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Financial Management-I: Course outline

Course description

Financial Management course aims at imparting knowledge about the fundamental concepts and tools of financial management. It emphasizes the importance of financial management skills to individuals and enterprises. You are expected to gain an initial understanding of the finance function in an organization, the role of the finance manager and the financial environment in which the firm operates. The financial environment covers the understanding of financial and capital markets along with the broad orientation of macroeconomic factors affecting the business. The emphasis will remain on developing the skills for planning, appraising and evaluating the investment, financing and operating decisions.

Learning outcome

On completion of the course, students are expected to:

  1. Understand functions of finance manager.
  2. Understand the basics of finance theory as it applies to corporate financial decisions.
  3. Be able to understand and analyze financial statements.
  4. Be able to apply tools and techniques of time value of money for investing decisions.
  5. Understand and apply the concepts of risk and return for portfolio management.
  6. Be able to apply the principles of capital structure in the determination of the appropriate level of debt for a company.
  7. Understand the factors influencing the determination of corporate dividend policy.
  8. Be conversant with the incentives for and mechanics of issuing and retiring securities.
  9. Be able to apply the weighted average cost of capital method to value real assets.
  10. Understand the concepts and techniques of risk management

Course content

Week 10 & 11

The Cost of Capital

  • The cost of capital concepts
  • Individual and weighted average costs of capital
  • Costs of capital and valuation
  • Capital structure
  • Capital structure decision (No taxes or other capital market imperfections)
  • Taxation and capital structure decision
  • Debt equity ratio, cost of capital and the value of the firm (The MM Propositions)
  • Optimal capital structure
  • Costs of financial distress and bankruptcy
  • Personal taxes
  • Evidence on capital structure determinants

Week 12

Working Capital Management and Short-Term Planning

  • Working capital defined
  • Working capital management policy options
  • Working capital cycle and other cash flows
  • Working capital dynamics
  • Cash management
  • Inventory Management

Related books

Course content

Week 01

An Overview of Financial Management

  • Scope of Financial management
  • Business organizations
  • Organization of the finance function
  • Finance management vs. other managerial functions
  • The finance manager and the financial environment
  • Financial markets
  • Financial institutions
  • The roles of the finance manager
  • Goals of the firm
  • Agency problems and their mitigation

Week 02, 03

Time Value of Money

  • The role and perspectives of the TVM concept
  • Future values
  • Present values
  • The relationship between future and present values
  • Annuities
  • Future and present values of cash flows under high compounding frequency
  • Impact of higher compounding frequency
  • Inflation and the Time Value of Money
  • TVOM in Islam
  • Selected applications

o Sinking fund

o Providing for Retirement

o Deferred Annuities

o Loan Amortization

Course content

Week 13 & 14

Long term Financing

  • The Capital structure basics
  • The capital structure questions
  • The Income and traditional views of capital structure
  • The Modigliani and Miller’s views under no taxes assumptions
  • The Modigliani and Miller’s views under corporate taxes assumption
  • Financing Decisions
  • The role and realities of Venture capital funding
  • Sources of funds for venture capital investments
  • Attracting venture capital finance and choosing a venture capitalist

The IPO process

  • Issuing methods
  • Choosing an underwriter
  • Role of the underwriter
  • Determining the IPO price
  • Underpricing of IPOs
  • Cost of IPOs
  • Benefits of listing and cross-listing

Types of long term debt

  • Main features of long term debt
  • Designing a long term debt issue
  • An overview of the debt market in Tanzania
  • International debt financing
  • Bond refunding analysis

Week 15&16

Contemporary Financial Management Systems

  • Islamic Finance
  • Difference between traditional and Islamic finance
  • Islamic modes of financing
  • Other financial systems

Course content

Week 04

Bond and Their Valuation

  • Definition, types and features of bonds
  • Valuation of bonds (the basic process)
  • Basic relationships in bond valuation
  • Bondholder’s expected rate of return
  • Risks associated with bond returns
  • Introduction to Sukuk Bonds

Week 05

Stocks and Their Valuation

Shares and their basic features

  • Benefits from a share investments
  • Price of ordinary shares
  • Behavior of expected dividend growth and share price
  • Price of shares based on earnings
  • Expected rate of return
  • Preferred shares and their characteristics
  • Price of preferred shared and the expected rate of return
  • Valuing the entire business
  • Shariah screening process for shariah compliant stocks

Week 06 & 07

Risk and Return    

  • Expected returns and risk defined
  • Calculating expected return
  • Calculating risk (Variance and Standard deviation)
  • Portfolios and portfolio weights
  • Portfolio expected returns
  • Portfolio variance and standard deviation
  • Systematic and unsystematic risk
  • Diversification and portfolio risk
  • The principle of diversification and beta
  • Measuring systematic risk
  • Portfolio beta
  • Beta and the risk premium
  • Security market line
  • Capital asset pricing model
  • Risk management in Islamic perspective

Week 08&09

Analysis of Financial Statements

  • Ratio Analysis
  • Liquidity Ratios
  • Asset Management Ratios
  • Debt Management Ratios
  • Profitability Ratios
  • Market Value Ratios
  • Trend Analysis
  • Comparative Ratios and Benchmarking
  • Uses and Limitation of Ratio Analysis

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