Financial Management Essentials You Always Wanted To Know

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Financial Management Essentials You Always Wanted To Know covers Financial Management concepts in concise and easy-to-understand manner for business professionals and non-finance graduates. This book includes Financial Management FUNDAMENTALS, SOLVED Examples, Important CONCEPTS & PRINCIPLES and Ample PRACTICE Exercises.
 
This Self Learning Management Series intends to give a jump start to working professionals, whose job roles demand to have the knowledge imparted in a B-school but haven't got a chance to visit one. This series is designed to address every aspect of business from HR to Finance to Marketing to Operations, be it any industry. Each book includes basic fundamentals, important concepts, standard and well-known principles as well as practical ways of application of the subject matter. The distinctiveness of the series lies in that all the relevant information is bundled in a compact form that is very easy to interpret.
 
The topics covered are:
a) Financial Statement Analysis
b) Cost of Capital & Capital Budgeting
c) Working Capital Management
d) Capital Structure
e) Distribution to Shareholders
f) Forecasting Financial Statements
 
Table of Contents
1. Introduction to Financial Management
2. Financial Statement Analysis
    Ratio Analysis
    DuPont Framework
    Benchmarking
    Limitation of Financial Ratios
    Common-size Financial Statements
    Solved Examples
    Practice Exercise
3. Cost of Capital
    Cost of Debt (kd)
    Cost of Preferred Stock (kp)
    Cost of Retained Earnings (ks)
    Cost of New Common Stock (ke)
    Weighted Average Cost of Capital (WACC)
    Solved Examples
    Practice Exercise
4. Capital Budgeting
    Free Cash Flow
    Timing of Cash Flows
    Estimating Cash Flows over Life of Project
    Payback Period
    Discounted Payback Period
    Net Present Value (NPV)
    Internal Rate of Return (IRR)
    Modified Internal Rate of Return (MIRR)
    Usage of Capital Budgeting Methods
    Solved Examples
    Practice Exercise
5. Working Capital Management
    Cash Conversion Cycle
    Current Asset Investment Policies
    Current Asset Financing Approaches
    Short Term Financing Options
    Solved Examples
    Practice Exercise
6. Capital Structure
    Debt
    Optimal Capital Structure
    Capital Structure Theories
    Solved Examples
    Practice Exercise
7. Distribution to Shareholders
     Factors in setting Dividend Distribution Policy
    Residual Dividend Model
    Dividend Payment Procedures
    Dividend Reinvestment Plan (DRIP)
    Stock Splits and Stock Dividends
    Stock Repurchases
    Solved Examples
    Practice Exercise
8. Forecasting Financial Statements
    Step 1 - Forecast Sales
    Step 2 - Forecast Income Statement
    Step 3 - Forecast Balance Sheet - 1st Pass
    Step 4 - Raising Additional Funds Needed (AFN)
    Step 5 - Forecast Balance Sheet - 2nd Pass
    AFN Formula
    Solved Examples
    Practice Exercise
    Glossary
 
Bisac
BUS017000 BUSINESS & ECONOMICS / Corporate Finance / General
BUS027000 BUSINESS & ECONOMICS / Finance / General
 
Sample from the book
(Below Questions and Answers are randomly taken from different pages of the book)
 
4.1 ABC Inc. is planning a new project. It requires an equipment purchase for $10 million and it will also need an initial increase in working capital of $2 million. What is the project’s initial investment outlay?
Solution:
The initial investment outlay is the amount of money invested in fixed assets and increase in working capital at the beginning of the project. In the above case the total investment at the beginning of the project is $10 million + $2 million = $12 million. This is the project’s initial investment outlay.
 
5.1 ABC Inc. has an inventory conversion period of 80 days, receivables collection period of 20 days, and payables deferral period of 25 days.
a) Calculate the company’s cash conversion cycle.
b) If the company has annual sales of $5 million, all of them on credit, what is the level of company’s accounts receivable?
c) What is the company’s inventory turnover?
Solution:
a) CCC = Inventory conversion period + Receivables collection period (DSO) – Payables deferral period
CCC = 80 + 20 – 25 = 75 days
b) Receivables collection period/DSO = Accounts receivable/Sales per day
Therefore, Accounts receivable = DSO x Sales per day = 20 x ($5 million/365) = $273,972.60
c) Inventory conversion period = Inventory/Sales per day
Therefore, Inventory = Inventory conversion period x Sales per day = 80 x ($5 million/365) = $1,095,890.41
Inventory turnover = Sales/Inventory = $5 million/$1,095,890.41 = 4.56
 
5.3 A wholesaler gives trade credit to its retailers. The terms of credit are 3/15, net 45. However, one of the retailers consistently delays payments to 60 days. What is the cost of trade credit if the retailer pays as per the terms? What is the cost of credit that the retailer is enjoying by paying late?
Solution:
When paying on time, the retailer has the following cost of trade credit:
Cost of trade credit 3/97) x (365/30) = 37.63%
When stretching payments, the retailer has the following cost of trade credit:
Cost of trade credit 3/97) x (365/45) = 25.09%
 
7.4 YYY Inc. has reported a net income of $2 million for the year. The company has 200,000 shares outstanding and its current stock price is $50 per share.
a) If the company had a 50% dividend payout ratio last year and plans to maintain it, what will be this year’s dividend?
b) What will be this year’s dividend yield?
c) If the company had reported $1.7 million net income last year, what was its per share dividend (assuming that the number of shares were the same)?
d) Comment on the dollar value of dividends in the two years. Should the company try to maintain the dividend payout ratio or match the dollar value of dividends?
Solution:
a) Dividends = 50% x $2 million = $1 million
b) Dividend yield = Dividend per share/Price per share
Dividend per share = $1 million/200,000 = $5
Therefore, Dividend yield = $5/$50 = 10%
c) Dividends last year = 50% x $1.7 million = $850,000
Therefore, Dividend per share = $850,000/200,000 = $4.25
d) The dividend last year was $4.25 per share. This has been increased this year to $5 per share. This is to keep the same dividend payout ratio. Although this will send positive signals, the company might not be able to continue at this growth rate every year. As investors look for stable dividends, it is best to match the dollar value of per share dividend instead of dividend payout ratio. Any additional amount that the company wants to distribute can be in the form of “extra dividend” in a particular year or through stock repurchases.
 
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Financial Mangement,Financial Essentials, Personal Finance,Corporate Finance,Business Finance, Vibrant Publishers