# 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.

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

1. Introduction to Financial Management

2. Financial Statement Analysis
Ratio Analysis
Common-size Financial Statements
Solved Examples
Practice Exercises

3. Cost of Capital
Cost of Debt (ka)
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 Exercises

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 Exercises

5. Working Capital Management
Cash Conversion Cycle
Current Asset Investment Policies
Current Asset Financing Approaches
Short Term Financing Options
Solved Examples
Practice Exercises

6. Capital Structure
Financial Risk
Optimal Capital Structure
Capital Structure Theories
Solved Examples
Practice Exercises

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 Exercises

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

9. AFN Formula
10. Solved Examples
11. Practice Exercises

Glossary

The term, “working capital”, can have several different meanings. One common aspect of all these is that it refers to current assets and liabilities. Below are the most commonly used terms related to working capital:

Working Capital (or Gross Working Capital)
This term simply refers to the current assets of a company, like inventory, accounts receivable, cash, marketable securities etc.

Net Working Capital
The difference between current assets and current liabilities is termed as net working capital.

Net Operating Working Capital
This is the current assets minus non-interest bearing current liabilities. The interest bearing current liabilities signify the money borrowed by the company as a short-term loan. Non-interest bearing current liabilities are the ones that come out of regular business, like accounts payable and accruals.

Working capital is required by every company as it provides the cash needed to pay for loan interests and other day-to-day operations of the company. Depending upon the kind of business that a company is in, it decides how much working capital to carry. Too much working capital leads to reduction in profitability and too less could lead to bankruptcy.
In the sections below we see how a company calculates how much working capital it needs to carry.

Cash Conversion Cycle
The length of time a dollar is tied up in current assets is called the cash conversion cycle. By calculating this length, a company gets an idea of how much working capital it would need and also how the company can improve its operations to reduce the length of this cycle.
Companies buy raw materials, convert them into finished products and sell them. This is the business cycle of a typical company. Companies also get a credit period to pay for their raw materials, called Payables Deferral Period. Similarly, companies also extend credit to their customers, called DSO (this term was seen in chapter 2 earlier) or Receivables Collection Period. When we draw these on a time scale, we get the following:

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.