Fundamentals of Financial Management
bbssecond year
Subject Code: MGT 215
Course Title: Fundamentals of Financial Management
Course No: MGT 215
Nature of Course: Theory & Practical
Full Marks: 100
Pass Marks: 35
Credit Hours: 150
Unit 1 : Introduction to Financial Management ( LH 7 )
Nature of financial management; Finance within an organization; Functions of financial management; The financial goal: creating value for investors; Balancing shareholder interest
and the interests of society.
Unit 2 : Financial Statement Analysis ( LH 15 )
Financial statements: Balance sheet, profit or loss statement, cash flow statement, statement of change in shareholders’ equity; Framework for analysis; Nature and need of financial ratio analysis; Types of financial ratios: liquidity ratios, asset management ratios, debt management ratios, profitability ratios, market value ratios; DuPont system of financial ratio
analysis; Ratios in different industries; Uses and limitations of financial ratios; Common size and index analysis.
Unit 3 : Time Value of Money (LH 20 )
Concept time value of money; Cash flow time line; Future values and present values of a single cash flow; Finding the interest rate and the number of years; Future value and present
value of an ordinary annuity and annuity due; Finding annuity payments, periods and interest rates; Present value of perpetuities; Present value and future value of uneven cash flows;
Semiannual and other compounding periods; Preparation of loan amortization schedule; Application of the concept of time value of money.
Unit 4 : Fundamentals of Risk and Return ( LH 18 )
Defining risk and return, expected rates of return, historical rates of return, standard deviation, coefficient of variation; Risk aversion and required returns; Return and risk in a
portfolio context: The role of covariance and correlation; The capital asset pricing model (CAPM): the beta coefficient, the security market line (SML): The relationship between risk
and rates of return.
Unit 5 : Financial Assets Valuation ( LH 20 )
Concept of financial assets; Key characteristics of bonds, common stocks and preferred stocks; Basic financial asset valuation models; Valuation of bonds: perpetual bonds, zero
coupon bonds, coupon bonds with a finite maturity, bond valuation with semiannual interest; Discount bond and premium bond; Bond yields: current yield, capital gain yield, holding
period return, yield to maturity, yield to call; Dividend discount model for stock valuation: zero-growth model, normal growth model, super-normal growth model, single period valuation, multi-period valuation; Valuation of preferred stock.
Unit 6: Cost of Capital ( LH 10 )
Concept of cost of capital; Applications of cost of capital in financial decision making, Component cost of capital: cost of debt, cost of preferred stock, the cost of retained earnings,
the cost of new common stocks; Weighted average cost of capital (WACC); Factors affecting the WACC.
Unit 7: Capital Structure and Leverage ( LH 10 )
Concept of capital structure; Business risk and operating leverage; Financial risk and financial leverage; Total leverage; Break-even analysis: Operating break-even, cash break-
even, financial break-even analysis.
Unit 8 : Basics of Capital Budgeting ( LH 20 )
Characteristic of capital budgeting decision; Capital budgeting decision process; Types of capital budgeting projects; Capital budgeting decision techniques: payback period,
discounted payback period, net present value, profitability index, internal rate of return, modified internal rate of return; merits and limitations of each capital budgeting decision
technique.
Unit 9 : Working Capital Management ( LH 15 )
Concepts of working capital; Types of working capital: Seasonal and permanent working capital, Factors affecting the size of working capital; Significance of working capital
management; The cash conversion cycle; Significance of inventory management; Basic inventory costs; The economic order quantity model; Reorder point and safety stock;
Quantity discount; Significance cash management, Cash budget; Purpose of receivables management; Elements of credit policy.
Unit 10 : Distributions to Shareholders ( LH 15 )
Concept and types of dividends; Factors affecting dividend policy; Dividend payment procedures; Dividend policy in practice: Stability in dividends and residual dividend policy;
Stock dividends, Stock splits, Reverse stock splits; Stock repurchases; Dividend payment practices in Nepal.
Brigham, E. F. & Houston, J. F. Fundamentals of financial management. Delhi: Cengage Learning.
Gitman, L. J. Principles of managerial finance. Delhi: Pearson Education.
Van Horne, J. C., Wachowicz, J. R. & Bhaduri, S. N. Fundamentals of financial management. New
Delhi: Prentice-Hall India Ltd.