Financial Management and Accounting (BIT155MS)

Principles of financial management, time value of money, capital budgeting and investment appraisal, working capital management, capital structure and leverage, dividend policy, double-entry accounting fundamentals, accounting cycle (journal, ledger, trial balance), financial statements (Trading, Profit & Loss, Balance Sheet), financial ratio analysis, and Cash Flow Statement (Direct Method).

1. Unit 1: Nature of Financial Management3 hrs

   • Meaning, definition, and evolutionary stages of financial management
   • Key financial decisions: Investment decisions (capital budgeting), Financing decisions (capital structure), and Dividend decisions
   • Objectives of financial management: Profit maximization vs Wealth maximization (Shareholder wealth maximization)
   • Agency problem, agency costs, conflicts between shareholders and management, and corporate governance solutions
   • Role and responsibilities of the Chief Financial Officer (CFO) and finance manager in IT firms

2. Unit 2: Time Value of Money3 hrs

   • Concept, rationale, and real-world importance of time value of money in capital investment
   • Compounding techniques: Future value of a single cash flow, continuous compounding, and effective interest rates
   • Discounting techniques: Present value of a single cash flow and discount factors
   • Annuities: Future value and present value of Ordinary Annuity vs Annuity Due
   • Perpetuity: Present value of perpetual cash streams and growing perpetuities
   • Loan amortization schedules: Equal annual installments, principal reduction, and interest split calculation

3. Unit 3: Capital Budgeting4 hrs

   • Nature, significance, and process of capital budgeting decisions
   • Types of investment proposals: Independent, Mutually exclusive, and Replacement projects
   • Cash flow estimation: Initial cash outlay, operating cash flows after taxes (CFAT), and terminal cash flows
   • Non-discounted capital appraisal techniques: Payback Period (PBP) and Accounting Rate of Return (ARR)
   • Discounted capital appraisal techniques: Net Present Value (NPV), Internal Rate of Return (IRR), and Profitability Index (PI)
   • Comparison of NPV and IRR: Conflicting rankings in mutually exclusive projects and reinvestment rate assumptions

4. Unit 4: Working Capital5 hrs

   • Concept of working capital: Gross working capital vs Net working capital
   • Permanent (fixed) working capital vs Temporary (variable) working capital
   • Operating cycle and Cash Conversion Cycle (CCC) calculation and trade-offs
   • Working capital financing strategies: Matching (hedging), Conservative, and Aggressive financing approaches
   • Cash management: Transaction, precautionary, and speculative motives; Baumol's economic order quantity cash model and Miller-Orr model
   • Receivables management: Credit policy, credit standards, terms of credit, collection procedures, and aging schedule
   • Inventory management: Motives for holding inventory, Economic Order Quantity (EOQ) formula, reorder level, and ABC analysis

5. Unit 5: Capital Structure4 hrs

   • Meaning, definition, and optimal capital structure concept
   • Financial leverage vs Operating leverage: Meaning, mechanics, and risk implications
   • Degree of Operating Leverage (DOL), Degree of Financial Leverage (DFL), and Degree of Combined Leverage (DCL)
   • EBIT-EPS analysis and financial indifference point calculation
   • Capital structure theories: Net Income (NI) approach, Net Operating Income (NOI) approach, and Traditional approach
   • Modigliani-Miller (MM) hypothesis: Proposition I and II without taxes (arbitrage mechanism) and with corporate taxes
   • Determinants of capital structure: Business risk, tax shelter, financial distress costs, and agency costs

6. Unit 6: Dividends4 hrs

   • Meaning and forms of dividend: Cash dividends, stock dividends (bonus shares), and stock splits
   • Determinants of dividend policy: Legal constraints, liquidity, investment opportunities, and stability
   • Dividend theories: Walter's model (relationship between internal rate of return r and cost of capital k)
   • Gordon's dividend capitalization model and constant growth assumptions
   • Modigliani-Miller (MM) dividend irrelevance hypothesis and arbitrage proof
   • Practical dividend policies: Constant payout, stable dividend, and residual dividend policy

7. Unit 7: Nature of Accounting4 hrs

   • Meaning, definition, objectives, and scope of accounting in business
   • Accounting as an information system for economic decision-making
   • Users of accounting information: Internal users (management, employees) and external users (investors, creditors, tax authorities)
   • Branches of accounting: Financial accounting, Cost accounting, and Management accounting
   • Generally Accepted Accounting Principles (GAAP) and international alignment
   • Fundamental accounting concepts: Business entity, Money measurement, Going concern, Accounting period, Cost concept, Dual aspect concept
   • Fundamental accounting conventions: Accrual convention, Matching principle, Realization principle, Consistency, Conservatism (prudence), Materiality, and Full disclosure

8. Unit 8: Accounting Process6 hrs

   • The accounting cycle: Source documents, journalizing, posting, balancing, trial balance, and financial statement preparation
   • Double-entry bookkeeping system: Concepts of debit and credit, accounting equation (Assets = Liabilities + Owner's Equity)
   • Golden rules of debit and credit for Personal accounts, Real accounts, and Nominal accounts
   • Journal entries: Preparation of simple journal entries and compound journal entries
   • Sub-division of journals: Cash Book (single, double, and triple column cash book), Purchases Day Book, Sales Day Book
   • Ledger posting: Ledger account formats (T-account), posting from journal to ledger, and balancing of ledger accounts
   • Trial Balance: Objectives, format, rules for preparation, and classification of errors (errors revealed vs errors not revealed by trial balance)

9. Unit 9: Financial Statement5 hrs

   • Meaning, objectives, and importance of final accounts / financial statements
   • Trading Account: Concept, components (opening stock, purchases, direct expenses, sales, closing stock), and gross profit calculation
   • Profit and Loss Account: Operating expenses, non-operating income/expenses, operating profit, and net profit calculation
   • Balance Sheet: Structure, classification, and marshalling of assets (liquidity vs permanence order) and liabilities
   • Key year-end accounting adjustments: Closing stock, outstanding expenses, prepaid expenses, accrued income, unearned income, depreciation, bad debts, and provision for doubtful debts

10. Unit 10: Financial Analysis4 hrs

    • Meaning, significance, and tools of financial statement analysis
    • Comparative financial statements and common-size financial statements (horizontal and vertical analysis)
    • Ratio Analysis: Classification, standards, and diagnostic utility
    • Liquidity ratios: Current Ratio and Quick Ratio (Acid-Test Ratio)
    • Leverage / Solvency ratios: Debt-to-Equity Ratio, Debt-to-Total-Assets Ratio, and Interest Coverage Ratio
    • Activity / Turnover ratios: Inventory Turnover Ratio, Debtors (Receivables) Turnover Ratio, Average Collection Period, and Total Assets Turnover
    • Profitability ratios: Gross Profit Margin, Net Profit Margin, Return on Assets (ROA), Return on Equity (ROE), and Earnings Per Share (EPS)

11. Unit 11: Cash Flow Statement - Direct Method3 hrs

    • Meaning, objectives, and significance of Cash Flow Statement as per Nepal Accounting Standard (NAS 07) / IAS 7
    • Distinction between Cash Flow Statement, Funds Flow Statement, and Profit & Loss Account
    • Classification of enterprise cash flows: Operating activities, Investing activities, and Financing activities
    • Direct Method of preparing Cash Flow Statement: Cash collections from customers, cash paid to suppliers and employees, operating expenses, tax paid
    • Cash flows from investing activities: Purchase and sale of fixed assets and long-term investments
    • Cash flows from financing activities: Issue of shares, debentures, loan borrowings, dividend payments, and repayment of debt
    • Net increase/decrease in cash and cash equivalents and reconciliation with opening and closing cash balances