Centre for Teaching, Learning, and Professional Development

JAIPURIA INSTITUTE OF MANAGEMENT, LUCKNOW

Post Graduate Diploma in Management
THIRD TRIMESTER (2013-2014)
Course Code: 305
FINANCIAL MANAGEMENT - II

Course Title:

Course Overview, Program Level Learning Goals

Course Overview:

This part of the course begins with an overview of first part of Financial Management.
The first module is on Financing and Dividend decisions. In this part of the course,
discussions are done on how firm raises the capital to fund their business activities and how firms
choose among the various sources of capital available to them. Dividend decision is a subset of
financing decision as retained earnings is the most significant internal source of financing the
growth of the firm. Here, we cover the various issues that the manager faces in designing the
dividend policy of a firm.
The course then talks about short term financial decision making. In this part, a discussion of
how firms manage their working capital and the implications of working capital management
decisions for firm value is done. The course deals with computation of operating cycle and
determination of working capital requirement of firm. It also covers in detail the management of
different components of working capital viz., inventory, debtors and cash.
The last module deals with Managing Value and Risk. Here, the students are apprised of how
the firm manages their value through corporate restructuring such as, merger, demergers,
acquisition, etc. Further, the students are geared up how the firm mitigates the different kind of risks
to which they are exposed to such as interest rate risk, market risk, forex risk, etc.
Learning Outcomes
Learning Outcomes:

After undergoing this course, the participants will be able to:

Analyze the relationship between capital structure and value of firm.

Discuss the issues involved in framing corporate dividend policy.
Explain how M&As help in creating value.
Discuss the reasons for hedging and tools used for hedging.
Use present value technique in financial decision making.
Assess working capital requirements.

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List of Topics/ Modules

Topic/ Module
Contents/ Concepts
Introduction to Financial Management-I
Recap of topics covered in FM-I
Module 1: Long-term Financing & Dividend Decisions
Leverage
Breakeven Analysis
Operating Leverage
Financial Leverage
Total Leverage
Capital Structure Decisions
Capital Structure Theories
Optimal Capital Structure
EBIT-EPS Analysis
Dividend Fundamentals
Forms of dividends
Tax treatment of dividends
Dividend Policy
Dividend Theories
Factors affecting dividend policy
Types of dividend policies
Module 2: Short-term Financial Management
Working Capital Fundamentals
Gross and net working capital concept

Tradeoff between profitability and

risk

Operating Cycle

Inventory Management

Concept of operating cycle

Strategies for managing operating
cycle
Common techniques for managing
inventory
Various inventory levels
Credit granting and credit standards
Credit terms
Credit monitoring
Float management
Cash concentration system
Zero balance account

Receivables Management

Managing of Receipts & Disbursements

Current Liabilities Management

Module 3: Managing Value and Risk

Hybrid & Derivative securities

Accounts payable management

Unsecured sources of short term
loans
Secured sources of short term
loans
Leasing
Convertible securities
Stock purchase warrants
Options

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Corporate Restructuring

Merger fundamentals
LBOs
Divestures

Evaluation Criteria
Component
Quizzes

Description
There shall be three quizzes, one for each module

Weight
10%

Group Project
Assignment

It will be on group (group of 5 students) basis.

10%

Case Analysis

The evaluation would be done on ability to apply

the various theoretical concepts and analytical
skills.
Students will be evaluated for their active
contribution in class discussions, relevance of
contribution and overall conduct during classes
It will cover sessions 1-12

Class
Participation

Project will involve study of working capital

management/capital structure decisions/dividend
decisions of major sectors.

Mid Term
Examination
End Term
It will be based on entire syllabus
Examination
Total
Recommended/ Reference Text Books and Resources

10%
10%
20%
40%
100%

Text Book:
Principles of Managerial Finance, Lawrence J. Gitman, Pearson Education, Eleventh
Edition
Cases: Cases cover 3 caselets and 2 integrated cases
Caselets: One each on Capital Structure, Cash management, and Current Liabilities
Management
Integrated Cases: One case on Dividend Policy and one on Working Capital
Management
Reference Books:
I M Pandey, Financial Management, Vikas Publication, Tenth Edition
Prasanna Chandra, Financial Management Theory and Practice, TMH, Eight Edition
Brealey Myers, Principal of Corporate Finance, TMH, Seventh Edition

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Session Plan
Session

Topic

Requirements:
Readings/ Cases

Learning Outcome

Introductory
Recap of topics covered in FMsession
I
Module 1: Long-term Financing & Dividend Decisions
2
Leverage
Chapter 12 (pg 462Understand operating,
475)
financial and total leverage
and the relationships among
them.
3
Firms capital
Chapter 12 (pg 475Understand the types of
structure
486)
capital, external assessment
of capital structure and capital
structure theory.
4
Chapter
12
(pg
486To do EBIT-EPS analysis and
EBIT-EPS
489)
consider its implication for
approach to
capital structure decisions.
capital

structure
5

Choosing the
optimal
capital
structure
CASELET 1:

Chapter 12 (pg 490493)

Dividend
Fundamentals

Evaluating
Haripriyas Capital
Structure (pg 506)
Chapter 13 (pg 508511; 520-523)

Dividend
Theories

Chapter 13 (pg 511515)

Dividend
Policy- factors
affecting
dividend
policy; types
of dividend
policies
Evaluation of
CorporateDivi
dend Policy

Chapter 13 (pg 515520)

CASE1: Dividend
Policy of Hero Honda
Motors Limited
(handouts)

Module 2: Short-term Financial Management

10
Working
Chapter 14 (pg 542capital
545)
fundamentals

Review the return and risk of

alternative capital structures
and their linkage to market
value.
Case on Capital Structure
Understand cash dividend,
stock dividend, tax treatment
of dividends, stock split and
stock repurchase.
Understand the residual
theory of dividends and the
key arguments with regard to
dividend irrelevance and
relevance.
Review and evaluate the basic
types of dividend policies.

Understanding of dividend
policy of the company

Understand short term

financial management, and
the related tradeoff between
profitability and risk

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11

Operating
Cycle/Cash
Conversion
Cycle
Inventory
management
Debtors
management

Chapter 14 (pg 545550)

14

Management
of receipts
and
disbursements

Chapter 14 (pg 564567)

15

Cash
Management
CASELET 2:

12
13

Chapter 14 (pg 550554)

Chapter 14 (pg 554564)

Assessing Roche
Publishing Companys
Cash Management
Efficiency (pg575)

Calculate the cash conversion

cycle, understand its funding
requirements, and the key
strategies for managing it.
Understand inventory
management techniques.
Explain the credit selection
process; evaluation of credit
standards; credit terms and
credit monitoring.
Understand the management
of receipts and
disbursements, including
float, speeding up collections,
slowing down payments, cash
concentration, zero balance
accounts, and investing in
marketable securities.
Application of cash
management concepts.

16

Creditors
management

Chapter 15 (pg 578583)

Review accounts payable, key

components of credit terms;
understanding the effects of
stretching account payable on
their cost.

17

Sources of
short term
loans
CASELET 3:

Chapter 15 (pg 583595))

Understand the characteristics

of secured and unsecured
short term loans.

Selecting Kanthan
Companys
financing strategy
of unsecured short
term borrowing (pg
605)

18

Working
CASE2: Fun Craft India
capital
(pg608)
management
Module 3: Managing Value and Risk
19
Leasing
Chapter 16 (pg 612621)
20

21
22

Convertible
Securities &
Stock
Purchase
Warrants
Options
Merger
fundamentals

Chapter 16 (pg 621632)

Chapter 16 (pg 632635)

Chapter 17 (pg 648654;656-668)

Application of working capital

management concepts
Review types of leases,
leasing arrangements, lease
vs purchase decision.
Understand types of
convertible securities, key
characteristics of stock
purchase warrants.
Understand call and put
options, hedging with options.
Understand merger
fundamentals, including

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23

LBOs &
Divestitures

24

Review &
Integration
Session

Chapter 17 (pg 654656)

terminology, motives for

merger and types of merger.
Understand the objectives and
procedures used in LBOs and
divestitures.

10. Contact Details

Name of the Instructor:

Dr Sushma Vishnani

Office Location:

Room No. 11

Telephone:

9838763160, Ext No. 240

Email:

Sushma.vishnani@jaipuria.ac.in

Teaching Venue:
Office Hours:

9:30 am to 5:30 pm