Financial Management is the process of planning, organizing, directing, and controlling an organization’s financial resources to achieve its objectives and maximize its value. It involves making key decisions regarding investments, financing, and the distribution of profits to ensure the financial health and growth of the organization. The core goal of financial management is to effectively manage resources, balance risk and return, and support strategic business decisions that lead to long-term profitability and sustainability.
Effective financial management encompasses a wide range of activities, including budgeting, capital allocation, cash flow management, risk management, and optimizing the capital structure. It is essential for both large corporations and small businesses to have a robust financial management framework in place to guide decisions, enhance performance, and respond to market changes.
Table of Contents
Syllabus of Financial Management
Course Objectives of Financial Management
This course aims to provide students with a basic understanding of important aspects of financial management and critically evaluate financial information. Students are introduced to concepts and tools that enable them to think critically about the financial opportunities and challenges faced by an organization. The course thus lays the foundation in students for further study in finance and equips them adequately to undertake financial decisions.
Course Description of Financial Management
This course will deal with the basics of financial management, especially, an introduction to financial management, the concept of capital structure, the effects of leverage, elementary knowledge of the theory of capital structure, dividend policy, long-term and short-term financing, working capital management, and elementary knowledge on special topics such as derivatives, financial distress, merger and acquisition. Through lectures, readings and case studies students learn the fundamentals of financial management and the skills and their application in financial decision-making.
Course Outcomes of Financial Management
By the end of this course, students should be able to:
- understand the nature of financial management;
- understand the basic concept and issues of capital structure, the effect of leverage; capital
- structure theories, and dividend policy as a part of capital structure decisions;
- identify the sources of long-term and short-term financing,and short-term financing policies, and be familiar with the concept of venture capital, public offering, and investment banking;
- understand the concept of working capital and working capital management, and
- components of working capital;
- understand the concept of derivatives, and types of options, and gain the skill to calculate the
- value of options; and understand the basic concept of financial distress, merger and acquisition, and
- International aspect of it.
Course Contents of Financial Management
Unit 1: Introduction 5 hours
Meaning of financial management; Financial management decisions; Financial manager’s responsibilities; Value maximization goal as a financial management decision criterion; The agency relationship; Concept of corporate governance.
Unit 2: Capital Structure and Leverage 6 hours
Concept of capital structure; Target capital structure; Business and financial risk; Break even analysis; Leverage: concept, operating leverage, financial leverage, total leverage, impact of financial leverage; Capital structure theories: traditional approach, net income approach, net operating income approach, the Modigliani-Miller’s proposition.
Unit 3: Dividend and Dividend Policy 5 hours
Nature of dividend policy; Cash dividend and dividend payment; Factors affecting dividend policy; Establishing a dividend policy; Stock repurchase; Stock dividend, stock split and reverse split.
Unit 4: Raising Capital 6 hours
Term loan; Bonds: meaning and features, types, bond innovation; Preferred stock: features, advantages and disadvantages; Common stock: equity account in balance sheet, Rights and privileges of common stockholders; features of common stock; Cost and benefit of debt versus equity; Methods of selling securities; Initial public offerings; Concept and functions of investment bankers; Concept of venture capital; Concept of lease financing.
Unit 5: Short-Term Financial Planning 6 hours
Concept of short-term finance ; Tracing cash and net working capital; The operating cycle and the cash cycle; Important aspects of short-term financial policy: The size of the investment in current assets, alternative financing policies for current assets; Cash budget.
Unit 6: Short-term Financial Management 11 hours
Float and cash Management: reasons for holding cash and understanding float; Cash management: collection, disbursement and investment; Credit and receivables: components of credit policy, terms of sales, optimal credit policy, credit analysis, collection policy; Inventory management: concept and types, inventory management techniques—ABC approach, and EOQ.
Unit 7: Introduction to Derivatives 5 hours
Concept of derivative and underlying assets; Option: meaning, types, determinants of option value, valuation of call option and put option; Futures contract and forward contract; Warrants: meaning, features, valuation; Convertibles: meaning, Conversion ratio, conversion price, and conversion value.
Unit 8: Special Topics 4 hours
Merger and acquisition: meaning, motives, types, the difference between merger and acquisitions;
Financial distress: concept of financial distress, bankruptcy, and liquidation.
Basic Texts
References
1. Brigham, E. F., & Ehrhardt, M. C. Financial Management: Theory and Practice (12thed). Delhi: Clengage Learning.
2. Van Horne, J. C., and Wachowicz, J. R. Fundamentals of Financial Management(13thed). New Delhi: PHI Learning.3. Paudel, R. B., Baral, K. J., Gautam, R. R. & Rana, S. B. (2013). Fundamentals of Corporate Fianace. (3rded). Kathmandu: Asmita Book Publishers and Distributors.4. Manandhar, K. D., et al. (2013). Fundamentals of Corporate Finance (2nded) Kathmandu: Khanal Publication.
Conclusion
Financial management is a vital function that ensures the efficient use of financial resources within an organization. By making strategic decisions regarding investments, financing, and risk management, financial managers play a key role in driving growth, maximizing value, and maintaining financial stability. The ultimate goal is to balance risk and return while safeguarding the company’s ability to meet its objectives and navigate challenges.
Through effective financial planning, budgeting, and capital management, organizations can optimize profitability, enhance shareholder value, and ensure sustainable operations in a competitive market. it also helps in making informed decisions that promote long-term success, whether through innovation, expansion, or improving operational efficiency.
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