About Course
What Will You Learn?
- 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 strategies.
Course Content
Overview of Financial Management
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
The Financing Decision
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 – public issue, private placement, bonus issue, employee stock option plans (ESOPS) and rights issues
Financial Institutions and Markets
Financial 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, insurance agencies 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
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
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
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
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
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
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 Decision
Dividend decision
-
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
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
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