBIT-EPS Analysis: Indifference Point/Break-Even Analysis of Financial Leverage.
Capital Structure Theories: The Modigliani Miller Theory - Net Income - Net Operating Income
Theory and Traditional Theory (Theory & Problems) - A Critical Appraisal.
Unit-IV: Dividend Decisions
Major Forms of Dividends: Cash and Bonus Shares.
Dividends and Value of the Firm: Relevance of Dividends - The MM Hypothesis - Factors
Determining Dividend Policy - Dividends and Valuation of the Firm - The Basic Models.
Dividend Theories: Major Theories centred on the works of GORDON, WALTER and LITNER.
(Theory & Problems)
Unit-V: Management of Current Assets
Working Capital Management: Components of Working Capital - Gross vs. Net Working Capital -
Determinants of Working Capital Needs - The Operating Cycle Approach - Planning of Working
Capital - Financing of Working Capital through Bank Finance and Trade Credit;
Management of Cash: Basic Strategies for Cash Management - Cash Budget (Problems) - Cash
Management Techniques/Processes;
Management of Receivables & Inventory.
MRCET MBA
,REFERENCES:
IM Pandey, Financial Management, 10th Edition, Vikas.
M.Y Khan, P K Jain: “Financial Management-Text and Problems”, 6th Edition, TMH.
Prasanna Chandra, “Financial Management Theory and Practice”, 8th Edition, TMH.
Shashi K. Gupta, R. K. Sharma, “Financial Management” Kalyani Publishers.
Rajiv Srivastava, Anil Mishra, Financial Management” Oxford University Press, New Delhi.
James C Van Horne, Sanjay Dhamija, “Financial Management and Policy” Pearson
Education.
MRCET MBA
, UNIT 1
MEANING OF FINANCE
Finance may be defined as the art and science of managing money. It includes
financial service and financial instruments. Finance also is referred as the
provision of money at the time when it is needed. Finance function is the
procurement of funds and their effective utilization in business concerns
Definition:
According to GUTHMANN and DOUGALL, business finance may be broadly
defined as “the activity concerned with the planning, raising, controlling and
administering the funds used in the business.”
Financial decisions refer to decisions concerning financial matters of a business
firm. There are many kinds of financial management decisions that the firm
makers in pursuit of maximizing shareholder‟s wealth, viz., kind of assets to be
acquired, pattern of capitalization, distribution of firm‟s income etc. We can
classify these decisions into three major groups:
Investment decisions
Financing decision.
Dividend decisions.
Working capital decisions.
NATURE OF FINANCE FUNCTION:
I. In most of the organizations, financial operations are centralized. This
results in economies.
II. Finance functions are performed in all business firms, irrespective of
their sizes /legal form of organization.
III. They contribute to the survival and growth of the firm.
IV. Finance function is primarily involved with the data analysis for use in
decision making.
V. Finance functions are concerned with the basic business activities of a
firm, in addition to external environmental factors which affect basic
business activities, namely,production and marketing.
VI. Finance functions comprise control functions also
VII. The central focus of finance function is valuation of the firm. Finance
makes use of economic tools. From Micro economics it uses theories and
assumptions. From Macro economics it uses forecasting models. Even
though MRCET MBA
Financial Management
R20MBA12
MBA I Year II Semester
AY 2020-22
MRCET MBA
,Course Aim/s:
To give an overview of the problems facing a financial manager in the commercial
world.
It will introduce the concepts and theories of corporate finance that underlie the
techniques that are offered as aids for the understanding, evaluation and resolution of
financial manager’s problems.
Learning Outcome/s:
Provides support for decision making.
It enables to monitor their decisions for any potential financial implications and for
Lessons to be learned from experience and to adapt or react as needed.
To ensure the availability of timely, relevant and reliable financial and nonfinancial
Information. FM helps in understanding the use of resources efficiently, effectively and
economically.
Unit-I: The Finance Function
Introduction to Finance: Nature and Scope - Finance Function - It’s Role in the Contemporary
Scenario - Goals of Finance Function - Maximizing vs. Satisfying - Profit vs. Wealth vs. Welfare -
The Agency Relationship and Costs - Risk-Return Trade Off.
Time Value of Money: Concept - Future Value and Present Value and the Basic Valuation Model.
Unit-II: The Investment Decision
Investment Decision Process: Project Generation - Project Evaluation - Project Selection and Project
Implementation - Developing Cash Flows - Data for New Projects.
Capital Budgeting Techniques: Traditional and DCF methods - The NPV vs. IRR Debate. (Theory &
Problems)
Cost of Capital: Concept and Measurement of Cost of Capital - Debt vs. Equity - Cost of Equity -
Preference Shares - Equity Capital and Retained Earnings - Weighted Average Cost of Capital and
Marginal Cost of Capital (Theory & Problems) - Importance of Cost of Capital in Capital Budgeting
Decisions.
Unit-III: Capital Structure Decisions
Capital Structure vs. Financial Structure: Capitalization - Financial Leverage - Operating Leverage
and Composite Leverage. (Theory & Problems)
EBIT-EPS Analysis: Indifference Point/Break-Even Analysis of Financial Leverage.
Capital Structure Theories: The Modigliani Miller Theory - Net Income - Net Operating Income
Theory and Traditional Theory (Theory & Problems) - A Critical Appraisal.
Unit-IV: Dividend Decisions
Major Forms of Dividends: Cash and Bonus Shares.
Dividends and Value of the Firm: Relevance of Dividends - The MM Hypothesis - Factors
Determining Dividend Policy - Dividends and Valuation of the Firm - The Basic Models.
Dividend Theories: Major Theories centred on the works of GORDON, WALTER and LITNER.
(Theory & Problems)
Unit-V: Management of Current Assets
Working Capital Management: Components of Working Capital - Gross vs. Net Working Capital -
Determinants of Working Capital Needs - The Operating Cycle Approach - Planning of Working
Capital - Financing of Working Capital through Bank Finance and Trade Credit;
Management of Cash: Basic Strategies for Cash Management - Cash Budget (Problems) - Cash
Management Techniques/Processes;
Management of Receivables & Inventory.
MRCET MBA
,REFERENCES:
IM Pandey, Financial Management, 10th Edition, Vikas.
M.Y Khan, P K Jain: “Financial Management-Text and Problems”, 6th Edition, TMH.
Prasanna Chandra, “Financial Management Theory and Practice”, 8th Edition, TMH.
Shashi K. Gupta, R. K. Sharma, “Financial Management” Kalyani Publishers.
Rajiv Srivastava, Anil Mishra, Financial Management” Oxford University Press, New Delhi.
James C Van Horne, Sanjay Dhamija, “Financial Management and Policy” Pearson
Education.
MRCET MBA
, UNIT 1
MEANING OF FINANCE
Finance may be defined as the art and science of managing money. It includes
financial service and financial instruments. Finance also is referred as the
provision of money at the time when it is needed. Finance function is the
procurement of funds and their effective utilization in business concerns
Definition:
According to GUTHMANN and DOUGALL, business finance may be broadly
defined as “the activity concerned with the planning, raising, controlling and
administering the funds used in the business.”
Financial decisions refer to decisions concerning financial matters of a business
firm. There are many kinds of financial management decisions that the firm
makers in pursuit of maximizing shareholder‟s wealth, viz., kind of assets to be
acquired, pattern of capitalization, distribution of firm‟s income etc. We can
classify these decisions into three major groups:
Investment decisions
Financing decision.
Dividend decisions.
Working capital decisions.
NATURE OF FINANCE FUNCTION:
I. In most of the organizations, financial operations are centralized. This
results in economies.
II. Finance functions are performed in all business firms, irrespective of
their sizes /legal form of organization.
III. They contribute to the survival and growth of the firm.
IV. Finance function is primarily involved with the data analysis for use in
decision making.
V. Finance functions are concerned with the basic business activities of a
firm, in addition to external environmental factors which affect basic
business activities, namely,production and marketing.
VI. Finance functions comprise control functions also
VII. The central focus of finance function is valuation of the firm. Finance
makes use of economic tools. From Micro economics it uses theories and
assumptions. From Macro economics it uses forecasting models. Even
though MRCET MBA
