Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 1 of 108
THIS MATERIAL IS NOT AVAILABLE OFFLINE & ONLINE IN ANY FORM EXCEPT ACCASUPPORT.COM
TABLE OF CONTENTS
Note: click the cross-reference below for easy navigation. Click
press Ctrl + Home to see table of contents.
or
TABLE OF CONTENTS........................................................................................................................... 1
KEY TERMS ............................................................................................................................................ 3
AUTHOR’S PROFILE .............................................................................................................................. 8
IMPORTANT! .......................................................................................................................................... 9
DISCOUNT & ANNUITY FACTOR TABLES ......................................................................................... 11
Chapter 1: FINANCIAL MANAGEMENT FUNCTION ............................................................................ 13
Chapter 2: FINANCIAL MANAGEMENT ENVIRONMENT .................................................................... 19
Chapter 3: THE NATURE, ELEMENTS & IMPORTANCE OF WORKING CAPITAL ............................ 29
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS ....................................................... 32
Chapter 5: DETERMINING WORKING CAPITAL NEEDS & FUNDING STRATEGIES ........................ 64
Chapter 6: THE NATURE OF INVESTMENT DECISIONS & THE APPRAISAL PROCESS ................. 67
Chapter 7: NON DISCOUNTED CASH FLOW TECHNIQUES .............................................................. 68
Chapter 8: DISCOUNTED CASH FLOW (DCF) TECHNIQUES ............................................................ 69
Chapter 9: ALLOWING FOR INFLATION & TAXATION IN DCF ........................................................... 72
Chapter 10: ADJUSTING FOR RISK & UNCERTAINTY IN INVESTMENT APPRAISAL ...................... 74
Chapter 11: SPECIFIC INVESTMENT DECISIONS .............................................................................. 75
Chapter 12: SHORT & LONG TERM FINANCE .................................................................................... 79
Chapters13: INTERNAL SOURCES OF FINANCE & DIVIDEND POLICY ............................................ 83
Chapter 14: GEARING & CAPITAL STRUCTURE CONSIDERATIONS ............................................... 85
Chapter 15: FINANCE FOR SMALL & MEDIUM SIZED ENTITIES (SMEs) .......................................... 87
Chapter 16: ESTIMATING COST OF CAPITAL .................................................................................... 89
Chapter 17: RELATIONSHIP B/W COST OF CAPITAL, CAPITAL STRUCTURE & INVESTMENTS ... 92
Chapter 18: BUSINESS VALUATION TECHNIQUES ........................................................................... 95
Chapter 19: EFFICIENT MARKET HYPOTHESIS................................................................................. 98
Chapter 20: BASICS OF FINANCIAL RISK MANAGEMENT ................................................................ 99
Chapter 21: HEDGING TECHNIQUES FOR FOREIGN CURRENCY RISK........................................ 101
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK ................................................. 104
RELATED eBOOKS ............................................................................................................................ 107
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 2 of 108
THIS MATERIAL IS NOT AVAILABLE OFFLINE & ONLINE IN ANY FORM EXCEPT ACCASUPPORT.COM
REPORT ABUSE................................................................................................................................. 108
Financial Management eBook Free Download
Special Offer
Place a http://accasupport.com link at any ONE of your
or other account to get any TWO chapters above of your choice
for free not included in free version by emailing at
kabuli_52@hotmail.com or murtaza@accasupport.com
Email should contain web page URL where you have placed a
link and name of any TWO chapters you want.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 3 of 108
THIS MATERIAL IS NOT AVAILABLE OFFLINE & ONLINE IN ANY FORM EXCEPT ACCASUPPORT.COM
KEY TERMS
A
Agency · 14
Aggregate demand · 22
Aggregate Supply · 22
Agreement Date · 100, 102
Annuity · 70
Average Growth Rate · 90
B
Bad Debt Risk · 42
Balance Of Payments · 106
Barter Trade · 52
Basis Risk · 102, 105
Baumol Model · 65
Benefits · 16
Bill Of Exchange · 51
Boom · 28
Brand, Copyright & Patents · 96
Business Angels · 88
Business Cycle · 27
Business Risk · 93
Buying & Selling Rate · 100
C
Cap · 105
Capital Asset Pricing Model (CAPM)
· 90
Capital Cash Flows · 73
Clientele Effect · 84
Collar · 105
Combine Probability · 74
Confidence · 22
Contingent Assets · 96
Contingent Liabilities · 96
Contract Price · 102
Contract Size · 102
Conversion Premium · 97
Convertible Loan Notes · 81
Cost of Equity · 90
Credit Control · 40
Credit Insurance · 52
Credit Or Customer Analysis · 39
Credit Policy · 39
Currency Option · 103
Currency Swap · 103
Current Asset Ratio · 38
D
Debt Finance · 81
Deep Discount Bonds · 81
Deflation · 70
Deflationary Gap · 27
Depression · 27
Derivative · 103
Development Expenditure · 96
Direct Quote · 100
Discount Rate · 70
Discounted Payback Period · 71
Discounting · 70
Dividend Growth Model (DGM) · 90
Dividend Valuation Model (DVM) ·
96
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 4 of 108
THIS MATERIAL IS NOT AVAILABLE OFFLINE & ONLINE IN ANY FORM EXCEPT ACCASUPPORT.COM
Divisible Projects · 77
Future Contract Hedge · 102
Future Market · 102
E
Earnings Per Share · 94
Earnings Yield · 94
Economic Risk · 100
Efficient Market Hypothesis · 98
Equity Beta · 91
Equity Finance · 80
Equity Risk Premium
- · 90
Equivalent Annual Cost (EAC) · 77
Exchange Rate · 23
Expectation Theory · 106
Expected Values · 74
Export Factoring · 51
F
Factoring · 44
Finance Lease · 76
Financial Cash Flows · 73
Financial Risk · 93
Fiscal Policy · 21
Fixed Interest Rate Risk · 105
Floatation · 80
Floor · 105
Floor Value · 97
Fluctuating Assets · 65
Foreign Exchange Risk · 100
Forward Contract Hedge · 102
Forward Rate · 102
Forward Rate Agreements (FRAs) ·
105
Franchise · 78
Free Cash Flows · 71
G
Goal congruence · 14
Goodwill · 96
Gordon’s Growth Rate · 90
Government Grants · 78
Government Policy · 22
H
Hard Capital Rationing · 77
Hedging · 100
I
Indirect Quote · 100
Inflation · 24, 70
Inflation Rate · 70
Inflation Rate Parity Theory · 102
Inflationary Gap · 27
Initial Investment · 73
Initial Public Offer (IPO) · 80
Interest Rate · 70
Interest Rate Option · 105
Interest Rate Parity Theory · 102
Interest Rate Risk · 105
Interest Rate Swap · 105
Invoice Discounting · 49
Invoicing In Home Currency · 100
Irredeemable Loan Notes · 81
J
Joint Venture · 78
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 5 of 108
THIS MATERIAL IS NOT AVAILABLE OFFLINE & ONLINE IN ANY FORM EXCEPT ACCASUPPORT.COM
Just in Time (JIT) · 62
L
Lapse · 86
Lead & Lag Payment · 100
Lease · 76
Lesser & Lessee · 76
Letter Of Credit · 51
Liquidity · 30
Liquidity Preference Theory · 106
Liquidity Ratios · 38
Loan Notes (Bonds or Debenture) ·
81
Net Assets Valuation Model · 96
Netting · 100
Non Systematic Risk · 90
Non-Recourse Factoring · 45
O
Operating Lease · 76, 80
Optimal or Economic Order
Quantity (EOQ) · 57
Outsourcing · 78
Overdraft · 38
Overdrafts · 80
Overtrading & Undertrading · 65
M
P
Macro Economics · 20
Macroeconomic Policy · 20
Market Imperfection Theory · 93
Market Rate Of Return · 90
Market Segmentation Theory · 106
Matching · 100
Matching Policy · 65
Micro Economics · 20
Miller & Modigliani (M&M) Theory ·
93
Miller & Modigliani Theory · 84
Miller-Orr Model · 65
Monetary Policy · 20, 106
Money Market Hedge · 103
Mutually Exclusive Projects · 78
Par Value · 81
Pecking Order Theory · 93
Pension · 16
Permanent Assets · 65
Perpetuity · 70
Placing · 80
Positive Gap · 105
Pre-Emption Right · 80
Preference Share Capital · 80
Present Value (PV) · 70
Price Earnings Ratio · 94
Probability Analysis · 74
Profit Related Pay · 15
Project Specific Fixed Cost · 73
Q
N
Quick Asset Or Acid Test Ratio · 39
Negative Gap · 105
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 6 of 108
THIS MATERIAL IS NOT AVAILABLE OFFLINE & ONLINE IN ANY FORM EXCEPT ACCASUPPORT.COM
R
Real Return · 106
Recession · 27
Recourse Factoring · 45
Recovery · 28
Redeemable Loan Notes · 81
Redemption Value · 96
Redemption Yield · 97
Renounce · 86
Residual Value · 73
Retained Earnings · 80
Return Of Equity (ROE) · 94
Return Of Investment (ROI) · 93
Revenue Cash Flows · 73
Risk · 74
Risk Free Rate Of Return · 90
S
Sale & Lease Back · 81
Script Dividend · 84
Semi Strong Form Efficient · 98
Sensitivity Analysis · 74
Settlement Date · 100, 103
Settlement On Net Basis · 100
Share Based Payment · 15
Share Options · 15
Short Term Loan · 80
Signalling Effect · 84
Single Period Capital Rationing · 77
Smoothing · 105
Soft Capital Rationing · 77
Spot Rate · 102
Stagnation · 26
Strong Form Efficient · 98
Subscribe · 86
Systematic Risk · 90
T
Tangible Assets · 96
Tax Savings On Capital Allowance ·
73
Theoretical Ex-Right Share Price · 86
Tick · 102
Time Value of Money · 70
Traditional View · 84, 93
Transaction Risk · 100
Translation Risk · 100
U
Uncertainty · 74
Unemployment · 25
V
Variable Interest Rate Risk · 105
Venture Capitalist · 88
W
Weak Form Efficient · 98
Weighted Average Cost of Capital
(WACC) · 90
Weighted Average Cost Of Capital
(WACC) · 70
Working Capital Cycle · 33
Working Capital Investment · 73
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 7 of 108
THIS MATERIAL IS NOT AVAILABLE OFFLINE & ONLINE IN ANY FORM EXCEPT ACCASUPPORT.COM
Y
Z
Yield Curve · 106
Zero Coupon Bond · 81
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 8 of 108
THIS MATERIAL IS NOT AVAILABLE OFFLINE & ONLINE IN ANY FORM EXCEPT ACCASUPPORT.COM
AUTHOR’S PROFILE
Name: Murtaza Lanewala
Career Status:
Freelance writer & tutor for
professional accountancy
qualifications. Professional bodies
include ACCA, CIMA and ICAEW.
Author & CEO of accasupport.com
E-mail:
kabuli_52@hotmail.com or
murtaza@accasupport.com
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 9 of 108
THIS MATERIAL IS NOT AVAILABLE OFFLINE & ONLINE IN ANY FORM EXCEPT ACCASUPPORT.COM
IMPORTANT!
1 Disclaimer
This material is sold only through accasupport.com website. However,
Clickbank.com is the credit card processing organization for collecting
payments for this material. This material is not available offline
(shops, schools etc.) in any form such as DVDs, CDs, Printed books
etc. Materials purchased from unauthorized source can be out of date
and incomplete. In addition, you will not be able to receive free
updates given to the buyers of original material.
Demo version of this material is available free of cost, please take care,
not to pay for demo version of this e-book to unauthorized sellers.
Readers of this material will be solely responsible for the consequences
of any decisions made in real life. Author & accasupport.com are not
responsible to the readers of this material under any circumstances.
Recommendations made of any kind are intelligent guesses to the best of
author’s knowledge.
Names of individuals, organizations, countries, religions etc are used for
educational purpose only. It is not intended to abuse, discriminate and
hurt anyone's feelings and dignity.
2 Copyright Notice
This material is subject to copyright protection law. Infringement of
copyright law results in criminal liability (fine or imprisonment or both).
Copyright infringement is effectively theft of intellectual property;
therefore, it is unethical from social viewpoint and sinful act from
religious viewpoint as well.
Copyright ©2012 Murtaza Lanewala. All rights reserved.
2.1 Do
You can make a backup copy of this material.
You can use parts of this material provided you quote the appropriate
reference to the author and material.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 10 of 108
THIS MATERIAL IS NOT AVAILABLE OFFLINE & ONLINE IN ANY FORM EXCEPT ACCASUPPORT.COM
2.2 Do Not
You cannot publicly share this material in the form of hard copy or soft
copy (physically and over the internet) for cash or for free.
You cannot transform this material into other means of communication
such as photocopy, video, audio etc. Unless needed for accessibility
purpose or personal use.
You cannot change the file format of this material or make it editable.
You cannot resell this material unless you are selling the original copy
purchased.
You cannot use any part of this material in or with contents associated
with violence, politics, religious and pornographic contents in any way.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 11 of 108
THIS MATERIAL IS NOT AVAILABLE OFFLINE & ONLINE IN ANY FORM EXCEPT ACCASUPPORT.COM
DISCOUNT & ANNUITY FACTOR
TABLES
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 12 of 108
THIS MATERIAL IS NOT AVAILABLE OFFLINE & ONLINE IN ANY FORM EXCEPT ACCASUPPORT.COM
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial
management ebook, Money
financialOnline
management
financial management
tutorial,
financial
financial management training,
financial
Ecommerce/Ebusiness/Make
Tutorial,guide,
Implementation
Guide, Training,
Ebook
Free management
Download & book,
Buy. Ecommerce/Ebusiness/Make
Money
Online
management
pdf,
financial
management
torrent,
buy
financial
management
free
download,
learn
financial
management
course
Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning
Financial Management | Page 13 of 108
Chapter 1: FINANCIAL MANAGEMENT FUNCTION
Chapter 1:
FINANCIAL MANAGEMENT FUNCTION
Sub Headings
S.no
Headings (click the cross-ref below for easy navigation)
1 Agency
2 Financial Objectives in Profit Vs Not-for-Profit
Pg.no
14
16
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial
management ebook, Money
financialOnline
management
financial management
tutorial,
financial
financial management training,
financial
Ecommerce/Ebusiness/Make
Tutorial,guide,
Implementation
Guide, Training,
Ebook
Free management
Download & book,
Buy. Ecommerce/Ebusiness/Make
Money
Online
management
pdf,
financial
management
torrent,
buy
financial
management
free
download,
learn
financial
management
course
Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning
Financial Management | Page 14 of 108
1 Agency
Chapter 1: FINANCIAL MANAGEMENT FUNCTION
1.1 Definition of Agency Relationship
Agency is a relationship between principal and agent. Principal delegates
some responsibility to be performed on behalf of principal. Principal also
gives agent necessary decision-making authority.
Agent can be responsible to more than one principal.
Example:
Shareholders delegate responsibility to board of directors to
management day-to-day operations of organization. Directors are
granted necessary authority through articles of association and
employment contract.
accasupport.com
1.2 Agency Problem
In the context of company, directors are required to protect the interest
of shareholders. Shareholders being too many in numbers and may not
have technical knowledge of the company’s operations would not be able
to protect their interest themselves.
accasupport.com
Unfortunately, they have to rely on directors to look after their interest.
Danger is that directors do not act in the best interest of shareholders.
Directors’ acting other than in the interest of shareholders is an agency
problem. Agency problem creates the need for building mechanism,
which promotes goal congruence or Alignment of interest.
1.3 Goal Congruence
Goal congruence means making directors act in the interest of
shareholders. Directors have their own needs and desires, which may be
different from shareholders needs and desires. Goal congruence can be
achieved by aligning the goals of directors in line with the goals of
shareholders.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial
management ebook, Money
financialOnline
management
financial management
tutorial,
financial
financial management training,
financial
Ecommerce/Ebusiness/Make
Tutorial,guide,
Implementation
Guide, Training,
Ebook
Free management
Download & book,
Buy. Ecommerce/Ebusiness/Make
Money
Online
management
pdf,
financial
management
torrent,
buy
financial
management
free
download,
learn
financial
management
course
Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning
Financial Management | Page 15 of 108
1.4 Ways to Reduce Agency Problem
Chapter 1: FINANCIAL MANAGEMENT FUNCTION
1.5 Reward Schemes
1.5.1 Salary
Salary is the most basic form of financial record given to directors and
employees. It does not affect performance and risk attitudes of
managers.
1.5.2 Bonus
Bonus is financial reward given to motivate directors and employees in
expectation that motivation will lead to improved performance.
It does not ensure that directors focus on shareholders wealth
maximization.
accasupport.com
It does not affect performance and risk attitudes of managers.
1.5.3 Profit Related Pay
Directors’ remuneration based on profit encourages directors to focus
their attention towards generating profit for the shareholders.
Profit related pay could lead to directors undertaking excessive risky
investment projects, which may be over and above the wish of
shareholders. accasupport.com
Profit related pay focuses directors’ attention on short-term performance
rather than long-term performance. Financial management primary
objective is to focus on long-term shareholder wealth maximization.
1.5.4 Share Based Payment
Share based payment is the reward given to directors in the form of
shares with a condition to hold those shares for certain period.
Share based payment encourages directors to focus their attention on
increasing share price. Increase in share price leads to increase in
shareholders wealth. It is consistent with the primary objective of
financial management i.e. maximization of shareholders wealth.
Share based payment also encourages directors to take controlled risk in
line with shareholders expectation.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial
management ebook, Money
financialOnline
management
financial management
tutorial,
financial
financial management training,
financial
Ecommerce/Ebusiness/Make
Tutorial,guide,
Implementation
Guide, Training,
Ebook
Free management
Download & book,
Buy. Ecommerce/Ebusiness/Make
Money
Online
management
pdf,
financial
management
torrent,
buy
financial
management
free
download,
learn
financial
management
course
Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning
Financial Management | Page 16 of 108
Chapter 1: FINANCIAL MANAGEMENT FUNCTION
1.5.5 Share Options
Share options are incentive given to directors to buy shares in the
company at specified future exercise date and at pre-defined exercise
price.
It encourages directors to increase share price of the company above the
exercise price in order to realize gain through buying shares at lower
share price than market price at exercise date.
Share options direct management attention on primary objective of
financial management i.e. maximization of shareholders wealth.
Share option also encourages directors to take controlled risk in line with
shareholder expectations.
1.5.6 Benefits
Benefits are non-financial reward given to directors and employees. It is
given to motivate directors so that work can be performed efficiently.
Example:
A car given to director so he/she can travel to workplace, attend
meeting with bankers etc in time. accasupport.com
It does not encourage directors to maximize shareholders wealth.
1.5.7 Pension
Pension is the financial reward as a percentage of basic salary given to
directors and employees when they retire. accasupport.com
Security of pension funds depends on stability of the organization.
Pension may not be realized if organization gets bankrupt.
It encourages directors to take long-term view organizational
performance. However, it has no contribution towards motivating
directors to maximize shareholders wealth beyond existing level.
2 Financial Objectives in Profit Vs Not-for-Profit
Financial objectives in not for profit and public organizations are
different from financial objective in profit motive organizations.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial
management ebook, Money
financialOnline
management
financial management
tutorial,
financial
financial management training,
financial
Ecommerce/Ebusiness/Make
Tutorial,guide,
Implementation
Guide, Training,
Ebook
Free management
Download & book,
Buy. Ecommerce/Ebusiness/Make
Money
Online
management
pdf,
financial
management
torrent,
buy
financial
management
free
download,
learn
financial
management
course
Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning
Financial Management | Page 17 of 108
Chapter 1: FINANCIAL MANAGEMENT FUNCTION
Profit motive organizations have profitability as its primary
objective. Profit motive organization is legally accountable to
shareholders/owners (primary stakeholder).
accasupport.com
On the other hand, not for profit organizations do not have profitability
as its primary objective. However, not for profit organizations also need
to focus on profitability for meeting day-to-day expenses.
Example:
Rent of the premises used as office of the organization.
accasupport.com
Payment of stipends (remuneration) to volunteers.
Not for profit organization usually exists to provide services to the
society. Society involves more than one legitimate stakeholder such as
donors, users of services, government, public at large etc. Not for profit
organization may have more than one objective such as providing quality
service, providing services to greater number of people, efficient use of
funds provided by donors etc.
Stakeholders are interest holders, which can affect (claim) or be
affected by organizational activities.
accasupport.com
It becomes difficult to decide which is the primary objective and
deciding priority for rest of the secondary objectives. However, profit
motive organization may also have objectives other than profit making.
These objectives are necessary for achievement of primary financial
objective.
Example:
Increase in number of products offered by organization by 30% in next
2 years. This objective supports the primary objective of profit making.
Existing customers may also prefer to buy related goods from the same
organization. This will give cross selling (selling more than one product
to same customer) benefits to organization.
accasupport.com
Performance of not for profit organization is usually measured against its
ability to provide Value for money (economy, efficiency, effectiveness) to
the users of services. However, performance of profit motive
organization can also be assessed in terms of value for money. Profit
motive organizations must provide value for money to its customers if it
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial
management ebook, Money
financialOnline
management
financial management
tutorial,
financial
financial management training,
financial
Ecommerce/Ebusiness/Make
Tutorial,guide,
Implementation
Guide, Training,
Ebook
Free management
Download & book,
Buy. Ecommerce/Ebusiness/Make
Money
Online
management
pdf,
financial
management
torrent,
buy
financial
management
free
download,
learn
financial
management
course
Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning
Financial Management | Page 18 of 108
Chapter 1: FINANCIAL MANAGEMENT FUNCTION
has to achieve its financial objectives in short term (such as profitability,
liquidity) as well as long term (such as growth).
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 19 of 108
Chapter 2: FINANCIAL MANAGEMENT ENVIRONMENT
Chapter 2:
FINANCIAL MANAGEMENT
ENVIRONMENT
Sub
S.no
1
2
3
Headings
Headings (click the cross-ref below for easy navigation)
Macro Vs Micro Economics
Macro-economic Policy
Macro-Economic Factors Affecting Business Activity
Pg.no
20
20
22
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 20 of 108
1 Macro Vs Micro Economics
Chapter 2: FINANCIAL MANAGEMENT ENVIRONMENT
1.1 Macro-Economics
Macro-economics is study of effects of total activities of households,
firms & government on the national & international economy.
accasupport.com
Macro-economics include all the economic activities of private as well as
public sector.
1.2 Micro-Economics
Micro-economics is study of effects of separate activities of individuals,
individual households and firms.
Micro-economics refers to study of one economics entity at a time.
2 Macro-economic Policy
Macro-economic policy is the government decisions on the operation of
markets. Government may decide to operate market without any
regulation as free market in the hope that free movement of capital will
result in best economic growth.
accasupport.com
In practice, government generally intervenes through making
regulations to promote economic growth. Macroeconomic policy has
following objectives.
Government has following two main policies to achieve its objectives.
2.1 Monetary Policy
Monetary policy deals with the interest and exchange rates.
Interest rate influences individual investment decisions. Government
can encourage investment by reducing interest rates and conversely
reduce investments by increasing interest rates. Reduction in interest
rate changes public preference from savings to investment.
accasupport.com
Example:
Reduction in interest rates leads to increased activity in stock market
and bullion market.
Exchange rate influences imports and export from/to the country.
Government can encourage the use of imported goods by increasing
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 21 of 108
Chapter 2: FINANCIAL MANAGEMENT ENVIRONMENT
exchange rate of home currency and conversely reduce the use of
imported goods by decreasing exchange rate of home currency.
accasupport.com
Similarly, government can encourage exports from the country by
reducing exchange rate of its home currency. Reduction in exchange rate
will make goods produced by the country cheaper to foreign countries.
Conversely, government can reduce exports from the country by
increasing exchange rate of its home currency. Increase in exchange rate
will make goods more expensive to foreign countries.
2.2 Fiscal Policy
Fiscal policy deals with taxation and government spending.
Taxation is the source of revenue for government. It influences public
spending on consumer and capital goods by increasing or decreasing the
level of disposable income for private sector.
accasupport.com
Increase in taxation results in decreased disposable income for spending
on satisfaction of needs and capital investments. Conversely, decrease in
taxation results in increased disposable income for spending. Disposable
income is the earnings remaining after meeting all liabilities.
Level of spending influences demand for goods or services and prices of
goods or services.
If demand exceeds in relation to supply then prices of goods or services
arises (inflation). Conversely, if demand lacks in relation to supply then
prices of goods or services reduces (deflation).
accasupport.com
Government spending also influences the demand for goods or services
and prices of goods or services. Government can spend its income
(taxation) on industries/sectors in which government wishes to raise
supply of goods or services to provide goods or services to private sector
and to control price inflation.
Government spending can be used to reduce the economic imbalance
between rich and poor by providing basic goods or services to society at
subsidised or free of charge.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 22 of 108
Chapter 2: FINANCIAL MANAGEMENT ENVIRONMENT
3 Macro-Economic Factors Affecting Business Activity
3.1 Aggregate Demand
Aggregate demand is the sum of demands for different goods or services
produced in country.
Formula:
accasupport.com
3.2 Aggregate Supply
Aggregate supply is the sum of supplies for different goods or services
produced in country.
Formula:
Government aim is to equal aggregate demand and aggregate supply at a
level where workforce is fully employed. Full employment is one of the
objectives of the macroeconomic policy of government.
3.3 Confidence
accasupport.com
Confidence is psychological factor influencing economic activities.
Confidence is the expectation of future stability and growth of economic
activities.
accasupport.com
Confidence among consumers makes them to spend higher percentage of
income on goods or services.
Confidence among firms makes them invest more money in the business.
Confidence depends on expectation of political, environmental,
employment level, inflation, demand, expected future conditions etc.
3.4 Government Policy
Government can encourage economic activities in following ways.
Government can increase demands for goods or services through fiscal
policy (taxation and government spending) and monetary policy
(exchange rates, interest rates and money supply).
accasupport.com
Government can provide infrastructure (transportation, roads, power,
sewage, communication media etc) to boost economic activities.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 23 of 108
Chapter 2: FINANCIAL MANAGEMENT ENVIRONMENT
Government can boost confidence by providing security to the assets of
individuals, household and firms. This can be done by making
legislations and providing policing services.
3.5 Use of Resources
Resources are factors of production, which enables production of goods
or services.
To promote maximum economic growth all the resources (labour,
materials, money and machine) in an economy should be fully employed.
Resources can be used more efficiently by provision of training and use
of advanced technology.
accasupport.com
Economic growth depends on using resources to its maxim capacity and
using it more efficiently.
3.6 Finance
Finance enables us to employ other resources such as labour, material
and workers.
Financing decisions depend on the cost of using finance such as interest
rate. If interest rate will rise individual and firms will reduce their
borrowings and individual will consume less and firms will abandon
their investment projects, which were previously attractive. As
investment projects will reduce, demand for goods or services of
suppliers to the firm will reduce, which lead to decrease in aggregate
demand. accasupport.com
If interest rate will fall individuals and firms will increase their
borrowings and individual will consume more and firms will undertake
investment project, which were previously unattractive. As investment
projects will be undertaken, demand for goods or services of suppliers to
the firm will increase, which lead to increase in aggregate demand.
3.7 Exchange Rate
Exchange rate is the rate at which home currency can be traded in return
for other currency.
Exchange rates can impact balance of payment (import versus export).
Adverse balance of payments makes government to borrow foreign
exchange for repayment. It affects credit rating of a country in the long
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
accasupport.com
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 24 of 108
Chapter 2: FINANCIAL MANAGEMENT ENVIRONMENT
term, as beyond certain level it can be difficult to borrow foreign
exchange.
Exchange rate need to be stable. Volatility in exchange rate increases risk
of foreign exchange gains or losses and leads to increase in cost of
Hedging100.
Wide fluctuation in exchange rate also discourages investment by foreign
firms in a country. It increases the risk of foreign exchange gain or losses
in assets of the firms when assets are translated in their home currency.
3.8 Inflation
Inflation is the increase in prices of goods or services for consumption
and capital investment. Inflation results in reduced purchasing power of
money.
accasupport.com
Certain percentage of inflation is considered as indication of economic
growth. It is because demand is allowing the use of economic resources
(labour, capital, natural resources and machinery) to its full capacity.
Increase in prices (inflation) is considered as an indication of full
employment of resources. Prices are increased to take the advantage of
excess demand by providing goods or services to people that are able to
pay more for limited goods or services.
accasupport.com
Inflation increases the economic imbalance between rich and poor by
redistributing wealth in a society. Rich get richer as assets increase in
market value and poor get poorer if he/she is not able to increase his/her
service charges in proportion to inflation.
Households require more money to continue consuming same quantity
and quality of goods or services. Households with limited income
(pension, government relief etc) have to limit their consumption. Thus,
inflation results in reduced standard of living.
Businesses having sound assets may enjoy capital gains on its asset.
Similarly, businesses having greater liabilities with enjoy economic
profits on repayment. As the money borrowed will have lesser value
(purchasing power) when making repayment.
accasupport.com
Government aim is to control inflation to reduce the uneven distribution
of wealth. It is possible to achieve economic growth in times of high
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 25 of 108
Chapter 2: FINANCIAL MANAGEMENT ENVIRONMENT
inflation but this growth will not benefit all the members of the society in
equal.
Inflation has impact on other objectives of economic policy also.
Inflation will lead to depreciation of exchange rates. Exchange rate
depreciation will make imports expensive for a home country and
exports cheaper for foreign countries. Expensive imports will result in
less demand for imported goods and cheaper exports will result in more
demand for goods to export. This will make balance of payment
favourable.
accasupport.com
All these events will be beneficial for economic growth but benefits may
not be evenly distributed among the members of society.
In times of high inflation, people tend to invest their earnings as earlier
as possible. Because keeping money in form of cash will erode the
purchasing power of their earnings.
High inflation leads to uncertainty about future economic wellbeing for
individuals and firms. Individual tends consume less to save money for
the future.
Inflation has some additional drawbacks as well.
accasupport.com
Inflation makes planning and budgeting difficult for individuals and
firms. More time have to spend on revising budgets and selling prices for
goods or services. This will put additional cost burden on firms.
Customers have to face frequently new prices, which forces them
comparing price again and again.
In times of high inflation, financial figures have little meaning in
evaluating performance of managers and entire organization, which
makes financial and resource allocating decisions difficult and less
meaningful.
3.9 Unemployment
Unemployment is the unavailability of opportunities for individual to
contribute their services to the economy.
Rate of unemployment is determined by dividing unemployed labours
with total labours.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 26 of 108
Chapter 2: FINANCIAL MANAGEMENT ENVIRONMENT
Unemployment means certain portion of country’s workforce (labour
resource) is not utilized to promote economic growth.
3.9.1 Side Effects of Unemployment
Unemployment will lead to reduced standard of living in the economy as
whole.
Crime rates and illiteracy increases with the increase in unemployment
rate.
accasupport.com
Unemployment will also leads to reduction in wage rates. However,
employment legislation has given some protection to labours by
implementing minimum wage rate requirement. As the level of
unemployment increases, bargaining power of employer also increase in
comparison with employees.
accasupport.com
Unemployment may result in reduced demand for goods or services.
This is put strain on business profitability and increase competition on
the grounds of prices rather than quality among businesses. Quality may
deteriorate to produce goods or services at reduced prices to attract price
sensitive consumers.
Unemployment for long period will result in loss of skill due to lack of
work available to retain level of skill. Loss of skilled workforce is the loss
of human capital to the country.
accasupport.com
Unemployment increases the government expenditure for providing
benefits (support) to unemployed people.
3.9.2 Stagnation
Stagnation is the period of significant slow economic growth of long
period.
3.9.3 International Payments Disequilibrium
International payments disequilibrium is the surplus or deficit in the
balance of payments.
Surplus results where total exports exceeds total imports.
Deficit results where total imports exceeds total exports.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 27 of 108
Chapter 2: FINANCIAL MANAGEMENT ENVIRONMENT
3.10 Inflationary Gap
Inflationary gap is the excess of demand over supply when workforce is
fully employed. It results in increased price. Supply cannot be increased
using domestic factors of production (men, machine, material, money).
accasupport.com
Inflationary gap can be reduced by either reducing demand or by
importing goods to satisfy demand.
3.11 Deflationary Gap
Deflationary gap is lack of actual supply than fully employed workforce
can supply, as aggregate demand is below the level required for the full
employment of the workforce. Prices tend to remain constant or fall.
accasupport.com
3.12 Business Cycle
Business cycle has following four phases.
Diagram:
Boom
Recession
accasupport.com
Recovery
Depression
3.12.1
Depression
Depression is the extremely adverse economic condition. Demand, prices
and employment level falls and at their bottom. Businesses tend to shut
down and investors lose their confidence in the market.
3.12.2
Recession
Recession is the less serious economic condition than depression. If
recession continues for long period time, it may turn in depression.
However, government intervention and technological changes can rescue
in situation.
accasupport.com
Buy Full
Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 28 of 108
Chapter 2: FINANCIAL MANAGEMENT ENVIRONMENT
3.12.3
Boom
Boom is the extremely favourable economic condition. Demand, prices,
employment level all increases and reaches at peak. Businesses launches
new products and investors have optimistic view of the future economic
growth.
accasupport.com
3.12.4
Recovery
Recovery is the period of medium growth and is a way to boom.
Recovery is generally considered a slower process than recession.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 29 of 108
Chapter 3: THE NATURE ELEMENTS & IMPORTANCE OF WORKING CAPITAL
Chapter 3:
THE NATURE, ELEMENTS &
IMPORTANCE OF WORKING CAPITAL
Sub Headings
S.no
Headings (click the cross-ref below for easy navigation)
1 Objectives of Working Capital Management
Pg.no
30
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 30 of 108
Chapter 3: THE NATURE ELEMENTS & IMPORTANCE OF WORKING CAPITAL
1 Objectives of Working Capital Management
Working capital is material item in balance sheet of most organizations.
Working capital is the blood of any organization without it cannot
continue its operations regardless of how much fixed assets are owned by
the organization.
Working capital management has two main objectives.
1.1 Profitability
Profitability is related to the primary objective of financial management
i.e. maximization of shareholders wealth. Business must be profitable in
the short term to add shareholder value in the long term.
1.2 Liquidity
Liquidity is the ability to meet cash requirements for settling day-to-day
expenses such as payment of wages and salaries, electricity bills, office
rent etc.
accasupport.com
Liquidity is essential for survival and long-term profitability of the
organization. Failure to meet day-to-day expenses can force organization
into dissolution or liquidation by the creditors. Hence, without survival
there will be no wealth maximizing opportunities available.
Profitable organization may not have enough cash to day-to-day
liabilities. It is due to the application of accrual accounting concept to
arrive at profit for the year for financial reporting purpose.
accasupport.com
Profitability and liquidity are two conflicting objectives. Favourable
performance at one objective inevitably leads to adverse performance at
other objective.
Example:
Maintaining higher cash balance will result in loss of sales to
customers. It is due to cash is not used for producing or purchasing
accasupport.com
finished goods.
Effective working capital management depends on achieving a balance
between these two objectives.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 31 of 108
Chapter 3: THE NATURE ELEMENTS & IMPORTANCE OF WORKING CAPITAL
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 32 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
Chapter 4:
MANAGEMENT OF WORKING CAPITAL
ELEMENTS
Sub
S.no
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Headings
Headings (click the cross-ref below for easy navigation)
Working Capital Cycle
Working Capital Ratios
Liquidity Ratios
Account Receivable Management
Factors Affecting Trade Receivables Policy
Credit Policy Evaluation
Factoring
Evaluating Proposal for Factoring
Invoice Discounting
Foreign Trade Receivables
Calculating & Commenting Early Settlement Discounts
Discounts from Suppliers
Economic Order Quantity (EOQ) Model
Optimal or Economic Order Quantity (EOQ)
Optimal Reorder Quantity with Bulk Purchase Discount
Just in Time (JIT)
Pg.no
33
34
38
39
40
40
44
45
49
50
52
55
57
57
60
62
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 33 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
1 Working Capital Cycle
Working capital cycle is also called cash management cycle.
Working capital is fund required to finance trading activities
organization. Trading activities can be payment of wages to workers,
purchasing goods and selling for profit etc.
accasupport.com
Not for profit organization needs working capital in the same way as
profit making organization.
Working capital is as important for organizations as blood for human
body.
Working capital is excess of current assets over current liabilities.
Formula:
Or
accasupport.com
Working capital is also called net current assets if current assets are
greater than current liabilities or net current liabilities if current assets
are less than current liabilities.
Efficiency of working capital depends on efficient control over elements
of working capital as above.
accasupport.com
Working capital requirement depends on time taken to pay suppliers and
time taken to receive payment from customers.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 34 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
Example:
Suppose, we pay supplier in 30 days, but we receive payment from
customers in 40 days. We will need working capital (cash) for ten days
to meet day to day trading expenses between 10 (40-30) days. This
need can be fulfilled through personal savings or raising finance.
accasupport.com
If we pay suppliers in 25 days but we receive payment from customers
in 20 days. We will have surplus cash for 5 (20-25) days after settling
all liabilities. Surplus cash can be invested elsewhere to earn interest
income.
Therefore, longer working capital cycle requires more cash and cost of
raising cash to finance working capital will erode profitability. Even, if
personal savings are used to finance working capital it involves
opportunity cost because of not being able to earn interest by investing it
elsewhere.
Diagram:
Credit purchase or
Trade payables
Credit sales or Trade
receivables
accasupport.com
Cash paid to
suppliers
Working capital or cash
requirement
Cash received
from customers
2 Working Capital Ratios
Working capital cycle depends on the following:
2.1 Trade Receivables
Revision
Trade receivable turnover is the average number of days customers
take to repay their debts.
Trade receivable balance given in the balance sheet is taken as
accasupport.com
representative of balance owed from customers at
any point in time
during the accounting period.
accasupport.com
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 35 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
Increase in trade receivables level increases working capital. Similarly,
decrease in trade receivable level decrease working capital.
If we assume credit sales are made as constant rate, then increase in
trade receivable turnover in days increases trade receivables level and
working capital requirement. Similarly, decrease in trade receivable
turnover in days decreases trade receivables level and working capital
requirement.
Trade receivable turnover depends on credit term offered by
organization and effectiveness of credit control system.
Credit sales for the year are $200,000.
Trade receivable turnover in days is 40 days.
Required:
Calculate the change in trade receivable level if customers would have
taken 45 days on average to pay their debts.
To find trade receivables level or amount, we can manipulate the
equation as follows:
accasupport.com
Trade receivable level or amount is increased to $2,740 ($21,918$24,658) and working capital requirement to finance credit sales of
$200,000 is increased by the same amount. It is because of increase in
trade receivable turnover from 40 to 45 days.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 36 of 108
2.2 Inventory
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
Revision
Inventory turnover is the average number of days inventory is held
before it is sold to customers.
Inventory balance given in the balance sheet is taken as representative of
balance of inventory held at any point in time during the accounting
period.
Increase in inventory levels increases working capital. Similarly, decease
in inventory level decreases working capital.
If we assume inventory is purchased at constant rate, then increase in
inventory turnover in days will lead to increase in inventory levels and
working capital requirement. Similarly, decrease in inventory turnover
in days will lead to decrease in inventory levels and working capital
requirement.
Credit purchases for the year are $150,000.
Inventory turnover in days is 30 days.
Required:
Calculate the change in inventory level if inventory is sold to customer
after 25 days from the date of purchase.
To find inventory level or amount, we can manipulate the equation as
follows
accasupport.com
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 37 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
Inventory level or amount is decreased to $2,055 ($12,329-$10,274) and
working capital requirement decreased by the same amount. It is
because of decrease in inventory turnover from 30 to 25 days. Inventory
is converted to trade receivables 5 days earlier.
2.3 Trade Payables
Revision
Trade payable turnover is average number of days taken by
organization to pay its suppliers.
Trade payable balance given in the balance sheet is taken as
representative of balance owed to customers at any point in time during
the accounting period.
Decrease in trade payable level increases working capital. Similarly,
increase in trade payable level decreases working capital.
If we assume credit purchases are made at constant rate, then increase in
trade payable turnover in day increase trade payable level and decrease
working capital requirement. Similarly, decrease in trade payable
turnover in days decrease trade payable level and working capital
requirement.
Credit purchases for the year are $150,000.
Account trade payables turnover in days is 50 days.
Required:
Calculate the change in trade payable level if trade payable is sold to
customer after 60 days from the date of purchase.
To find trade payable level or amount, we can manipulate the equation
as follows
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 38 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
Trade payable level or amount is increased to $4,110 ($20,548-$24,658)
and working capital requirement is decreased by the same amount. It is
because of increase in trade payable turnover from 50 to 60 days.
Trade payable has inverse relationship with working capital. Increase in
trade payable leads to decrease in working capital requirement.
However, Trade receivables and inventory has direct relationship with
working capital. Increase in trade receivables and inventory leads to
increase in working capital requirement.
2.4 Overdraft
Overdraft is a current liability. It is used to makeup shortfall in working
capital requirement.
3 Liquidity Ratios
Working capital should be monitored for liquidity. Using current
liabilities for financing working capital needs may work well for
increasing profitability and it will deteriorate liquidity of the
organization.
Following ratios is calculated for determining liquidity position of the
organization.
3.1 Current Asset Ratio
Current asset ratio suggests the ability of organization to repay its debt
when they fall due.
Formula:
accasupport.com
Current asset ratio should not be interpreted in isolation it should be
considered in combination with working capital ratio.
Example:
Trade payable turnover suggests how often suppliers demand their
payment. If suppliers demand more often, then high levels of current
Buy Full Financial Management
Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
accasupport.com
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 39 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
assets should be available. We will have less time to arrange for
payment.
Trade receivable turnover suggests how often customers pay us. If
customers pay us more often, then low levels of current assets will
suffice. We can arrange cash for payment to supplier in lesser time.
3.2 Quick Asset or Acid Test Ratio
Quick asset ratio suggests the ability of organization to convert its
current assets into cash quickly.
Formula:
Inventory is excluded as it takes more time than other current assets to
be converted into cash. Inventory is distant from cash in that it first has
to be converted into receivables before it is converted into cash.
4 Account Receivable Management
There are four key areas of account receivable management.
4.1 Credit Policy
Credit policy is a framework for managing accounts receivables in the
business.
An effective credit policy should consider following elements:
accasupport.com
In short, credit policy provides guidance for implementing below three
key areas of account receivable management.
4.2 Credit or Customer Analysis
The purpose of credit analysis is to ensure that goods or services are sold
only to those customers that have goods credit rating. It means those
customers who are reasonably likely to settle their debts within due date.
Quality of credit analysis depends on the source and quality of
information used to assess customer creditworthiness.
accasupport.com
Following sources of information would be helpful in performing credit
analysis.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 40 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
4.3 Credit Control
Credit control involves monitoring customers to limit the risk of bad
debts and cost of interest expense to the organization for financing
increased requirement of working capital.
Credit control involves the following tasks
4.4 Collection Procedures
Funds collection procedures should ensure that organization receives
funds from debtor within agreed terms and conditions and customers
are aware and understand those terms and conditions.
Issuing of invoice and collection of funds from customers is the
responsibility of sales ledger staff.
Sales ledger staff should ensure that customer understands the terms
and conditions at the time of issuing invoice. Terms and conditions could
include mode of payment, delivery date, early settlement discounts etc.
accasupport.com
They should send monthly statements to customers and ensure that any
differences are reconciled in timely manner. They should also deal with
any issues raised by customers in timely manner.
Sales ledger staff should follow up overdue debts. Following are the
actions that can be taken:
Cost of debt collection should not exceed the amount of debt.
5 Factors Affecting Trade Receivables Policy/Credit Policy
These are factors affecting the formulation of trade receivable
management policy or credit policy.
6 Credit Policy Evaluation
Points to consider for evaluating credit policy are as follows.
6.1 Incremental Cost/Savings of Financing Trade Receivables
Please keep reading till the end. You will probably do not understand
the text below. However, illustration given at the end will make you
accasupport.com
understand the text below.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 41 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
Trade receivables need to be financed just like inventory and noncurrent assets. Trade receivables are usually financed through shortterm source of finance such as overdraft and short-term bank loan.
Financing trade receivables involve financing cost such as interest charge
on overdraft and bank loan.
accasupport.com
However, even if organization uses its own retained profits to finance
trade receivables, then it has opportunity cost of not being used to
generate interest through investment in marketable securities.
In addition, time taken by customers to repay their debt have effect on
the profitability of the organization. Interest expense incurred in
financing trade receivables will erode profitability. Conversely, savings in
interest expense will improve profitability
Incremental financing cost is additional cost of interest incurred due to
extending credit term. Reduction in financing cost is savings in cost of
interest incurred due to reduction in credit term.
6.2 Administration Cost/Savings
Receivables results in administration cost to the organization.
Maintaining sales ledger and monitoring customers result in additional
cost to the organization.
accasupport.com
Giving extended credit terms requires more frequent monitoring of
customers to reduce the increased risk of bad debts associated with
longer credit terms.
In addition, early settlement discounts give rise to more record keeping
and reviewing cost. Customer may attempt to claim discounts even if
they are not entitled.
Incremental (additional) administration cost needs to be taken into
account in the evaluation.
Reduction is credit term usually leads to savings in administration cost.
accasupport.com
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 42 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
Formula:
(
)
(
)
6.3 Cost of Early Settlement Discount
Early settlement discounts are given to encourage early payment by
customer. It is done to improve working capital cycle. Early payment by
customers results in savings in finance costs to the organization.
However, it results in loss of revenue by the amount of discount offered.
Reduction in early settlement discount leads to savings in finance cost.
Saving in financing cost is already accounted for when calculating
incremental cost of financing. Now, only incremental cost of early
settlement discount should be included in evaluation.
accasupport.com
Formula:
(
)
(
)
6.4 Contribution from Sales
Extending or contracting credit period can result in increased or
decreased sales revenue respectively. Incremental contribution from
additional sales needs to be taken account or loss of contribution from
reduced sales should be taken into account. Later, can happen rarely, as
organization would not evaluate credit policy that will obviously result in
reduced sales.
Only incremental contribution is relevant for the purpose of credit policy
evaluation.
Formula:
(
)
⁄
(
)
accasupport.com
6.5 Bad Debt Expense/Savings
Risk of bad debts increases with the increase in credit term. Organization
may have estimates available for range of credit terms. Bad debt expense
needs to be included in the evaluation of credit policy.
accasupport.com
If reduction in credit term is proposed, then bad debt expenses could be
saved. Then these savings should be included in the evaluation of credit
policy.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 43 of 108
Formula:
(
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
)
(
)
accasupport.com
Illustration:
Ulnad Co has annual sales revenue of $6 million and all sales are on 30
day’s credit, although customers on average take ten day more than this
to pay. Contribution represents 60% of sales and the company currently
has no bad debts. Accounts receivable are financed by an overdraft at an
annual interest rate of 7%.
accasupport.com
Ulnad Co plans to offer an early settlement discount of 1.5% for payment
for payment within 15 days and to extend the maximum credit offered to
60 days. The company expects that these changes will increase annual
credit sales by 5%, while also leading to additional incremental costs
equal to 0.5% of turnover. The discount is expected to be taken by 30%
of customers, with the remaining customers taking an average of 60 days
to pay.
Required:
Evaluate whether the proposed changes in credit policy will increase the
profitability of Ulnad Co.
30 days are official and 10 days for delay by customers.
Accountable receivable turnover formula is manipulated to calculate
account receivable amount.
accasupport.com
(
)
(
)
Weighted average is taken for 30% customers that would pay in 15 day
and 70% customers that would pay in 60 days.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 44 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
To account for new credit sales those are increased by 5% from existing
sales.
New trade receivable level under new credit policy.
(
)
(
)
$
Incremental in interest cost
(10,155)
Incremental administration costs ($6.3m x 0.5%)
(31,500)
Cost of discount ($6.3m x 1.5% x 30%
(28,350)
Contribution from increased sales ($6m x 5% x 60%) 180,000
Net benefit of credit policy change
109,995
accasupport.com
7 Factoring
Financial institution providing factoring services is known as factor.
Generally, factoring services are provided by insurance companies and
banks.
Factor takes over organization’s sales ledger administration. Factor
performs following tasks on behalf on organization:
accasupport.com
Usually, factor provides advanced payment of up to 80% against sales
made on credit. Rest of the 20% is paid upon receipt of payment from
customer. Factor also deducts its flat fee and percentage of interest on
advanced payment made by factor.
Factoring transfers control of receivable management from organization
to factor. Factor can use its own policies and procedures, which can
upset customers, particularly those who have to pay their debt now
earlier.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 45 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
Factoring service is obtained to improve the account receivable turnover.
accasupport.com
Factoring is particularly useful for organizations lacking expertise and
experience of trade receivable management.
Factoring is suitable for small sized organizations that have not enough
resources and expertise.
Factoring allows organization to direct their skills and resources toward
core activities such as making sales to customer without having to worry
for payment recovery.
Factoring is of two types
7.1 Recourse Factoring
In with-resource factoring, factor does not bear the risk of bad debts.
7.2 Non-Recourse Factoring
In non-resource factoring, factor bears the risk of the bad debts.
8 Evaluating Proposal for Factoring
Performa for evaluating proposal for factoring:
$
x
x
x
Savings in finance cost of trade receivables (see working 1)
Savings in administration cost of sales ledger per year
Savings in bad debt expenses (non-recourse) per year
Total benefit of factoring
X
Factoring fee per year (see workings 2)
(x)
Interest cost on cash received in advanced (see workings 3)
(x)
Total cost of factoring
(X)
accasupport.com
Net benefit/cost of factoring
X/(X)
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 46 of 108
Formulae:
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 47 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
The average variable overdraft interest rate in each year was 5%. The 8%
bonds are redeemable in ten years’ time. A factor has offered to take over
the administration of trade receivables on a non-recourse basis for an
annual fee of 3% of credit sales. The factor will maintain a trade
receivables collection period of 30 days and Gorwa Co will save
$100,000 per year in administration costs and $350,000 per year in bad
debts. A condition of the factoring agreement is that the factor would
advance 80% of the face value of receivables at an annual interest rate of
7%.
Required:
Evaluate whether the proposal to factor trade receivables is financially
acceptable. Assume an average cost of short-term finance in this part of
the question only.
$
76,300
Savings in finance cost of trade receivables per year (see
accasupport.com
working 1)
Savings in administration cost of sales ledger per year
100,000
Savings in bad debt expenses per year (non-recourse)
350,000
Total benefit of factoring per year
526,000
Factoring fee per year (see working 2)
(1,122,000)
Interest cost on cash received in advanced per year(see
(49,184)
working 3)
Total cost of factoring per year
(1,171,184)
Net benefit/cost of factoring per year
(644,884)
Factoring is not worthwhile on financial grounds because cost of
factoring exceeds benefits.
In addition, non-financial aspects of factoring are also necessary to be
considered such as impact on customers and reaction of shareholders.
Shareholders may perceive factoring as lack of expertise of management
in controlling trade receivables.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 48 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
Factor has claimed that they will reduce credit period to 30 days.
Therefore, we needed to determine new receivable balance for this new
credit period.
Factoring is always expected to decrease in trade receivables. If factoring
is expected to increase trade receivable period then factoring is obviously
worthless.
As discussed earlier, receivable requires to be financed somehow.
Therefore, it incurs finance cost, which is the interest payable on
overdraft at 5%. That is why; any reduction in receivable balance under
this new credit period is savings to the organization. Interest will be
saved at 5% because organization will no longer be required to pay
interest on amount saved.
Factor has demanded 3% of credit sales as factoring fee. It is possible to
come across question in the in which factor would demand flat fee.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 49 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
5% of interest rate already been charged by the bank, it has to be
incurred regardless of factoring proposal is accepted or not. Therefore,
5% of interest rate is irrelevant for decision-making purpose. Rise in
interest rate due to factoring is 2% only not 7% and this 2% is relevant
for evaluating proposal for factoring.
accasupport.com
After factoring average receivable balance of $3,074,000 will be
outstanding during the year. Factor will advanced 80% of receivables on
which interest is charged at 2% per year.
Average receivable balance means receivables balance during the year
will rise and fall such as due to seasonal demand for goods or services.
However, if we take the average of those balances, then it will be equal to
$3,074,000.
9 Invoice Discounting
Invoice discounting is raising cash through pledging sales invoices. In
other words, invoice discounting is raising short-term loan by providing
sales invoices (Receivables as an asset) as security to the invoice
discounter (lender).
Invoices are used to raise cash at discount. It means cash received will be
lower than the total value of invoices. Usually, up to 75% of the invoices
value can be received in cash.
Invoice discounter pays rest of the amount when customers settle their
debts and charges a percentage of interest on cash advanced.
accasupport.com
To be benefit from invoice discounting, organization must have good
quality invoice. It is because invoices represent the security to the invoice
discounter.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 50 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
accasupport.com
Risk of bad debt rests with the organization.
If the customer defaults,
organization has to repay the amount advanced by the invoice
discounter.
Invoice discounting is one off transaction. Each time, invoice is
discounted represents separate transaction.
Unlike factoring, invoice discounting does not takeover administration of
sales ledger.
Invoice discounting does not setup customers. Customers only become
aware of the arrangement when they default.
accasupport.com
Invoice discounting can be used to raise short-term finance. It can be
used by organization having cash flow problem.
In practice, those who provide factoring services also provide invoicediscounting services.
10 Foreign Trade Receivables
10.1 Problems Involved In Foreign Trade
Foreign trade receivables are considered having higher risk of bad debts
In foreign trade, customers are given credit for longer period than in
domestic trades.
Selling organization may not be able to monitor foreign customers’
financial position as closely as domestic customers.
In the event of default, customers have to be pursued according to their
own countries legislation.
accasupport.com
Foreign trade receivables require higher levels of investment in working
capital due to cash is invested for longer period before it is received to
make another sale transaction.
10.2 Reducing Risks Involved In Foreign Trade
10.2.1
Advance Payment
It is insisting foreign customers to pay cash in advance or on delivery.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 51 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
10.2.2
Export Factoring
Export factoring can be used to reduce risk of foreign trade. Export
factoring is same as domestic factoring with the only different is that
factor is situated overseas in customer’s country.
10.2.3
Bill of exchange
Bills of exchange are used primarily in international trade. Bill of
exchange is unconditional order by issuer to his/her bank to pay the
bearer a specified sum on a specific date written at the face of document.
It is not frequently used credit instrument.
Unconditional order means it does not require any action by the bearer
to cash the bill of exchange.
accasupport.com
Bill of exchange can be dishonoured if the issuer does not have sufficient
cash balance to accept the bill of exchange.
10.2.4
Letter of Credit (LC)
Letters of credit are used primarily in international trade transactions of
significant value, for deals between a supplier in one country and a
customer in another.
Letter of credit is demanded by supplier from a customer. Bank
guarantees to a beneficiary (supplier) to pay specified sum of money on
completion of sales in accordance with agreed term and conditions on
behalf on his client (customer).
accasupport.com
Letter of credit is sent to the supplier, which he/she can use to receive
payment and send goods to customer according to term and conditions
written on letter of credit.
Bill of laden can be used as evidence of transfer of goods to customer.
Issuing letter of credit is costly and time-consuming process. However, it
is safer way to carry out foreign transaction. Unlike bill of exchange,
which can be dishonoured, letter of credit involves guarantee by the bank
to pay on behalf of client (customer) even he/she get bankrupt.
It is not ideal for urgent sales orders.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 52 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
10.2.5
Credit Insurance
Credit insurance is risk management product used to used cover the risk
of default by foreign customers. It covers the risk of default due to
bankruptcy, death, deliberate non-payment etc.
accasupport.com
The cost of insurance is called premium.
It can be continuous long-term contract or one off transaction insure
against specific customer.
10.2.6
Barter Trade
Barter trade is receiving goods rather than cash in return for selling
goods. Goods are exchanged (despatched) at the same time so it reduces
the risk of bad debt.
Barter trade does not involve goods in exchange of promise to supply
goods.
11 Calculating & Commenting Early Settlement Discounts
Early settlement discount is different from trade discount.
Early settlement discount is given to reduce finance cost of trade
receivables and improve working capital cycle.
accasupport.com
Early settlement discount
is given as percentage of sales. It is given to
those who pay early within specified period before usual credit period.
WQZ Co is considering making the following changes in the area of
working capital management:
accasupport.com
Inventory management
It has been suggested that the order size for Product KN5 should be
determined using the economic order quantity model (EOQ).
WQZ Co forecasts that demand for Product KN5 will be 160.000 units in
the coming year and it has traditionally ordered 10% of annual demand
per order. The ordering cost is expected to be $400 per order while the
holding cost is expected to be $512 per unit per year. A buffer inventory
of 5.000 units of Product KN5 will be maintained, whether orders are
made by the traditional method or using the economic ordering quantity
model.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 53 of 108
Receivables management
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
WQZ Co could introduce an early settlement discount of 1% for
customers who pay within 30 days and at the same time, through
improved operational procedures, maintain a maximum average
payment period of 60 days for credit customers who do not take the
discount. It is expected that 25% of credit customers will take the
discount if it were offered.
It is expected that administration and operating cost savings of $753000
per year will be made after improving operational procedures and
introducing the early settlement discount.
It is expected that administration and operating cost savings of
$753,000 per year will be made after improving operational procedures
and introducing the early settlement discount.
Credit sales of WQZ Co are currently $876 million per year and trade
receivables are currently $18 million. Credit sales are not expected to
change as a result of the changes in receivables management. The
company has a cost of short-term finance of 55% per year.
Required:
Calculate and comment on whether the proposed changes in receivables
management will be acceptable.
Assuming that only 25% of customers take the early settlement discount,
what is the maximum early settlement discount that could be offered?
Currently customers take 75 days to repay their debts.
accasupport.com
(
)
(
)
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 54 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
Introduction of early settlement discount will result in 25% of customers
paying within 30 days. Therefore, it means those customers that take 60
day on average will be 75%.
$12.6m of cash will remain invested in trade receivables and working
capital during the year according to revised trade receivable days of 52.5
days.
Reduction in trade receivable turnover from 75 to 52.5 days will result in
decrease in trade receivable level by $5.4m ($18m-$12.6m).
As discussed earlier, trade receivables incurs finance cost, decrease in
accasupport.com
trade receivable level will require
less working capital resulting in
savings in finance cost.
Cost of early settlement discount is finance cost for the organization
rather than admin or selling and distribution expense, because it is given
for reducing the cost of financing trade receivables.
accasupport.com
Savings in finance cost of trade receivables per year
$
297,000
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 55 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
$
Savings in administration and operating cost per year 753,000
Finance cost of early settlement discount
(219,000)
Total benefit of early settlement discount per year
831,000
accasupport.com
Maximum Early Settlement Discount
Maximum early settlement discount should be the rate at which savings
from giving early settlement discount becomes zero.
If 25% of credit sales will receive early settlement discount, which is
(
)
Then, maximum early settlement discount that could be offered is
(
)
It is because sales revenue could be lowered by 1,050,000 or 4.8% at
max after, which savings will be zero.
12 Discounts from Suppliers
ZPS Co places monthly orders with a supplier for 10,000 components
that are used in its manufacturing processes. Annual demand is 120,000
components. The current terms are payment in full within 90 days,
which ZPS Co meets, and the cost per component is $750. The cost of
ordering is $200 per order, while the cost of holding components in
inventory is $100 per component per year.
The supplier has offered either a discount of O5% for payment in full
within 30 days, or a discount of 36% on orders of 30,000 or more
components. If the bulk purchase discount is taken, the cost of holding
components in inventory would increase to $220 per component per
year due to the need for a larger storage facility.
Assume that there are 365 days in the year and that ZPS Co can borrow
short-term at 45% per year.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 56 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
Required:
Calculate if ZPS Co will benefit financially by accepting the offer of the
early settlement discount.
Obtaining early settlement discount will result in savings of $4,500 per
year. It is considered as finance income.
Reduction in trade payables will require the use of other source of
finance to makeup the short fall in working capital.
Trade payable is usually used as free source of finance because suppliers
generally do not charge interest for late payment. Short-term finance will
now be used for refinancing working capital, which will give rise to
financing (interest) cost.
$
Savings from early settlement discount
4,500
Refinancing cost of working capital
(6,657)
Net benefit/ cost of early settlement discount (2,157)
Increase in financing cost exceeds benefits/savings from early settlement
discount. Organization will be better by not taking early settlement
discount.
accasupport.com
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 57 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
13 Economic Order Quantity (EOQ) Model
13.1 Optimal or Economic Order Quantity (EOQ)
Economic order quantity is the quantity (order size) at which combine
cost of inventory ordering and holding is minimized.
Diagram:
Total cost
Ordering cost
accasupport.com
Holding cost
EOQ
Reorder quantity
13.2 Calculating Economic Order Quantity
Formula (given in the formula sheet):
√
Where
Co = ordering cost per order
CH = holding cost per unit (for the duration of demand)
D = total demand of the period
PKA Co is a European company that sells goods solely within Europe.
The recently-appointed financial manager of PKA Co has been
investigating the working capital management of the company and has
gathered the following information:
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 58 of 108
Inventory management
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
The current policy is to order 100,000 units when the inventory level
falls to 35,000 units. Forecast demand to meet production requirements
during the next year is 625.000 units. The cost of placing and processing
an order is €250, while the cost of holding a unit in stores is €050 per
unit per year. Both costs are expected to be constant during the next
year. Orders are received two weeks after being placed with the supplier.
You should assume a 50-week year and that demand is constant
throughout the year.
Required:
Calculate the cost of the current ordering policy and determine the
saving that could be made by using the economic order quantity model.
accasupport.com
Total cost under current ordering policy:
Ordering inventory in batches of 100,000 units will require 6.25
(625,000/100,000) orders to fulfil annual demand of 625,000 units.
However, it is not possible to place 0.25 order in practice.
accasupport.com
It is assumed that always half of the inventory ordered will be held in
warehouse, which is the average of inventory getting at lower and higher
levels during the year. Each unit will require
of holding cost per
year.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 59 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
Inventory usage per week is 12,500 (625,000/50) units. If supplier takes
2 weeks, then inventory should be ordered when 25,000 (12,500 x 2)
units remaining in stock to prevent stock outs. However, supplier may
delay delivery or unexpected demand can arise during the lead-time.
Therefore, organization has kept 10,000 (35,000-25,000) units as buffer
(safety) stock for unexpected situation.
Buffer stock is held in the warehouse during whole year. Each unit of
buffer of stock will incur holding cost. Therefore, 10,000 units of
inventory has incurred
Total cost under EOQ model:
accasupport.com
√
√
(
)(
)
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 60 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
Orders in smaller quantity than under current ordering policy increased
ordering cost by
(
) because of more frequent
ordering from 6.25 orders to 25 (625,000/25,000) orders.
(
(
)
)
Ordering as per EOQ resulted in decrease in holding cost of
(
). It is due to reduction in average inventory
level.
14 Optimal Reorder Quantity with Bulk Purchase Discount
EOQ cannot be used when supplier offers bulk purchase discount for
ordering above certain quantity. We must find out economical order size
through trial and error. If, supplier offers different discount rate for
different order size we have to calculate total cost of purchasing for each
order size.
Formula:
accasupport.com
ZPS Co places monthly orders with a supplier for 10,000 components
that are used in its manufacturing processes. Annual demand is 120,000
components. The current terms are payment in full within 90 days,
which ZPS Co meets, and the cost per component is $750. The cost of
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 61 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
ordering is $200 per order, while the cost of holding components in
inventory is $100 per component per year.
The supplier has offered a discount of 3.6% on orders of 30,000 or more
components. If the bulk purchase discount is taken, the cost of holding
components in inventory would increase to $220 per component per
year due to the need for a larger storage facility.
Assume that there are 365 days in the year and that ZPS Co can borrow
short-term at 45% per year.
Required:
Calculate if ZPS Co will benefit financially by accepting the offer of the
bulk purchase discount.
Total purchase cost of current order size at 10,000 units :
Total purchase cost of revised order size at 30,000 units:
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 62 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
(
(
)
)
Savings due to obtaining bulk purchase discount is $6,000 (907,600901,400) per year.
15 Just in Time (JIT)
Just in time is modern inventory management philosophy. It means
inventory should only be produced or purchase when there is customer
available for it. Ideally, inventory level is assumed $0. However, in
practice, some butter stock is maintained to meet unexpected demand.
15.1 Benefits
JIT reduces inventory-holding costs. However, it increases inventoryordering costs but these are not so high because of application of
information technology.
Inventory does not generate revenue until it is sold. Cash invested in
inventory can be used to earn interest on short-term investments. JIT
results in no or little inventory level.
accasupport.com
Inventory occupies floor area. Floor area is valuable asset of the
organization, which can be used for producing other products.
Inventory possesses a risk of theft and deterioration due to dust, water,
fire, storm etc.
Some kind of inventory is perishable in nature such as groceries and
chemicals. Inventory may become obsolete or out of fashion as people
tastes and behaviour changes over time. JIT saves cost of inventory
obsolesces.
15.2 Limitations
JIT is not suitable for organizations operating in health and safety and
rescue services sector. Cost of stock outs far more exceeds benefits in
such sectors.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 63 of 108
Chapter 4: MANAGEMENT OF WORKING CAPITAL ELEMENTS
Example:
Stock out of life saving drug in a hospital can be disastrous. In this
situation, cost of holding inventory is justified against the risk involved
in stock outs.
Organization may not be able to meet unexpected demand and suffer lost
sales from both existing and potential customer. At worst, customer may
turn to buy competitors product and may not return.
Efficient operation of JIT depends on reliable suppliers, location and
distance of organization premises from suppliers and infrastructure
available for communication and delivery of goods.
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 64 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
Chapter 5:
DETERMINING WORKING CAPITAL
NEEDS & FUNDING STRATEGIES
Sub
S.no
1
2
3
4
Headings
Headings (click the cross-ref below for easy navigation)
Cash Management Models
Funding Working Capital Requirement
Level of Investment in Working Capital
Symptoms of Overtrading
Pg.no
65
65
65
65
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 65 of 108
1 Cash Management Models
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
1.1 Miller-Orr Model
1.1.1 Benefits
1.1.2 Limitations
1.2 Baumol Model
1.2.1 Benefits
1.2.2 Limitations
2 Funding Working Capital Requirement
2.1 Non-Current Assets
2.2 Permanent Assets
2.3 Fluctuating Assets
2.4 Matching Policy
2.5 Aggressive Working Capital Policy
2.6 Conservative Working Capital Policy
3 Level of Investment in Working Capital
3.1 Length of Working Capital Cycle
3.2 Terms of Trade
3.3 Level of Risk Acceptable to Organization
3.4 Industry in Which Organization Operates
4 Overtrading & Undertrading
4.1 Symptoms of Overtrading
4.1.1 Working Capital to Sales Ratio
4.1.2 Increase in Trade Receivable Turnover
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 66 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
4.1.3 Increase in Inventory Turnover
4.1.4 Increase in Trade Payable Turnover
4.1.5 Overdraft
4.1.6 Liquidity Ratios
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 67 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
Chapter 6:
THE NATURE OF INVESTMENT
DECISIONS & THE APPRAISAL
PROCESS
Sub Headings
Headings (click the cross-ref below for easy navigation)
S.no
1 Capital Investment Process
Pg.no
67
1 Capital Investment Process
1.1 Identifying Investment Opportunities
1.2 Screening Investment Proposals
1.3 Analysing & Evaluating Investment Proposals
1.4 Approving Investment Proposals
1.5 Implementing, Monitoring & Reviewing Investments
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 68 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
Chapter 7:
NON DISCOUNTED CASH FLOW
TECHNIQUES
Sub Headings
S.no
Headings (click the cross-ref below for easy navigation)
1 Accounting Rate of Return (ARR)
2 Payback Period
Pg.no
68
68
1 Accounting Rate of Return (ARR)
1.1 Benefits & Limitations of ARR
2 Payback Period
2.1 Benefits & Limitations of Payback Period
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 69 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
Chapter 8:
DISCOUNTED CASH FLOW (DCF)
TECHNIQUES
Sub
S.no
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Headings
Headings (click the cross-ref below for easy navigation)
Time Value of Money
Present Value (PV)
Discount Rate
Discounting
Annuity
Perpetuity
Conventional & Non-conventional Cash flows
Net Present Value (NPV)
Benefits & Limitations of Net Present Value (NPV)
Internal Rate of Return (IRR)
Benefits & Limitations of Internal Rate of Return (IRR)
IRR & Non-Conventional Cash flows
Discounted Payback Period
Commenting on Investment Proposals
Free Cash Flows
Pg.no
70
70
70
70
70
70
70
70
70
71
71
71
71
71
71
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 70 of 108
1 Time Value of Money
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
1.1 Inflation or Deflation
1.2 Postponing Consumption
1.3 Risk
2 Present Value (PV)
3 Discount Rate
3.1 Inflation Rate
3.2 Interest Rate
3.3 Weighted Average Cost of Capital (WACC)
4 Discounting
4.1 Calculating Discount Factor
5 Annuity
5.1 Calculating Annuity Factor
6
Perpetuity
7 Conventional & Non-conventional Cash flows
8 Net Present Value (NPV)
8.1 Performa for Calculating NPV
9 Benefits & Limitations of Net Present Value (NPV)
9.1 Benefits
9.2 Limitations
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 71 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
10 Internal Rate of Return (IRR)
11 Benefits & Limitations of Internal Rate of Return (IRR)
11.1 Benefits
11.2 Limitations
12 IRR & Non-Conventional Cash flows
13 Discounted Payback Period
14 Commenting on Investment Proposals
15 Free Cash Flows
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 72 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
Chapter 9:
ALLOWING FOR INFLATION &
TAXATION IN DCF
Sub
S.no
1
2
3
4
5
Headings
Headings (click the cross-ref below for easy navigation)
Discounting & Timing Of Cash Flows
Capital & Revenue Cash Flows
Nominal & Real Cash flows
Nominal & Real Discount Rate
Cash flows & Discount Rate
Pg.no
73
73
73
73
73
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 73 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
1 Discounting & Timing Of Cash Flows
2 Capital & Revenue Cash Flows
2.1 Capital Cash Flows
2.2 Initial Investment
2.3 Residual Value
2.4 Tax Savings on Capital Allowance
2.5 With No Delay in Tax Payment
2.6 With Delay in Tax Payment
2.7 Revenue Cash Flows
2.7.1 Sales Revenue
2.7.2 Variable Cost
2.7.3 Project Specific Fixed Cost
2.7.4 Tax Payments
2.7.5 Working Capital Investment
2.8 Financial Cash Flows
3 Nominal & Real Cash flows
4 Nominal & Real Discount Rate
5 Cash flows & Discount Rate
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 74 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
Chapter 10:
ADJUSTING FOR RISK & UNCERTAINTY
IN INVESTMENT APPRAISAL
Sub
S.no
1
2
3
4
Headings
Headings (click the cross-ref below for easy navigation)
Adjusting Risk for Investment Appraisal
Risk & Uncertainty
Sensitivity Analysis
Probability Analysis
Pg.no
74
74
74
74
1 Adjusting Risk for Investment Appraisal
2 Risk & Uncertainty
2.1 Risk
2.2 Uncertainty
3 Sensitivity Analysis
3.1 Benefits
3.2 Limitations
4 Probability Analysis
4.1 Expected Values
4.2 Benefits of Expected Values
4.3 Limitations of Expected Values
4.4 Combine Probability
4.5 Probability of Negative & Positive Outcome
4.6 Probability of Specific Condition
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 75 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
Chapter 11:
SPECIFIC INVESTMENT DECISIONS
Sub
S.no
1
2
3
4
5
6
7
8
9
Headings
Headings (click the cross-ref below for easy navigation)
Lease
Types of Lease
Buying
Lease or Buy
Approaches Investment Appraisal
Asset Replacement Decisions
Capital Rationing
Investment Decisions & Capital Rationing
Relaxing Capital Rationing
Pg.no
76
76
76
76
76
77
77
77
78
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 76 of 108
1 Lease
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
1.1 Timing of Lease Rental Payments
1.2 Lessor & Lessee
1.3 Benefits of Lease
1.4 Limitations of Lease
2 Types of Lease
2.1 Finance Lease
2.1.1 Benefits & Limitations of Finance Lease
2.1.2 Benefits for Lessee
2.1.3 Limitations for Lessee
2.2 Treatment of Financial Lease
2.3 Operating Lease
2.4 Benefits & Limitations of Operating Lease
2.4.1 Benefits for Lessee
2.4.2 Limitations for Lessee
2.5 Treatment of Operating Lease
3 Buying
Formula:
3.1 Benefits
3.2 Limitations
4 Lease or Buy
5 Approaches Investment Appraisal
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 77 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
6 Asset Replacement Decisions
6.1 Financial Factors to Consider
6.1.1 Efficiency & Economy
6.1.2 Resale Value
6.1.3 Tax Savings
6.2 Non-Financial Factors to Consider
6.2.1 Competitive Advantage
6.2.2 Compatibility
6.3 Equivalent Annual Cost (EAC)
6.4 Benefits
6.5 Limitations
6.6 Equivalent Annual Benefit (EAB)
7 Capital Rationing
7.1 Hard Capital Rationing
7.2 Soft Capital Rationing
8 Investment Decisions & Capital Rationing
8.1 Single Period Capital Rationing
8.1.1 Divisible Projects
8.1.1.1 Non-Postponing Projects
Required:
8.1.1.2 Limitations of Profitability Index
8.1.1.3 Postponing Projects
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 78 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
8.1.2 Non Divisible Projects (Non-Postponing Projects)
8.1.3 Mutually Exclusive Projects (Non-Postponing Projects)
9 Relaxing Capital Rationing
9.1 Outsourcing
9.2 Joint Venture
9.3 Franchise
9.4 Working Capital Management
9.5 Government Grant
9.6 Leasing
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 79 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
Chapter 12:
SHORT & LONG TERM FINANCE
Sub
S.no
1
2
3
4
Headings
Headings (click the cross-ref below for easy navigation)
Short Term Sources of Finance
Long Term Sources of Finance
Role of Intermediaries
Sources of Finance & Investment Appraisal
Pg.no
80
80
81
81
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 80 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
1 Short Term Sources of Finance
1.1 Account Payables
1.2 Overdrafts
1.3 Short Term Loan
1.4 Operating Lease
2 Long Term Sources of Finance
2.1 Finance Lease
2.2 Retained Earnings
2.3 Equity Finance
2.3.1 Benefits
2.3.2 Limitations
2.4 Ways of Raising Equity Finance
2.4.1 Initial Public Offer (IPO)
2.4.2 Placing
2.4.3 Floatation
2.4.4 Right Issue
2.4.4.1 Pre-Emption Right
2.4.5 Benefits
2.4.6 Limitations
2.4.7 Summary
2.5 Preference Share Capital
2.5.1 Cumulative & Non-Cumulative Preference Shares
2.5.2 Convertible & Non-Convertible Preference Shares
2.5.3 Benefits
2.5.4 Limitations
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 81 of 108
2.6 Debt Finance
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
2.6.1 Benefits
2.6.2 Limitation
2.7 Ways of Raising Of Debt Finance
2.7.1 Loan Notes (Bonds or Debenture)
2.7.1.1 Par Value
2.7.1.2 Issue or Redemption at Discount
2.7.1.3 Issue or Redemption at Premium
2.8 Types of Loan Notes
2.8.1 Redeemable Loan Notes
2.8.2 Irredeemable Loan Notes
2.8.3 Convertible Loan Notes
2.8.4 Deep Discount Bonds
2.8.5 Zero Coupon Bond
2.8.6 Summary
2.9 Long Term Bank Loans
2.10 Sale & Lease Back
2.10.1
Benefits
2.10.2
Limitations
3 Role of Intermediaries
4 Sources of Finance & Investment Appraisal
4.1 Risk
4.2 Duration
4.3 Volatility
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 82 of 108
4.4 Trend
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 83 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
Chapters13:
INTERNAL SOURCES OF FINANCE &
DIVIDEND POLICY
Sub
S.no
1
2
3
4
Headings
Headings (click the cross-ref below for easy navigation)
Dividend Policy
Factors Affecting level of Dividend
Script Dividend
Ex-dividend or Cum-divided Share Price
Pg.no
84
84
84
84
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 84 of 108
1 Dividend Policy
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
1.1 Miller & Modigliani Theory
1.2 Traditional View
1.3 Tax
1.4 Transaction Cost
1.5 Preference for Dividends
1.6 Clientele Effect
1.7 Signalling Effect
1.8 Financing
2 Factors Affecting level of Dividend
2.1 Liquidity
2.2 Consistency
2.3 Financing Needs
2.4 Legal Restrictions
2.5 Gearing
2.6 Signalling Effect
3 Script Dividend
3.1 Benefits
3.2 Limitations
4 Ex-dividend or Cum-divided Share Price
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 85 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
Chapter 14:
GEARING & CAPITAL STRUCTURE
CONSIDERATIONS
Sub Headings
S.no
Headings (click the cross-ref below for easy navigation)
1
Evaluating Sources of Finance
2 Theoretical Ex-Right Share Price
3 Calculating Theoretical Ex-Right Share Price
4 Impact of Right Issue on Shareholders Wealth
Pg.no
86
86
86
86
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 86 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
1 Evaluating Sources of Finance
2 Theoretical Ex-Right Share Price
3 Calculating Theoretical Ex-Right Share Price
4 Impact of Right Issue on Shareholders Wealth
4.1 Subscribe
4.2 Renounce
4.3 Lapse
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 87 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
Chapter 15:
FINANCE FOR SMALL & MEDIUM SIZED
ENTITIES (SMEs)
Sub
S.no
1
2
3
4
Headings
Headings (click the cross-ref below for easy navigation)
SMEs (Small & Medium Sized Entities)
Sources of Finance for SMEs
Islamic Finance
Islamic Financial Instruments
Pg.no
88
88
88
88
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 88 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
1 SMEs (Small & Medium Sized Entities)
2 Sources of Finance for SMEs
2.1 Business Angels
2.2 Venture Capitalist (Joint Venture)
2.3 Leasing
2.4 Borrowing From Family & Friends
2.5 Government Aid
2.6 Bank Loan
3 Islamic Finance
3.1 Riba
3.1.1 Limitations of Riba
3.2 Dain
4 Islamic Financial Instruments
4.1 Murabaha (Trade credit)
4.2 Musharakah (Venture Capital)
4.3 Mudarabah
4.4 Ijarah (Operating Lease)
4.5 Ijarah Thumma Al Bai (Hire Purchase)
4.6 Ijarah-Wal-Iqtina (Finance Lease)
4.7 Musharakah (Joint Venture)
4.8 Sukuk (Debt Finance)
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 89 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
Chapter 16:
ESTIMATING COST OF CAPITAL
Sub
S.no
1
2
3
4
5
6
7
8
9
Headings
Headings (click the cross-ref below for easy navigation)
Weighted Average Cost of Capital (WACC)
Calculating Market Value of Equity & Debt
Cost of Equity
Systematic Risk & Non Systematic Risk
Capital Asset Pricing Model (CAPM)
Gearing & Ungearing Betas
Benefits & Limitations of CAPM
Calculating Cost of Debt
Calculating Weighted Average Cost of Capital
Pg.no
90
90
90
90
90
91
91
91
91
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 90 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
1 Weighted Average Cost of Capital (WACC)
2 Calculating Market Value of Equity & Debt
2.1 Benefits & Limitations of WACC
2.1.1 Benefits
2.1.2 Limitations
3 Cost of Equity
3.1 Dividend Growth Model (DGM)
3.2 Calculating Growth Rate
3.2.1 Average Growth Rate
3.2.1.1 Limitations
3.2.2 Gordon’s Growth Rate
3.2.2.1 Limitations
3.3 Benefits & Limitations of DGM
3.3.1 Benefits
3.3.2 Limitations
3.4 Assumptions (also limitations)
4 Systematic Risk & Non Systematic Risk
4.1 Systematic Risk
4.2 Non Systematic Risk
5 Capital Asset Pricing Model (CAPM)
5.1 Risk Free Rate of Return
5.2 Market Rate of Return
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 91 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
5.3 Equity Risk Premium (
)
5.4 Equity Beta
6 Gearing & Ungearing Betas
7 Benefits & Limitations of CAPM
7.1 Benefits
7.2 Limitations
8 Calculating Cost of Debt
9 Calculating Weighted Average Cost of Capital
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 92 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
Chapter 17:
RELATIONSHIP B/W COST OF CAPITAL,
CAPITAL STRUCTURE & INVESTMENTS
Sub
S.no
1
2
3
4
5
6
Headings
Headings (click the cross-ref below for easy navigation)
Financial Risk & Business Risk
WACC & Investment Appraisal
CAPM & Investment Appraisal
WACC & Capital Structure
Pecking Order Theory
Impact of Sources of Finance on Key Ratios
Pg.no
93
93
93
93
93
93
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 93 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
1 Financial Risk & Business Risk
1.1 Financial Risk
1.2 Business Risk
2 WACC & Investment Appraisal
3 CAPM & Investment Appraisal
3.1 Conclusion
4 WACC & Capital Structure
4.1 Traditional View
4.1.1 Assumptions
4.2 Miller & Modigliani (M&M) Theory
4.2.1 Assumptions
4.3 Market Imperfection Theory
4.4 Conclusion
5 Pecking Order Theory
5.1 Retained Earnings
5.2 Debt
5.3 Convertible Debt
5.4 Preference Shares
5.5 Equity
6 Impact of Sources of Finance on Key Ratios
6.1 Profitability Ratios
6.1.1 Return of Investment (ROI)
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 94 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
6.1.2 Return of Equity (ROE)
6.2 Liquidity Ratios
6.3 Current Asset Ratio
6.4 Quick Asset Ratio
6.5 Gearing Ratios
6.5.1 Interest Cover
6.5.2 Debt to Equity Ratio
6.5.3 Debt to Debt Plus Equity Ratio
6.6 Investor Ratios
6.6.1 Dividend Cover
6.6.2 Dividend Yield
6.6.3 Earnings Yield
6.6.4 Earnings Per Share
6.6.5 Price Earnings Ratio
6.6.6 Capital Gain
6.6.7 Wealth Generated
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 95 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
Chapter 18:
BUSINESS VALUATION TECHNIQUES
Sub
S.no
1
2
3
4
5
6
7
8
Headings
Headings (click the cross-ref below for easy navigation)
Business Valuation
Net Assets Valuation Model
Price Earnings (P/E) Ratio Method
Earnings Yield Valuation Method
Dividend Valuation Model (DVM)
Valuation of Debt & other Financial Assets
Evaluating Financial Performance
Preparing Forecast Financial Statements
Pg.no
96
96
96
96
96
96
97
97
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 96 of 108
1 Business Valuation
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
2 Net Assets Valuation Model
2.1 Assets Excluded
2.1.1 Goodwill
2.1.2 Development Expenditure
2.1.3 Contingent Assets
2.2 Assets & Liabilities Included
2.2.1 Brand, Copyright & Patents
2.2.2 Tangible Assets
2.2.3 Contingent Liabilities
2.3 Benefits & Limitations
2.3.1 Benefits
2.3.2 Limitations
3 Price Earnings (P/E) Ratio Method
3.1 Benefits
3.2 Limitations
4 Earnings Yield Valuation Method
5 Dividend Valuation Model (DVM)
5.1 Benefits & Limitations of DVM
5.1.1 Benefits
5.1.2 Limitations
6 Valuation of Debt & other Financial Assets
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 97 of 108
6.1 Redemption Value
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
6.2 Redemption Yield
6.3 Floor Value
6.4 Conversion Premium
7 Evaluating Financial Performance
8 Preparing Forecast Financial Statements
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 98 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
Chapter 19:
EFFICIENT MARKET HYPOTHESIS
Sub
S.no
1
2
3
Headings
Headings (click the cross-ref below for easy navigation)
Features of Efficient Markets
Benefits of Efficient Markets
Efficient Market Hypothesis
Pg.no
98
98
98
1 Features of Efficient Markets
2 Benefits of Efficient Markets
3 Efficient Market Hypothesis
3.1 Weak Form Efficient
3.1.1 Published Financial Statements
3.1.2 Past Dividend Payments
3.1.3 Past Reputation
3.2 Semi Strong Form Efficient
3.3 Strong Form Efficient
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 99 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
Chapter 20:
BASICS OF FINANCIAL RISK
MANAGEMENT
Sub
S.no
1
2
3
4
5
6
7
8
Headings
Headings (click the cross-ref below for easy navigation)
Direct Vs Indirect Quote
Buying & Selling Rate
Agreement & Settlement Date
Foreign Exchange Risk
Types of Foreign Exchange Risk
Managing Foreign Exchange Risk
Netting
Lead & Lag Payment
Pg.no
100
100
100
100
100
100
100
100
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 100 of 108
1 Direct Vs Indirect Quote
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
1.1 Direct Quote
1.2 Indirect Quote
2 Buying & Selling Rate
2.1 Direct Quote
2.2 Indirect Quote
3 Agreement & Settlement Date
3.1 Agreement Date
3.2 Settlement Date
4 Foreign Exchange Risk
5 Types of Foreign Exchange Risk
5.1 Transaction Risk
5.2 Translation Risk
5.3 Economic Risk
6 Managing Foreign Exchange Risk
6.1 Hedging
6.1.1 Settlement on Net Basis
6.2 Invoicing in Home Currency
6.3 Matching
7 Netting
8 Lead & Lag Payment
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 101 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
Chapter 21:
HEDGING TECHNIQUES FOR FOREIGN
CURRENCY RISK
Sub
S.no
1
2
3
4
5
6
7
8
9
10
Headings
Headings (click the cross-ref below for easy navigation)
Step by Step Solution
Spot & Forward rate
Inflation Rate Parity Theory
Interest Rate Parity Theory
Forward Contract Hedge
Future Contract Hedge
Money Market Hedge
Currency Option
Currency Swap
Derivative
Pg.no
102
102
102
102
102
102
103
103
103
103
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 102 of 108
1
Step by Step Solution
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
2 Spot & Forward rate
2.1 Spot Rate
2.2 Forward Rate
3 Inflation Rate Parity Theory
4 Interest Rate Parity Theory
5 Forward Contract Hedge
5.1 Receipt
5.1.1 Scenario 1 (Gain on Forward Contract)
5.1.2 Scenario 2 (Loss on Forward Contract)
5.2 Payment
5.2.1 Scenario 3 (Loss on Forward Contract)
5.2.2 Scenario 4 (Gain on Forward Contract)
5.3 Benefits
5.4 Limitations
6 Future Contract Hedge
6.1 Future Market
6.2 Contract Price
6.3 Contract Size
6.4 Basis Risk
6.5 Tick
6.6 Agreement Date
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 103 of 108
6.7 Settlement Date
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
6.8 Benefits
6.9 Limitations
7 Money Market Hedge
7.1 Step By Step Process
7.1.1 Money Market Hedge for Receipt
7.1.2 Money Market Hedge for Payment
7.2 Benefits
7.3 Limitations
8 Currency Option
8.1 Benefits
8.2 Limitations
9 Currency Swap
10 Derivative
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 104 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
Chapter 22:
HEDGING TECHNIQUES FOR INTEREST
RATE RISK
Sub
S.no
1
2
3
4
5
6
7
8
9
10
11
Headings
Headings (click the cross-ref below for easy navigation)
Interest Rate Risk
Types of Interest Rate Risk
Managing Interest Rate Risk
Forward Rate Agreements (FRAs)
Future Contracts
Interest Rate Option
Interest Rate Swap
Effects of Interest Rate on Performance
Factor Affecting Interest Rates
Yield Curve
Macroeconomic Factors Affecting Interest Rates
Pg.no
105
105
105
105
105
105
105
105
106
106
106
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 105 of 108
1 Interest Rate Risk
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
2 Types of Interest Rate Risk
2.1 Variable Interest Rate Risk
2.2 Basis Risk
2.3 Negative Gap
2.4 Positive Gap
2.5 Fixed Interest Rate Risk
3 Managing Interest Rate Risk
3.1 Matching
3.2 Smoothing
3.3 Hedging
4 Forward Rate Agreements (FRAs)
5 Future Contracts
6 Interest Rate Option
6.1 Cap
6.2 Floor
6.3 Collar
7 Interest Rate Swap
7.1 Switching Between Types of Interest Rate
7.2 Borrow Loan at More Competitive Terms
8 Effects of Interest Rate on Performance
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 106 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
9 Factor Affecting Interest Rates
9.1 Risk
9.2 Level of Gearing
9.3 Spread on Interest Rate
9.4 Size of Loan
9.5 Flexibility & Marketability
9.6 Liquidity Preference Theory
9.7 Expectation Theory
9.8 Market Segmentation Theory
9.9 Government Policy
10 Yield Curve
11 Macroeconomic Factors Affecting Interest Rates
11.1 Inflation
11.2 Real Return
11.3 Volatile or Stable Economic Conditions
11.4 Monetary Policy
11.5 Foreign Interest Rates
11.6 Balance Of Payments
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial management ebook, financial management guide, financial management tutorial, financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Page 107 of 108
Chapter 22: HEDGING TECHNIQUES FOR INTEREST RATE RISK
RELATED eBOOKS
Books
Free Download
Management Accounting
F2
Performance Management
F5
Financial Management
F9
Governance, Risk & Ethics
P1
Business Analysis
P3
Ebusiness/Ecommerce/Make Money Online
$£€
Click the hyperlinks above in underlined style to visit relevant webpage
at http://accasupport.com
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course
Financial Management | Author: Murtaza Lanewala | Page 108 of 108
It is Not Available Offline & Online in Any Form Except ACCASUPPORT.COM
REPORT ABUSE
Please inform me at kabuli_52@hotmail.com (preferred) or
murtaza@accasupport.com, if you find any misuse of this material or
www.accasupport.com. In addition, if you find any information in this
material or website that is awkward, unethical, other than normal etc
from your viewpoint.
This material is not available at any other website over the internet
except clickbank.com. In addition, this material is not available in the
form of printed books, DVDs etc.
Website hacking is very common over the internet. Hackers modify,
delete and add contents on the targeted websites by gaining
unauthorized access to webserver, where the webpages are stored.
Reporting abuse will save other visitors to the website from being
victimized. Please help me discouraging these anti-social elements.
accasupport.com
I will keep confidential any corresponding between us.
For more info, please see my privacy policy
ACCA notes
ACCA Ebook PDF
ACCA Text Book
ACCA Study Text
ACCA Essential Study
Text
ACCA Class Notes
ACCA Study Text
Book 4 Focused
Learning
ACCA books
download
Kits
Revision Kit
Pocket notes
Passcards
Key notes
F1
F2
F3 INT
F4 BWA, CHN, CYP, ENG, GLO, HKG,
IRL, LSO, MLA, MYS, PKN, RUS, SCT,
SGP, VNM, ZAF and ZWE
F5
F6 BWA, CHN, CY, CZE, HKG,HUN,
IND, IRL, LSO, MWI, MLA, MYS, PKN,
POL, ROM, RUS, SGP, ZAF, UK, VNM,
ZWE.
F7 INT, HKG, IRL, MYS, SGP, UK.
F8 INT, HKG, IRL, MYS , SGP, UK.
F9
P1 SGP (variant)
P2 INT, HKG, IRL, MYS, SGP, UK.
P3
P4
P5
P6 CHN, CYP, HKG, IRL, MYS, MLA,
SGP, ZAF, UK, ZWE.
P7 INT, HKG, IRL, MYS , SGP, UK.
opentuition.com
expgroup.com
getthroughguides.co.uk
bpp.com
kaplan.co.uk
lsbf.org.uk
clickbank.com
amazon.com
ebay.com
scribd.com
Opentuition £FREE
Expgroup £FREE
GTG £20(F1-F3)-£30(F4-P7)
BPP £20(F1-F3)-£32(F4-P7)
Kaplan £35 (F1-F9)-£36(P1P7)
LSBF £180 (F1-P7)
ACCASUPPORT.COM £9.99
(F2, F5, F9, P1, P3)
Buy Full Financial Management Book (380 ±) at ACCASUPPORT.COM | SHARE | COMMENT | FORUMS | JOBS
Management Accounting, Performance Management, Business Analysis, Ebusiness / Ecommerce Guide Free Download
Financial management ebook, financial management guide, financial
inmanagement
f ttutorial,
+1financial management book, financial management training, financial
management pdf, financial management torrent, buy financial management free download, learn financial management course