MBA

Course Title: Financial Management and Analysis
Code No: CO 523
Area of Study: Core Area
Credit: 3
Course Objective:
The objective of the course is to familiarize the students with the fundamental concepts of financial

management to enable them to understand and apply various analytical tools in financial decision-
making.

Course Content:
Unit I: Introduction LH. 3 hrs
Meaning and Definition of financial management; Goals of financial management – profit
maximization, wealth maximization; Business ethics and social responsibility; Agency relationship –
stockholders versus managers, stockholders versus bondholders;
Unit II: Financial Statement Analysis LH. 3 hrs
Need for Financial Analysis; Ratio analysis and its limitations; Du-Pont system of financial analysis
– Basic and Modified; Trend analysis and common size statements;
[Rather than making it intensely mathematical in nature and limiting students to calculate financial
ratios only, the aim is to enable the students to interpret those ratios and use those (ratios) in
financial decision-making.] Unit III: Risk and Return Analysis LH. 5 hrs
Returns; Understanding and Measurement of Risk – Standalone and Portfolio; Selection of Efficient
Portfolio; Concept of Beta (β); Capital Asset Pricing Model (CAPM);
Unit IV: Time Value of Money LH. 3 hrs
Future Value – single sum, cash-flow series and annuity; Present Value – single sum, cash-flow
series, annuity and perpetuity; Doubling period; Effects of frequent compounding and discounting;
Amortized loans;
Unit V: Valuation of Securities LH. 8 hrs
Characteristics of bond; Bond valuation – annual and semi-annual coupon; Bond Yields – Yield to Maturity
(YTM) and Yield to Call (YTC); Bond risks;
Rights of Common Stock; Common Stock market; Common Stock valuation; Stock market equilibrium; Stock
prices and returns; Preferred Stock Valuation;

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Unit VI: Cost of Capital LH. 4 hrs
Significance of cost of capital; Weighted Average Cost of Capital (WACC) and its components –
Cost of Debt, Cost of Preferred Stock, Cost of Common Stock, Cost of Retained Earnings; Factors
influencing WACC; Marginal Cost of Capital (MCC) and breaks in MCC schedule;
Unit VII: Capital Budgeting LH. 7 hrs
Features and Significance of Capital Budgeting; Estimation of Cash Inflows and Cash Outflows;
Evaluation Techniques – (1) Traditional techniques: Accounting Rate of Return, Payback Period; (2)
Discounted Cash-flow techniques: Discounted Payback Period, Net Present Value (NPV), Internal
Rate of Return (IRR), Profitability Index (PI), Modified Internal Rate of Return (MIRR); Evaluation
of Projects with different lives;
Unit VIII: Working capital Management LH.8 hrs

a. Defining Working Capital; Importance of Working Capital Management; Working Capital Cash-
flow Cycle – Operating cycle and Cash cycle; Working Capital Policies – Working Capital

Investment and Current Assets Financing Policies;
b. Cash Management – Importance of Cash Management; Motives to hold Cash; Cash Management
Techniques; Cash Management Models – Baumol (Inventory) Model and Miller-Orr (Stochastic)
Model
c. Inventory Management – Motives to hold Inventory; Costs associated with Inventory – Carrying
Cost, Holding Costs, Total Inventory Costs; Inventory Management Techniques – Economic
Order Quantity (EOQ) Approach and ABC System; Determination of Level of Stock – Reorder
Point, Safety Stock, Quantity Discount;
d. Receivables Management – Importance of Receivables Management; Costs related to
maintaining receivables; Credit policy and its Variables; Evaluation of Credit Policy;
Unit IX: Capital Structure LH. 4 hrs
Features of an Ideal Capital Structure; Factors Affecting Capital Structure; Theories of Capital
Structure – Net Income Approach; Net Operating Income Approach; Traditional Approach; Miller
and
Modigliani Approach and its Appraisal;
Unit X: Dividend Policy LH. 3 hrs
Objectives and Importance of Dividend Policy; Factors that Influence Dividend Policy; Issues in
Dividend Policy; Stock Dividend; Stock Splits and Stock Repurchases;
References:

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Brigham, E.F., and M.C. Ehrhardt, Financial Management: Theory and Practice, Thomson
South-Western, New Jersey
Horne, V, Financial Management and Policy, Prentice-Hall of India, New Delhi
Keown, A.J., J.D. Martin, J.W. Petty, and D.F. Scott Jr, Financial Management: Principles and
Applications, Prentice-Hall of India, New Delhi
Pandey, I.M., Financial Management, Vikas Publishing House, New Delhi, India
Pradhan, R.S., Financial Management, Buddha Academic Publishers and Distributors Pvt. Ltd.,
Kathmandu
Prasanna, Chandra, Financial Management: Theory and Practice, Tata-McGraw Hill, India