BITM Fundamentals of Corporate Finance

Nature of corporate finance. Functions of financial management. The financial goal. Financial manager's responsibilities. Corporate finance and other functional areas.

Financial instruments: Money market and capital market instruments, derivative securities, mutual fund units. Financial markets: Functions and types of financial markets. Financial institutions: Depository and non-depository financial institutions.

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. Limitations of financial ratios.

Concept time value of money. Cash flow time line. Future values and present values of a single cash flow. Computing the interest rate and the number of years. Future value and present value of an ordinary annuity and annuity due. Computing 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.

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. Bond yields: current yield, capital gain yield, yield to maturity, yield to call. Dividend discount model for common stock valuation: zero-growth model, normal growth model, super-normal growth model, single period valuation, multi-period valuation. Valuation of preferred stock.

Concept 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.

Sources of long-term financing. Long-term debt: Instruments, advantages and disadvantages. Preferred stocks: Advantages and disadvantages. Common stocks: Advantages and disadvantages. Methods of selling securities: public offering, rights offering and private placement.

Concept of capital structure, optimal capital structure, determinants of capital structure. Business risk and financial risk. Degree of operating leverage, financial leverage and total leverage.

Concepts of working capital. Types of working capital. Factors affecting the size of working capital. Working capital management and its significance. Computing operating cycle, cash conversion cycle and the amount of working capital requirement.