Summary ANIKA OCHEL
Financial Management
(MGMT 7007)
,CONTENT
Budgeting and Financial Forecasting ...............................................................................................................................................4
Time Value of Money ..........................................................................................................................................................................4
Present Value .........................................................................................................................................................................................4
Discounting .............................................................................................................................................................................................4
Forecasting .............................................................................................................................................................................................5
Cash Budgeting .....................................................................................................................................................................................5
Cashflows vs. Sales Forecasts ....................................................................................................................................................5
Cashflows vs. Profits ......................................................................................................................................................................6
Costs Relevant To Cash Budget .................................................................................................................................................6
Cash Budget Layout........................................................................................................................................................................6
Advantages and Disadvantages ................................................................................................................................................6
Capital Expenditure .............................................................................................................................................................................. 10
Cost of Capital & Interest Rate .................................................................................................................................................... 10
Weighted Average Cost of Capital ............................................................................................................................................. 11
Means through which Companies Finance themselves .............................................................................................. 11
Calculation of Weighted Average Cost of Capital ........................................................................................................... 11
Investment Appraisal Techniques ............................................................................................................................................. 14
Payback Method ........................................................................................................................................................................... 14
Accounting Rate of Return (ARR) ......................................................................................................................................... 15
Net Present Value (NPV) .......................................................................................................................................................... 16
Internal Rate of Return (IRR) ................................................................................................................................................. 18
Appraisal of Capital Expenditure ............................................................................................................................................... 19
Investment Appraisal Techniques Compared ................................................................................................................. 19
Sources of Finance ................................................................................................................................................................................. 26
Reasons for Companies to Manage their Finances............................................................................................................. 26
Short Term ........................................................................................................................................................................................... 26
Bank Overdraft .............................................................................................................................................................................. 26
Credit Cards .................................................................................................................................................................................... 26
Trade Credit.................................................................................................................................................................................... 26
Factoring .......................................................................................................................................................................................... 27
Summary Financial Management – Anika Ochel
1
, Medium Term ..................................................................................................................................................................................... 27
Term Loan ....................................................................................................................................................................................... 27
Categories of Borrower and Examples ............................................................................................................................... 27
Security ............................................................................................................................................................................................. 27
Customer Rating ........................................................................................................................................................................... 27
Hire Purchase ................................................................................................................................................................................ 28
Leasing .............................................................................................................................................................................................. 28
Long Term ............................................................................................................................................................................................ 28
Owners Capital .............................................................................................................................................................................. 28
Share Capital .................................................................................................................................................................................. 28
Retained Earnings ........................................................................................................................................................................ 28
Secured Loan .................................................................................................................................................................................. 29
Venture Capital ............................................................................................................................................................................. 29
Government Finance .................................................................................................................................................................. 29
Overview ............................................................................................................................................................................................... 29
Stock Exchange ....................................................................................................................................................................................... 30
Types of Shares .................................................................................................................................................................................. 30
Ordinary Shares ............................................................................................................................................................................ 30
Preference Shares ........................................................................................................................................................................ 30
How to Issue Shares ......................................................................................................................................................................... 30
The Concept of Underwriting ................................................................................................................................................. 30
Offer For Sale ................................................................................................................................................................................. 31
Issue by Prospectus..................................................................................................................................................................... 31
Issue by Tender............................................................................................................................................................................. 31
Private Placing ............................................................................................................................................................................... 32
Stock Exchange Introduction .................................................................................................................................................. 32
Rights Issue ..................................................................................................................................................................................... 32
Ratio Analysis .......................................................................................................................................................................................... 36
Profitability .......................................................................................................................................................................................... 36
Gross Profit Margin ..................................................................................................................................................................... 36
Net Profit Margin.......................................................................................................................................................................... 36
Return on Investment (ROI) ........................................................................................................................................................ 37
Summary Financial Management – Anika Ochel
2
Financial Management
(MGMT 7007)
,CONTENT
Budgeting and Financial Forecasting ...............................................................................................................................................4
Time Value of Money ..........................................................................................................................................................................4
Present Value .........................................................................................................................................................................................4
Discounting .............................................................................................................................................................................................4
Forecasting .............................................................................................................................................................................................5
Cash Budgeting .....................................................................................................................................................................................5
Cashflows vs. Sales Forecasts ....................................................................................................................................................5
Cashflows vs. Profits ......................................................................................................................................................................6
Costs Relevant To Cash Budget .................................................................................................................................................6
Cash Budget Layout........................................................................................................................................................................6
Advantages and Disadvantages ................................................................................................................................................6
Capital Expenditure .............................................................................................................................................................................. 10
Cost of Capital & Interest Rate .................................................................................................................................................... 10
Weighted Average Cost of Capital ............................................................................................................................................. 11
Means through which Companies Finance themselves .............................................................................................. 11
Calculation of Weighted Average Cost of Capital ........................................................................................................... 11
Investment Appraisal Techniques ............................................................................................................................................. 14
Payback Method ........................................................................................................................................................................... 14
Accounting Rate of Return (ARR) ......................................................................................................................................... 15
Net Present Value (NPV) .......................................................................................................................................................... 16
Internal Rate of Return (IRR) ................................................................................................................................................. 18
Appraisal of Capital Expenditure ............................................................................................................................................... 19
Investment Appraisal Techniques Compared ................................................................................................................. 19
Sources of Finance ................................................................................................................................................................................. 26
Reasons for Companies to Manage their Finances............................................................................................................. 26
Short Term ........................................................................................................................................................................................... 26
Bank Overdraft .............................................................................................................................................................................. 26
Credit Cards .................................................................................................................................................................................... 26
Trade Credit.................................................................................................................................................................................... 26
Factoring .......................................................................................................................................................................................... 27
Summary Financial Management – Anika Ochel
1
, Medium Term ..................................................................................................................................................................................... 27
Term Loan ....................................................................................................................................................................................... 27
Categories of Borrower and Examples ............................................................................................................................... 27
Security ............................................................................................................................................................................................. 27
Customer Rating ........................................................................................................................................................................... 27
Hire Purchase ................................................................................................................................................................................ 28
Leasing .............................................................................................................................................................................................. 28
Long Term ............................................................................................................................................................................................ 28
Owners Capital .............................................................................................................................................................................. 28
Share Capital .................................................................................................................................................................................. 28
Retained Earnings ........................................................................................................................................................................ 28
Secured Loan .................................................................................................................................................................................. 29
Venture Capital ............................................................................................................................................................................. 29
Government Finance .................................................................................................................................................................. 29
Overview ............................................................................................................................................................................................... 29
Stock Exchange ....................................................................................................................................................................................... 30
Types of Shares .................................................................................................................................................................................. 30
Ordinary Shares ............................................................................................................................................................................ 30
Preference Shares ........................................................................................................................................................................ 30
How to Issue Shares ......................................................................................................................................................................... 30
The Concept of Underwriting ................................................................................................................................................. 30
Offer For Sale ................................................................................................................................................................................. 31
Issue by Prospectus..................................................................................................................................................................... 31
Issue by Tender............................................................................................................................................................................. 31
Private Placing ............................................................................................................................................................................... 32
Stock Exchange Introduction .................................................................................................................................................. 32
Rights Issue ..................................................................................................................................................................................... 32
Ratio Analysis .......................................................................................................................................................................................... 36
Profitability .......................................................................................................................................................................................... 36
Gross Profit Margin ..................................................................................................................................................................... 36
Net Profit Margin.......................................................................................................................................................................... 36
Return on Investment (ROI) ........................................................................................................................................................ 37
Summary Financial Management – Anika Ochel
2
