CA/CS/CP32: FINANCIAL MANAGEMENT

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GENERAL OBJECTIVE

This paper is intended to equip the candidate with knowledge, skills and attitudes that will enable him/her to apply financial management principles in practice.

LEARNING OUTCOMES

A candidate who passes this paper should be able to:

Analyse the sources of finance for an organisation and evaluate various financing options

Evaluate various investment decision scenarios available to an organisation

Evaluate the performance of a firm using financial tools

Make appropriate capital structure decisions for a firm

Value financial assets and firms

Make appropriate liquidity and dividend decisions for a firm

Evaluate current developments in business financing

Weekly Course Recap Zoom Session

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What Will You Learn?

  • Sources of finance for an organisation
  • Evaluation of investment decision scenarios
  • Evaluation of firm performance
  • Capital structure decisions for a firm
  • Value financial assets and firms
  • Liquidity and dividend decisions for a firm
  • New developments in business financing

Course Content

OVERVIEW OF FINANCIAL MANAGEMENT
- Nature and scope of finance - Finance functions - Goals of a firm; financial and non-financial objectives, overlaps and conflicts among the objectives - Agency theory, stakeholder’s theory and corporate governance - Measuring managerial performance, compensation and incentives - Ethical issues in financial management - Corporate social responsibility (CSR) and financial management

  • 00:00
  • 00:00
  • Goals of a firm; financial and non-financial objectives, overlaps and conflicts among the objectives
    00:00
  • Agency theory, stakeholder’s theory and corporate governance
    00:00
  • Measuring managerial performance, compensation and incentives
    00:00
  • Ethical issues in financial management
    00:00
  • Corporate social responsibility (CSR) and financial management
    00:00

THE FINANCING DECISION
- Nature and objectives of the financing decision - Factors to consider when making financing decisions - Sources of finances for enterprises; internally generated funds and the externally generated funds, long term sources, medium term and short term sources of finance - Evaluation of financing options - Methods of issuing ordinary shares - pPublic issue, private placement, bonus issue, employee stock option plans (ESOPS) and rights issues

FINANCING INSTITUTIONS AND MARKETS
- Nature and role of financial markets - Classification of financial markets: primary and secondary securities market, money and the capital markets, over-the counter and organised market, derivatives market, mortgage market, forex market - The security exchange listing and cross border listing - Market efficiency - efficient market hypothesis - Stock market indices - The financial institutions and intermediaries: commercial banks, savings and loans associations and co-operative societies, foreign exchange bureaus, Unit trusts and mutual funds, insurance companies and pension firms, insuranceagencies and brokerage firms, investment companies, investment banks and stock brokerage firms, micro-finance institutions and small and medium enterprises (SMEs) - The role of regulators in financial markets - Central depository system and automated trading system - Timing of investment at the securities exchange - Dow theory and Hatch system of timing

TIME VALUE OF MONEY
- Concept of time value of money - Relevance of the concept of time value of money - Time value of money versus time preference of money - Compounding techniques - Discounting techniques

VALUATION MODELS
- Concept of value; book value, going concern value, substitution value, replacement value, conversion value, liquidation value, intrinsic value and market value - Reasons for valuing financial assets/business - Theories on valuation of financial assets; fundamental theory, technical theory, random walk theory and the efficient market hypothesis - Valuation of redeemable, irredeemable and convertible debentures and corporate bonds - Valuation of redeemable, Irredeemable and convertible preference shares - Valuation of ordinary shares; net asset basis, price earnings ratio basis, capitalisation of earnings basis, Gordon’s model, finite earnings growth model, Super-profit model, Marakon model, Walter’s model, Discounted free cash flow, residual income model - Use of relative measures such as Economic Value added (EVA) and Market Value Added (MVA) - Valuation of unit trusts and mutual funds - Valuation of private companies: income and market based approaches

COST OF CAPITAL
- Firms capital structure and factors influencing capital structure decisions - Factors influencing firms cost of capital - Relevance of cost of capital - Component costs of capital - The firm’s overall cost of capital - Weighted average cost of capital (WACC) - Weighted marginal cost of capital (WMCC) - Introduction to break-points in weighted marginal cost of capital schedule - Operating and financial leverage - degree of operating leverage and operating risk; degree of financial leverage and financial risk - Combined leverage - degree of combined leverage and total risk

CAPITAL BUDGETING DECISIONS
- The nature and importance of capital investment decisions - Capital investment’s cash flows - initial cash outlay, terminal cash flows and annual net operating cash flows, incremental approach to cash flow estimation - Capital investment appraisal techniques - Non-discounted cash flow methods - payback period and accounting rate of return - Discounted cash flow methods - net-present value, internal rate of return, profitability index, discounted payback period and modified internal rate of return (MIRR) - Strengths and weaknesses of the investment appraisal techniques - Expected relations among an investment’s NPV, company value and share price - Capital rationing - evaluation of capital projects and determination of optimal capital budget in situations of capital rationing for a single period rationing - Capital investment options - timing option, strategic investment option, replacement option and abandonment option - Problems/difficulties encountered when making capital investment decisions in reality

FINANCIAL ANALYSIS AND FORECASTING
- Users of financial statements and their information needs - Ratio analysis; nature of financial ratios, classification and calculation of financial ratios and limitation of financial ratios - Common size statements - Vertical and horizontal analysis - Financial forecasting; cash budgeting and percentage of sales method of forecasting

WORKING CAPITAL MANAGEMENT
- Introduction and concepts of working capital - Working capital versus working capital management - Factors influencing working capital requirements of a firm - Importance and objectives of working capital management - Working capital operating cycle; the importance and computation of the working capital operating cycle - Working capital financing policies aggressive, conservative and matching financing policy - Management of stock, cash, debtors and creditors

DIVIDEND DECISIONS
- Forms of dividend - How to pay dividends and when to pay dividends - How much dividend to pay - Firms dividend policy and factors influencing dividend decision - Why pay dividends - Dividend relevance theories; Bird in hand, Clientele effect, Information signaling theory, Walter’s model, Tax differential theory, Modigliani and Miller dividend irrelevance theory

INTRODUCTION TO RISK AND RETURN
- Risk-return trade off/relationship - Distinction between risk free and risky assets - Expected return of an asset - Total risk of an asset - Relative risk of an asset - Expected return of a 2 asset-portfolio - The actual total risk of a 2-asset portfolio

ISLAMIC FINANCE
- Justification for Islamic Finance; history of Islamic finance; capitalism; halal; haram; riba; gharar; usury - Principles underlying Islamic finance: principle of not paying or charging interest, principle of not investing in forbidden items such as alcohol, pork, gambling or pornography; ethical investing; moral purchases - The concept of interest (riba) and how returns are made by Islamic financial securities - Sources of finance in Islamic financing: muhabaha, sukuk, musharaka, mudaraba - Types of Islamic financial products:- sharia-compliant products: Islamic investment funds; takaful the Islamic version of insurance Islamic mortgage, murabahah,; Leasing - ijara; safekeeping - Wadiah; sukuk - islamic bonds and securitisation; sovereign - sukuk; Islamic investment funds; Joint venture -Musharaka, Islamic banking, Islamic contracts, Islamic treasury products and hedging products, Islamic equity funds; Islamic derivatives - International standardisation/regulations of Islamic Finance: case for standardisation using religious and prudential guidance, National regulators, Islamic Financial Services Board

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