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Fundamental of Financial Management

Book Description

Fundamentals of Financial Management introduces students to the fundamental tools and concepts of corporate finance, emphasizing on the theories and techniques that aid in corporate decision-making. This book captures the latest developments in the field and presents a succinct review of concepts like planning and budgeting, the management of working capital, financial forecasting, return and valuation, and capital budgeting.

Table of Contents

  1. Cover
  2. Title Page
  3. Contents
  4. About the Author
  5. Preface
  6. UNIT I - INTRODUCTION TO FINANCIAL MANAGEMENT
    1. 1: Fundamentals of Financial Management
      1. 1.1 Introduction
      2. 1.2 Finance Functions
      3. 1.3 Role of the Finance Manager
      4. 1.4 Goals of a Firm
      5. 1.5 Profit and Wealth Maximization
      6. 1.6 Management Versus Shareholders
      7. 1.7 Fields Related to Finance
      8. 1.8 Finance and Other Functional Areas
      9. 1.9 Corporate Social Responsibility
      10. 1.10 Financial Planning
      11. 1.11 Careers in Finance
      12. Summary
      13. Review Questions
    2. 2: Basics of Financial Statements
      1. 2.1 Introduction
      2. 2.2 Accounting and Bookkeeping
      3. 2.3 Generally Accepted Accounting Principles
      4. 2.4 Fundamentals of Accounting
      5. 2.5 The Basic Accounting Equation
      6. 2.6 Accounting Statements
      7. 2.7 Double-Entry System of Accounting
      8. 2.8 Journals
      9. 2.9 Ledgers
      10. 2.10 Trial Balance
      11. 2.11 Annual Reports of Companies
      12. 2.12 Advantages of Accounting
      13. 2.13 Limitations of Accounting
      14. Summary
      15. Review Questions
      16. Solved Problems
      17. Unsolved Problems
  7. UNIT II - FINANCIAL ANALYSES
    1. 3: Financial Statement Analyses
      1. 3.1 Introduction
      2. 3.2 Ratio Benchmarks
      3. 3.3 Liquidity Ratios
      4. 3.4 Debt Ratios
      5. 3.5 Activity Ratios
      6. 3.6 Profitability Ratios
      7. 3.7 Limitations of Ratios
      8. 3.8 Summary of Important Ratios
      9. Summary
      10. Review Questions
      11. Solved Problems
      12. Unsolved Problems
    2. 4: Cash Flow and Funds Flow Statements
      1. 4.1 Introduction
      2. 4.2 Rationale of Cash Flow Statements
      3. 4.3 Preparation of Cash Flow Statements
      4. 4.4 Funds Flow Statements
      5. 4.5 Funds Flow Statements Versus Cash Flow Statements
      6. 4.6 The Importance of Cash Flow Statements
      7. Summary
      8. Review Questions
      9. Solved Problems
      10. Unsolved Problems
    3. 5: Cost-Volume-Profit Analysis
      1. 5.1 Introduction
      2. 5.2 Understanding CVP Analysis
      3. 5.3 Tools of CVP Analysis
      4. 5.4 Business Applications of CVP Analysis
      5. Summary
      6. Review Questions
      7. Solved Problems
      8. Unsolved Problems
  8. UNIT III - TOOLS OF FINANCIAL MANAGEMENT
    1. 6: Time Value of Money
      1. 6.1 Introduction
      2. 6.2 The Simple Interest Approach
      3. 6.3 The Compound Interest Approach
      4. 6.4 Amortization Schedules
      5. Summary
      6. Review Questions
      7. Solved Problems
      8. Unsolved Problems
    2. 7: Risk and Return
      1. 7.1 Introduction
      2. 7.2 The Objectives of Investment
      3. 7.3 Investors’ Attitude Towards Risk
      4. 7.4 Risks Associated With Investments
      5. 7.5 The Risk-Return Concept
      6. 7.6 Risk-Return Trade-off
      7. 7.7 Combinations of Assets and Diversification
      8. 7.8 The Capital Asset Pricing Model
      9. 7.9 The Arbitrage Pricing Theory
      10. Summary
      11. Review Questions
      12. Solved Problems
      13. Unsolved Problems
    3. 8: Valuation of Securities
      1. 8.1 Introduction
      2. 8.2 Understanding Bonds
      3. 8.3 Bond Values and Yields
      4. 8.4 Preferred Stock Valuation
      5. 8.5 Stock Valuation
      6. Summary
      7. Review Questions
      8. Solved Problems
      9. Unsolved Problems
  9. UNIT IV - CAPITAL STRUCTURE DECISIONS
    1. 9: Operating, Financial and Combined Leverages
      1. 9.1 Introduction
      2. 9.2 Operating Leverage
      3. 9.3 Financial Leverage
      4. 9.4 EBIT-EPS Analysis
      5. 9.5 Total Leverage
      6. Summary
      7. Review Questions
      8. Solved Problems
      9. Unsolved Problems
    2. 10: Cost of Capital
      1. 10.1 Introduction
      2. 10.2 Understanding Cost of Capital
      3. 10.3 Cost of Debt
      4. 10.4 Cost of Preference Shares
      5. 10.5 Cost of Equity Capital
      6. 10.6 Cost of Debt Versus Cost of Equity
      7. 10.7 Cost of Retained Earnings
      8. 10.8 Weighted Average Cost of Capital
      9. 10.9 Factors Affecting Cost of Capital
      10. 10.10 Some Important Cost of Capital Formulae
      11. Summary
      12. Review Questions
      13. Solved Problems
      14. Unsolved Problems
    3. 11: Designing Capital Structure
      1. 11.1 Introduction
      2. 11.2 Understanding Capital Structure
      3. 11.3 Relevance of Capital Structure
      4. 11.4 Irrelevance of Capital Structure
      5. 11.5 Trade-off Theory
      6. 11.6 Agency Costs
      7. 11.7 Pecking Order Theory
      8. 11.8 Factors Affecting Capital Structure
      9. Summary
      10. Review Questions
      11. Solved Problems
      12. Unsolved Problems
  10. UNIT V - CAPITAL BUDGETING DECISIONS
    1. 12: Capital Budgeting Process
      1. 12.1 Introduction
      2. 12.2 Understanding Capital Investments
      3. 12.3 Characteristics of Capital Budgeting Decisions
      4. 12.4 The Capital Budgeting Process
      5. 12.5 Limitations of Capital Budgeting Decisions
      6. 12.6 Project Categories
      7. Summary
      8. Review Questions
      9. Solved Problems
      10. Unsolved Problems
    2. 13: Capital Budgeting Techniques
      1. 13.1 Introduction
      2. 13.2 Capital Budgeting Decision Techniques
      3. 13.3 Non-discounting Techniques
      4. 13.4 Discounting Cash Flow Techniques
      5. 13.5 Modified IRR
      6. 13.6 Capital Rationing
      7. 13.7 Some Important Formulae for Investment Methods
      8. Summary
      9. Review Questions
      10. Solved Problems
      11. Unsolved Problems
    3. 14: Capital Budgeting Under Risk and Uncertainty
      1. 14.1 Introduction
      2. 14.2 Understanding Risk
      3. 14.3 Absolute Measures of Project Risk
      4. 14.4 Quantifying Risk in Capital Budgeting
      5. 14.5 Other Risk-Evaluation Approaches in Capital Budgeting
      6. Summary
      7. Review Questions
      8. Solved Problems
      9. Unsolved Problems
  11. UNIT VI - FINANCING DECISIONS 515
    1. 15: Understanding the Capital Market
      1. 15.1 Introduction
      2. 15.2 Financial Institutions
      3. 15.3 The Capital Market In India
      4. 15.4 The Secondary Market
      5. 15.5 Stock Exchanges
      6. 15.6 The Stock Market: Some Basic Information
      7. 15.7 Stock Index
      8. 15.8 Dematerialization
      9. 15.9 Members of the Stock Exchange
      10. 15.10 The Trading Mechanism
      11. 15.11 The Settlement System
      12. 15.12 Perfection in the Capital Market
      13. 15.13 International Capital Markets
      14. Summary
      15. Review Questions
    2. 16: Understanding the Primary Market
      1. 16.1 Introduction
      2. 16.2 The Primary Market for Equity
      3. 16.3 Pricing of Issues
      4. 16.4 Methods for Pricing Issues
      5. 16.5 Intermediaries to an Issue
      6. 16.6 Market Strategies for New Issues
      7. Summary
      8. Review Questions
      9. Solved Problem
    3. 17: Long-Term Financing
      1. 17.1 Introduction
      2. 17.2 Share Capital
      3. 17.3 Preference Shares
      4. 17.4 Debentures and Bonds
      5. 17.5 Retained Earnings
      6. 17.6 Eurobonds
      7. 17.7 Foreign Bonds
      8. 17.8 Depository Receipts
      9. 17.9 External Commercial Borrowings
      10. 17.10 Equipment Financing
      11. 17.11 Venture Capital
      12. 17.12 Leasing and Hire Purchase
      13. 17.13 Government Subsidies and Sales Tax Deferments and Exemptions
      14. Summary
      15. Review Questions
    4. 18: Venture Capital
      1. 18.1 Introduction
      2. 18.2 Venture Capital
      3. 18.3 Venture Capital Versus Traditional Funding
      4. 18.4 Features of Venture Capital
      5. 18.5 The Venture Capital Process
      6. 18.6 Different Types of Venture Capital Funds
      7. 18.7 Venture Capital In India
      8. Summary
      9. Review Questions
  12. UNIT VII - DIVIDEND DECISIONS
    1. 19: Dividend Theory
      1. 19.1 Introduction
      2. 19.2 The Dividend Relevance Group of Theories
      3. 19.3 Dividend Irrelevance Theories
      4. 19.4 Market Imperfections
      5. 19.5 The Free Cash Flow Hypothesis
      6. 19.6 The Bird-in-Hand Argument
      7. Summary
      8. Review Questions
      9. Solved Problems
      10. Unsolved Problems
    2. 20: Dividend Policy
      1. 20.1 Introduction
      2. 20.2 The Dividend Rationale
      3. 20.3 Dividend Policy
      4. 20.4 Dividend Policy and Firm Value
      5. 20.5 Types of Dividends
      6. 20.6 Share Repurchase
      7. 20.7 Stock Splits
      8. 20.8 Stable Dividend Policies
      9. 20.9 The Signalling Effect
      10. 20.10 The Clientele Effect
      11. 20.11 Factors Affecting Dividend Policy
      12. 20.12 Dividend Payouts in India
      13. Summary
      14. Review Questions
      15. Solved Problems
      16. Unsolved Problems
  13. UNIT VIII - WORKING CAPITAL MANAGEMENT
    1. 21: Working Capital Management
      1. 21.1 Introduction
      2. 21.2 Rationale for Working Capital
      3. 21.3 Financing of Current Assets
      4. 21.4 The Objective of Working Capital Management
      5. 21.5 Conservative and Aggressive Working Capital Policies
      6. 21.6 Factors Affecting the Composition of Working Capital
      7. 21.7 Operating Cycle and Cash Cycle
      8. 21.8 The Hedging Approach
      9. 21.9 Permanent and Variable Working Capital
      10. 21.10 Assessment of Working Capital Requirement
      11. Summary
      12. Review Questions
      13. Solved Problems
      14. Unsolved Problems
    2. 22: Working Capital Financing
      1. 22.1 Introduction
      2. 22.2 Accrued Expenses
      3. 22.3 Provisions and Reserves
      4. 22.4 Trade Credit
      5. 22.5 Bank Finance
      6. 22.6 Commercial Papers
      7. 22.7 Public Deposits
      8. 22.8 Factoring
      9. 22.9 Forfaiting
      10. Summary
    3. 23: Cash Management
      1. 23.1 Introduction
      2. 23.2 The Need for Cash Management
      3. 23.3 Motives for Holding Cash
      4. 23.4 Efficient Cash Management
      5. 23.5 Tools for Efficient Cash Management
      6. 23.6 Optimum Cash Balance
      7. 23.7 Cash Management Models
      8. Summary
      9. Review Questions
      10. Solved Problems
      11. Unsolved Problems
    4. 24: Receivables Management
      1. 24.1 Introduction
      2. 24.2 The Rationale for Credit Sales
      3. 24.3 Credit Policy
      4. 24.4 Credit Conditions
      5. 24.5 The Credit Standards of a Firm
      6. 24.6 Collection Policy and Procedures
      7. 24.7 Factors Affecting the Size of Receivables
      8. 24.8 Credit Instruments
      9. Summary
      10. Review Questions
      11. Solved Problems
      12. Unsolved Problems
    5. 25: Inventory Management
      1. 25.1 Introduction
      2. 25.2 Types of Inventory
      3. 25.3 Characteristics of Inventory
      4. 25.4 Significance of Inventory Management
      5. 25.5 Costs Related to Inventory
      6. 25.6 Efficient Inventory Management
      7. 25.7 ABC Analysis: Controlling Inventory by Selection
      8. Summary
      9. Review Questions
      10. Solved Problems
      11. Unsolved Problems
  14. UNIT IX - EMERGING TOPICS
    1. 26: International Financial Management
      1. 26.1 Introduction
      2. 26.2 Understanding International Trade
      3. 26.3 Evolution of the International Monetary System
      4. 26.4 The World Bank
      5. 26.5 The International Monetary Fund
      6. 26.6 Foreign Exchange Markets
      7. 26.7 Foreign Exchange Rates
      8. 26.8 Foreign Exchange Exposure
      9. 26.9 International Financing
      10. 26.10 The Euro
      11. Summary
      12. Review Questions
    2. 27: Corporate Governance
      1. 27.1 Introduction
      2. 27.2 Good Corporate Governance
      3. 27.3 Criteria for Good Corporate Governance
      4. 27.4 Corporate Governance in India
      5. 27.5 Models of Corporate Governance
      6. Summary
      7. Review Questions
    3. 28: Mergers and Acquisitions
      1. 28.1 Introduction
      2. 28.2 Strategic Rationale
      3. 28.3 Mergers and Acquisitions as a Restructuring Tool
      4. 28.4 Types of Mergers and Acquisitions
      5. 28.5 Mergers and Acquisitions: Indian Legal Due Diligence
      6. 28.6 Valuation in Mergers and Acquisitions
      7. 28.7 Accounting for Acquisitions
      8. 28.8 Deal Structuring
      9. Summary
      10. Review Questions
      11. Solved Problems
      12. Unsolved Problems
  15. Notes
  16. Acknowledgements
  17. Copyright
  18. Back Cover