Essentials of Financial Management Fourth Edition I.M PANDEY pdf notes

PART ONE: INTRODUCTION

1. FINANCIAL MANAGEMENT: SCOPE AND OBJECTIVES

Introduction
Scope Of Finance
Finance Functions
Financial Manager’s Role
Financial Goal: Profit Maximization Vs Wealth Maximization
Agency Problems: Managers Vs Shareholders Goods
Organization Of The Finance Functions

2. SOURCES OF LONG-TERM FINANCE

Introduction
Ordinary Shares Or Equity
Rights Issue Of Equity Shares
Preference Shares
Debentures
Convertible Debentures
Term Loans
Fixed Deposits From Public
Lease Financing
Hire Purchase Financing
Factors Affecting Long-Term Funds

PART TWO: CONCEPTS OF VALUE

3. TIME VALUE OF MONEY

Introduction
Time Preference For Money
Future Value
Future Value Of An Annuity
Present Value
Value Of An Annuity Due
Multi-Period Compounding
Net Present Value
Present Value And Rate Of Return

4. VALUATION OF SHARES AND DEBENTURES

Introduction
Concepts Of Value
Features Of A Bond Or Debenture
Bond Values And Yields
Valuation Of Preference Shares
Valuation Of Ordinary Shares
Equity Capitalization Rate

PART THREE: RISK, RETURN AND CAPITAL ASSET PRICING

5. RISK AND RETURN

Introduction
Return On A Single Asset
Risk Of Rates Of Return: Variance And Standard Deviation
Expected Return And Risk: Incorporating Probabilities In Estimates

6. PORTFOLIO THEORY AND CAPM

Introduction To Portfolio Theory
Portfolio Return: Two-Asset Case
Portfolio Risk: Two-Asset Case
Risk Diversification
Combining A Risk-Free Asset And A Risky Asset
Capital Asset Pricing Model (CAPM)
Implications And Relevance Of CAPM

7. BETA ESTIMATION AND THE COST OF EQUITY

Introduction
Measuring Beta: Direct Method
Measuring Beta: Market Model
CAPM And The Opportunity Cost Of Equity Capital

PART FOUR: COST OF CAPITAL AND CAPITAL BUDGETING

8. COST OF CAPITAL

Introduction
Significance Of The Cost Of Capital
The Concept Of The Opportunity Cost Of Capital
Determining Component Costs Of Capital
Cost Of Debt
Cost Of Preference Capital
Cost Of Equity Capital
Cost Of Equity And The Capital Asset Pricing Model (CAPM)
Cost Of Equity: CAPM Vs Dividend-Growth Model
The Weighted Average Cost Of Capital

9. CAPITAL BUDGETING TECHNIQUES

Introduction
Nature Of Capital Budgeting
Types Of Capital Budgeting Decisions
Investment Evaluation Criteria 2
Net Present Value
Internal Rate Of Return
Profitability Index
Payback
Discounted Payback
Accounting Rate Of Return
NPV Vs IRR
Reinvestment Assumption And Modified Internal Rate Of Return (MIRR)

10. CASH FLOW ESTIMATION FOR INVESTMENT EVALUATION

Introduction
Cash Flows Vs Profit
Incremental Cash Flows
Components Of Cash Flows
Calculation Of Depreciation For Tax Purposes
Additional Aspects Of Incremental Cash Flow Analysis

11. RISK ANALYSIS IN CAPITAL BUDGETING

Introduction
Nature Of Risk
Statistical Techniques For Risk Analysis
Techniques Of Risk Analysis
Decision Trees For Sequential Investment Decisions

PART FIVE: FINANCING DECISIONS

12. OPERATING AND FINANCIAL LEVERAGES

Introduction
Capital Structure Defined
Meaning Of Financial Leverage
Measures Of Financial Leverage
Financial Leverage And The Shareholders’ Return
Combining Financial And Operating Leverages
Financial Leverage And The Shareholders’ Risk

13. CAPITAL STRUCTURE THEORY AND PRACTICE

Introduction
Relevance Of Capital Structure: The Net Income (Ni) And The Traditional Views 339
Irrelevance Of Capital Structure: The Net Operating Income (Noi) Approach 346
Irrelevance Of Capital Structure: The Mm Hypothesis Without Taxes 348
Relevance Of Capital Structure: The Mm Hypothesis Under Corporate Taxes 356
Financial Distress And Optimum Capital Structure 359
Pecking Order Theory 360
Capital Structure Planning And Policy 361
Practical Considerations In Determining Capital Structure 364

14. DIVIDEND THEORY AND PRACTICE

Introduction
Issues In Dividend Policy
Dividend Relevance: Walter’s Model
Dividend Relevance: Gordon’s Model
Dividend And Financing: Residual Theory
Dividend And Uncertainty: The Bird-In-The-Hand Argument
Dividend Irrelevance: The Miller–Modigliani (Mm) Hypothesis
Dividend Policy And Practice
Objectives Of Dividend Policy
Practical Considerations In Dividend Policy
Stability Of Dividends
Forms Of Dividends
Buyback Of Shares

PART SIX: WORKING CAPITAL MANAGEMENT

15. NATURE OF WORKING CAPITAL

Introduction
Concepts Of Working Capital
Operating And Cash Conversion Cycle
Permanent And Variable Working Capital
Balanced Working Capital Position
Determinants Of Working Capital
Issues In Working Capital Management
Estimating Working Capital Needs
Policies For Financing Current Assets

16. CASH MANAGEMENT

Introduction
Facets Of Cash Management
Motives For Holding Cash
Cash Planning
Managing Cash Collections And Disbursements
Investing Surplus Cash In Marketable Securities

17. RECEIVABLES MANAGEMENT

Introduction
Credit Policy: Nature And Goals
Credit Policy Variables
Credit Evaluation Of Individual Accounts

18. INVENTORY MANAGEMENT

Introduction
Nature Of Inventories
Need To Hold Inventories
Objective Of Inventory Management
Inventory Management Techniques

19. WORKING CAPITAL FINANCE

Introduction
Trade Credit
Accrued Expenses And Deferred Income
Bank Finance For Working Capital
Commercial Paper

PART SEVEN: FINANCIAL PLANNING

20. FINANCIAL STATEMENT ANALYSIS

Introduction
Users Of Financial Analysis
Nature Of Ratio Analysis
Liquidity Ratios
Leverage Ratios
Activity Ratios
Profitability Ratios
Evaluation Of A Firm’s Earning Power: Dupont Analysis
Comparative Statements Analysis
Trend Analysis
Inter-Firm Analysis
Utility And Limitations Of Ratio Analysis
Cautions In Using Ratio Analysis
Financial Ratios As Predictors Of Failure

21. LONG-TERM FINANCIAL PLANNING

Introduction
Financial Planning
Planning For Sustainable Growth

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