Financial Management

Preface......Page 6
Contents......Page 8
Definition of Finance......Page 20
Types of Finance......Page 21
Definition of Financial Management......Page 22
Scope of Financial Management......Page 23
Profit Maximization......Page 24
Wealth Maximization......Page 25
Unfavourable Arguments for Wealth Maximization......Page 26
Functions of Finance Manager......Page 27
Financial Planning......Page 28
Model Questions......Page 29
Meaning and Definition......Page 30
Statement of Changes in Financial Position......Page 31
Types of Financial Statement Analysis......Page 32
Techniques of Financial Statement Analysis......Page 33
Comparative Balance Sheet Analysis......Page 34
Comparative Profit and Loss Account Analysis......Page 35
Common Size Analysis......Page 36
Funds Flow Statement......Page 37
Difference Between Funds Flow and Cash Flow Statement......Page 38
Ratio Analysis......Page 39
Activity Ratio......Page 40
Profitability Ratio......Page 41
Model Questions......Page 43
Short-term Financial Requirements or Working Capital Requirement......Page 44
Sources of Finance......Page 45
Features of Equity Shares......Page 47
Advantages of Equity Shares......Page 48
Preference Shares\n......Page 49
Advantages of Preference Shares......Page 50
No Par Shares......Page 51
Types of Debentures......Page 52
Disadvantages of Debenture......Page 53
Retained Earnings......Page 54
Disadvantages of Retained Earnings......Page 55
Commercial Banks......Page 56
Model Questions......Page 57
Fixed Capital......Page 60
Meaning of Capitalization......Page 61
Causes of Over Capitalization......Page 62
Effects of Under Capitalization......Page 63
Causes of Watered Capital\n......Page 64
Definition of Capital Structure......Page 66
Financial Structure......Page 67
Forms of Capital Structure......Page 68
Capital Structure Theories\n......Page 69
Assumptions......Page 70
Net Income (NI) Approach......Page 72
Net Operating Income (NOI) Approach......Page 74
Modigliani and Miller Approach......Page 77
Model Questions......Page 83
Definitions......Page 84
Explicit and Implicit Cost......Page 85
Importance to Structure Decision......Page 86
Dividend Price Approach......Page 87
Dividend Price Plus Growth Approach......Page 88
Earning Price Approach......Page 89
Realized Yield Approach......Page 90
Debt Issued at Premium or Discount......Page 91
Cost of Perpetual Debt and Redeemable Debt......Page 92
Cost of Preference Share Capital......Page 93
Cost of Retained Earnings......Page 95
Measurement of Overall Cost of Capital......Page 96
Model Questions......Page 99
Types of Leverage......Page 102
Degree of Operating Leverage......Page 103
Uses of Operating Leverage......Page 104
Degree of Financial Leverage......Page 105
Uses of Financial Leverage......Page 106
EBIT - EPS Break even chart for three different financing alternatives......Page 108
Degree of Combined Leverage......Page 109
Working of Capital Leverage......Page 112
Model Questions......Page 115
Types of Dividend/Form of Dividend......Page 118
Dividend Decision......Page 119
Modigliani and Miller’s Approach......Page 120
Walter’s Model......Page 126
Gordon’s Model......Page 130
Capital Market Conditions......Page 134
Model Questions......Page 135
Definitions......Page 138
Capital Budgeting Process......Page 139
Pay-back Period......Page 141
Post Pay-back Profitability Method......Page 143
Accounting Rate of Return or Average Rate of Return......Page 145
Net Present Value......Page 147
Internal Rate of Return......Page 150
Capital Rationing......Page 154
Risk-adjusted cutoff rate......Page 155
Certainly equivalent method......Page 156
Sensitivity technique......Page 157
Probability technique......Page 158
Standard deviation method......Page 159
Construction of Decision Tree......Page 161
Meaning of Working Capital......Page 168
Concept of Working Capital......Page 169
Component of Working Capital......Page 170
Permanent Working Capital......Page 171
Semi Variable Working Capital......Page 172
Working Capital Position/ Balanced Working Capital Position......Page 173
Factors Determining Working Capital Requirements......Page 174
Computation (Or Estimation) of Working Capital......Page 175
Working Capital Management Policy......Page 178
Sources of Working Capital......Page 179
Hedging Approach......Page 180
Aggressive Approach......Page 181
Model Questions......Page 182
Introduction......Page 184
Objectives of Inventory Management......Page 185
Stock Level......Page 186
Lead Time......Page 187
Economic Order Quantity (EOQ)......Page 188
Aging Schedule of Inventories......Page 190
Valuation of Inventories......Page 191
Motives for Holding Cash......Page 192
Lock Box System......Page 195
Cash Management Models......Page 196
Factors Considering the Receivable Size......Page 198
Model Questions......Page 213
Definition of Leasing......Page 218
Type of Leasing......Page 219
Advantages of Leasing......Page 221
Leasing by Specialized Institutions......Page 222
Definition of Venture Capital......Page 223
Venture Capital in India......Page 224
Myths on Factoring......Page 225
Factoring in India......Page 226
Why Factoring?......Page 227
Mechanics of Factoring......Page 228
Foreign Direct Investment......Page 229
Through Private Placements or Preferential Allotments......Page 231
SEBI and FIIs......Page 232
Classification of Merchant Banking......Page 234
Merchant Banking Organizations......Page 235
Credit Rating in India......Page 236
Credit Rating Symbols of Credit Rating Information Service of India Limited......Page 237
Credit Rating Symbols of Investment Information and Credit Rating Agency of India Limited\n......Page 238
Operational Result of Credit Analysis and Research Limited......Page 239
Structure of Mutual Fund in India......Page 240
Advantages of Mutual Funds......Page 241
Open Ended Mutual Fund......Page 242
Top Ten Mutual Fund......Page 243
Model Questions......Page 244
Financial System in India......Page 245
Scheduled Commercial Banks......Page 246
Nationalised Banks......Page 247
State Bank of India (SBI)......Page 248
New Banks in Private Sectors......Page 249
Foreign Banks in India......Page 250
Origin......Page 251
Subsidies of Industrial Finance Corporation of India......Page 252
Management......Page 253
Functions......Page 254
Capital......Page 255
Origin......Page 256
Objectives......Page 257
Objectives......Page 258
Specialized Financial Institutions......Page 259
Insurance Sector in India......Page 260
Role of LIC......Page 261
General Insurance Companies......Page 262
Functions......Page 263
Working Result of Unit Trust of India......Page 264
Financial Markets......Page 265
Capital Market......Page 266
Primary Market......Page 268
Secondary Market......Page 269
Methods of Raising Capital......Page 270
Private Placement......Page 271
Functions......Page 272
Recent Trends in Capital Market......Page 273
Share Market Terminology......Page 275
Money Market......Page 277
Commercial Paper (CP)......Page 280
Money Market Mutual Funds(MMMFs)......Page 281
Fee Based Financial Services......Page 282
Non-banking Finance Companies (NBFC)......Page 283
Model Questions......Page 284