COM 3503 Financial Management

The rational of this course is to provide an introductory level understanding of major concepts, principles, theories and techniques in Financial Management while mainly focusing on the investment and financing decisions of firms. The course is organized into three modules such as Financial Environment, Markets and Analysis, Risk, Return and Valuation of assets and Corporate Finance to clearly understand the basic tools and techniques of finance that are necessary for handling decision making process of an organization.

After successful completion of this course students will be able;

  • To understand concepts, principles and theories of financial management.
  • To describe and understand the financial environment, markets and to carry out financial analysis.
  • To understand the relationship between risk and return and to value assets.
  • To use the techniques and tools of financial management in decision making process of organizations especially with regard to investing and financing.
  • To conceptualize how the finance function is handled and managed in an organization in order to survive and grow competitively in the market.

1. An Introduction to Financial Management
1.1. Meaning of Financial Management
1.2. Major areas in Finance
1.3. Goals of Financial Management
1.4. Agency Relationship

2. The Financial Environment
2.1. Financial System
2.2. Financial Market and types of markets
2.3. Financial Instruments and Institutions
2.4. Market efficiency and capital market in Sri Lanka

3. Information for Financial Decisions
3.1. Financial Statements and reports
3.2. Financial Ratio Analysis
3.3. Evaluation of firm’s earning power (DuPont analysis)

4. Time Value of Money
4.1. Time Preference for money
4.2. Time Value Adjustment for different types of cash flows
4.3. Impact of Compounding Frequency
4.4. Loan Amortization

5. Risks and Return
5.1. Concept of Risk and Return
5.2. Estimation of Risk and Return of individual assets
5.3. Estimation of Risk and Return in a portfolio context
5.4. Portfolio theory and Assets Pricing Models

6. Bonds and their Valuation
6.1. Types of Bonds
6.2. Characteristics of Bonds
6.3. Bond Valuation
6.4. Bond value and Yields
6.5. Bond value and interest rates
6.6. The term structure of interest rate

7. Stocks and their Valuation
7.1. Rights and Privileges of Stockholders
7.2. Valuation of Common Stocks

8. The Sources of Finance and Cost of Capital
8.1. The importance of Cost of Capital
8.2. Estimation of Component Cost of Capital
8.3. Weighted Average Cost of Capital (WACC)
8.4. Marginal Cost of Capital (MCC)
9. Capital Budgeting Decisions
9.1. Types of Investment Decisions
9.2. Capital Budgeting Process
9.3. Capital Budgeting Techniques
9.4. Capital Rationing
9.5. Risk analysis in capital budgeting

10. Capital Structure and Leverage
10.1. Capital Structure Concepts
10.2. Business and Financial risk of a firm
10.3. Meaning and measuring of financial leverage
10.4. Financial leverage and shareholder return
10.5. Combining financial leverage and operating leverage
10.6. Capital Structure Theories

11. Dividend Policy
11.1. Objectives of dividend policy
11.2. Dividend theories

12. Working Capital Management
12.1. Basic Concepts of Working Capital
12.2. Operating and cash conversion cycle
12.3. Permanent and variable working capital
12.4. Determinants of working capital
12.5. Estimating working capital
12.6 Working Capital Financing Policies.

Lectures, seminars, course manuals, workshops, assignments, self study.

  1. Ross, Westerfield and Jordan, Essentials of Corporate Finance, 6th Edition, 2008.
  2. Brigham and Houston, Fundamentals of Financial Management, 9th Edition, 2001.
  3. Pandey I.M., Financial Management, 9th Edition, reprinted 2006.