Monika Goel Online Classes FINANCIAL, TREASURY AND FOREX MANAGEMENT Module II (C.S Professional Course) Session Plan Day Date Time Topics- to be covered 14 h July, Nature and Scope of Financial Management : Importance of the topic Objective of Financial management, difference between profit maximization and shareholders wealth maximization Scope of financial management: investment decision, financing decision, dividend decision. Economic value added(eva) Difference between profitability and liquidity Difference between financial distress and insolvency Review questions Thursday 16 th July, Capital Budgeting-1 Capital budgeting explained in brief:- pre-requisites, decision criteria, steps in capital budgeting Difference between independent and mutually exclusive projects with illustration Pay back period: Discounted pay back period Time value of money, introduction of important concepts like Net Present Value and Internal Rate of Return Profitability Index Illustration covering Pay pack period, Net present value, Profitability Index, Internal rate of return 21 st July, Capital Budgeting-2 Choosing optimal capital budget: marginal cost of capital, capital rationing Evaluating capital projects Illustration: replacement of machine with solutions in excel file Illustration: buying a new additional machine with solutions in excel file Thursday 23 rd July, Capital Budgeting and linear programming Evaluating risk: Introduction of various techniques: Standard Deviation, coefficient of variation, risk adjusted discount rates, sensitivity analysis, simulation analysis, linear programming, certainty equivalent approach Capital allocation decisions Capital budgeting for alternative projects of equal lives Capital budgeting for alternative projects of unequal lives Capital budgeting using 0-1 integer linear programming (ILP) model Illustration using solver add-in in Microsoft Excel Mail: mgonlineclasses@gmail.com Page 1
Thursday Thursday 28 th July, 30 th July, 4 th August, 6 th August, 11 th August, Illustration: capital budgeting decision in mutually exclusive projects Illustration: capital budgeting and sensitivity analysis with solutions in excel file Summary of the chapter: risk return analysis Capital structure-1 : Introduction to the topic Important considerations- planning a capital structure Relationship between capital structure and shareholders wealth maximisation Essentials of optimal capital structure Horizontal, vertical and pyramid capital structure Factors influencing capital structure Difference between capital structure and financial structure Capital Structure Theories- Net Income Theory (with illustration) Capital Structure Theories- Net Operating Income Theory (with illustration) Capital Structure-2 : Capital Structure Theories- Modiglani Miller Theory (without taxes and with taxes)- with illustrations Capital Structure-Leverage Analysis : Introduction to leverage with illustration Types of leverage- Financial and operating leverage Difference between business risk and financial risk Calculation of leverages- illustrations Illustrations- when income statement not provided Illustration- application of leverages EBIT- EPS Analysis- Point of Indifference Cost of Capital : Introduction to the concept Factors affecting cost of capital Cost of equity- CAPM Approach, Dividend Growth Model Cost of debt Cost of pref. shares Cost of retained earnings Cost of capital considering floatation costs Weighted average cost of capital(wacc) Illustrations- calculation of WACC with market value and book value weights Illustrations- Calculation of WACC using CAPM Illustration- showing effect of capital restructuring using MM approach Dividend Policy-1 : Dividend policy discussed with illustrations Mail: mgonlineclasses@gmail.com Page 2
Thursday 13 th August, Thursday 25 th August, 27 th August, 1 st Terminology explained Dividend policy and shareholders wealth maximisation Optimum Payout as per Walter s Model, Gordon s Growth Model Illustrations showing effect on shareholders wealth using Water s Model (Zebra Ltd. case) and Gordon s Model(Honey Corporation case). Dividend Policy-2 Introduction to Irrelevance theory: Modiglani Miller Model Explaining the Model with illustrations (Rosa Chemical case) (Abhishek Steel case) Verification of the Hypothesis (ABC Ltd. case) Dividend Policy- analysis on the basis of hypotheses Residual theory of dividend policy Illustration calculating market value of shares when five years dividend is given (Rani case) (XYZ Ltd. case) Illustration showing change in dividend policy and capital structure (Vaijantimala Ltd. case) Working Capital Management-1 Introduction to concept Why and how on level and mix of current assets Permanent and temporary working capital Operating cycle and cash cycle concept Determinants of working capital Preparing working capital budget ( Calculating working capital requirement (Ashoka Limited case) Calculating working capital requirement on cash cost basis(ice Decor case) Working Capital Management-2 Working Capital requirement when ratios are provided (Unichem Ltd. case) Self study case: Calculating working capital (Silver coin Ltd. case) Calculating working capital requirement (Mona Machines Ltd. case) Financing Working capital- conservative and restrictive policies Which policy is better? Review Questions- Theory questions Working Capital Management-3 (Inventory, Debtors and Cash Management) Inventory Management Just in time Inventory ABC Analysis Economic Order Quantity (EOQ) Model Calculation of EOQ with lead time or safety stock Calculation of EOQ- Reorder point and number of orders in a year Mail: mgonlineclasses@gmail.com Page 3
Decision- to make or buy (Vaibhav Ltd. case) Production order quantity Model Back order quantity Model Illustration- back order quantity model( Evergreen Ltd. case) Quantity discount Model Illustration- back order quantity model( Financial literacy house case) Review questions- Theory questions Debtors Management How to manage the required level of receivables? Change in credit policy( Seven Wings Ltd. study) Financing the debtors (Zenith Ltd. case) Introducing a discount policy (Prince Vision Ltd.) Maximum Permissible Bank Finance Tandon Committee Report Thursday 3 rd 8 th Cash management- cash budget Security Analysis and Portfolio Management-1 What is Investment? Real vs. Financial Investment Speculation vs. Investment Investment constraints Securities The Investment medium Terminology- Risk, Return and diversification Five steps of investment process Security Analysis- Fundamental analysis Difference between intrinsic value, book value, face value and market value Security Analysis- Technical analysis The Dow theory- supports, resistance, correction, recovery The technical tools and charts Security Analysis- Random Walk Theory Three forms of Efficiency of markets Security Analysis and Portfolio Management-2 Portfolio Management Calculation of Expected Returns Calculation of Risk (Variance and Standard Deviation) Calculation of covariance and coefficient of correlation and deciding the diversification policy Illustration (Excel Ltd. case) Capital asset pricing model (CAPM) Systematic Risk and unsystematic risk Calculation of beta Calculation of portfolio return and portfolio beta (A How to increase or reduce the portfolio beta (A Calculation of expected return of securities using CAPM (A Calculation of required (expected) return of securities using Mail: mgonlineclasses@gmail.com Page 4
Thursady 10 th 15 th Thursday 17h CAPM (Dhanpat case) Calculation of risk return trade off (A Evaluation of portfolio managers performance using CAPM (A Decision to buy, hold or sell securities (Vivek case) Decision on choosing the best project (Touch Wood Ltd. case) Security Analysis and Portfolio Management-3 Selection of Portfolio CAPM Model Capital Market Line(CML) and Security Market Line (SML) Understanding CML with example Sharpe Index Model CAPM Vs. Sharpe Model Markowitz Model Difference between efficient and optimal portfolio Self study question (Mohan Case) Self study question (Raman Ltd. Case) Derivatives and Commodity Exchanges-1 Explanation of the concept of derivatives Understanding the risk matrix Use of derivatives Underlying asset class- currency derivatives, credit derivatives (CDS, TRS, CLNs) Understanding Derivative contracts Derivative positions- long or short positions Explaining mark to market margin Use of derivatives for hedging (Zenith company case) Difference between futures and forward contracts Settlement of derivatives contract- calculation of profit/ loss ( A Pricing of a future contact Calculation of price of future contract ( A Settlement of futus contract- calculation of profit/ loss ( Ravi case) Derivatives and Commodity Exchanges-2 Understanding option contracts Exercise date, exercise price, European options, American options, option holder, option seller, call option, put option Settlement of options contract- calculation of profit/ loss A case study) In the money, out of money and at the money option Strategy: Buying a share and selling a share and put option (A Strategy: Buying both call and put option straddle position (A Selecting a suitable strategy (Internet services case) Self study -Calculating profit and loss on option contracts (Aman Mail: mgonlineclasses@gmail.com Page 5
Thursday 24 th Self study topic Self study topic Self study topic 22 nd 29 th Self study- straddle position (Bright India Ltd.- Case study) Understanding swaps The theory of comparative advantage concept Interest rate swap- an example Lowering interest costs Understanding commodity derivatives Foreign Exchange Management-1 Explanation on forex market Factors affecting exchange rate equilibrium Purchasing power parity and interest rate parity Direct and indirect quote Bid and ask rates Cross rates Calculation of appreciation and depreciation of currency Calculation of forward premium or forward discount Kinds of arbitrages- geographical arbitrage, interest rate arbitrage Covered interest arbitrage Illustrations to explain arbitrages in forex market Foreign Exchange Management-2 Foreign exchange risk Translation, transaction and economic exposure Measurement and management of risks Importer hedging foreign exchange risk (Silver Oak case study evaluating forward price, money market quotes and options price) Foreign Exchange Management-3 Borrowing in future using forward rate agreement (Ankush Ltd. case) Exporter hedging foreign exchange exposure with cross rates (Queen Ltd. case) Financing the import exposure (Green Ltd. case) Geographical arbitrage using cross rates ( A Other hedging techniques like lead and lag,netting Self study question: (A Financial Services PPT covering important topics of the chapter Solved model questions Project Management PPT covering important topics of the chapter Solved model questions Treasury and payment systems PPT covering important topics of the chapter Solved model questions Mail: mgonlineclasses@gmail.com Page 6