Concepts of Financial Management PPT

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Chapter 6 to 10

Chapter 6: Financial Statement Analysis

• Understand the purpose of basic financial statements and their contents.
• Explain why financial statement analysis is important to the firm and to outside suppliers of capital.
• Define, calculate, and categorize (according to liquidity, financial leverage, coverage, activity, and profitability) the major financial ratios and understand what they can tell us about the firm.
• Define, calculate, and discuss a firm’s operating cycle and cash cycle.
• Use ratios to analyze a firm’s health and then recommend reasonable alternative courses of action to improve the health of the firm.
• Analyze a firm’s return on investment (i.e., “earning power”) and return on equity using a Du Pont approach.
• Understand the limitations of financial ratio analysis.
• Use trend analysis, common-size analysis, and index analysis to gain additional insights into a firm’s performance.

Chapter 7: Funds Analysis, Cash-Flow Analysis, and Financial Planning

• Explain the difference between the flow of funds (sources and uses of funds) statement and the statement of cash flows – and understand the benefits of using each.
• Define “funds, ” and identify sources and uses of funds.
• Create a sources and uses of funds statement, make adjustments, and analyze the final results.
• Describe the purpose and content of the statement of cash flows as well as implications that can be drawn from it.
• Prepare a cash budget from forecasts of sales, receipts, and disbursements – and know why such a budget should be flexible.
• Develop forecasted balance sheets and income statements.
• Understand the importance of using probabilistic information in forecasting financial statements and evaluating a firm’s condition.

Chapter 8: Overview of Working Capital Management

• Explain how the definition of “working capital” differs between financial analysts and accountants.
• Understand the two fundamental decision issues in working capital management – and the trade-offs involved in making these decisions.
• Discuss how to determine the optimal level of current assets.
• Describe the relationship between profitability, liquidity, and risk in the management of working capital.
• Explain how to classify working capital according to its “components” and according to “time” (i.e., either permanent or temporary).
• Describe the hedging (maturity matching) approach to financing and the advantages/disadvantages of short- versus long-term financing.
• Explain how the financial manager combines the current asset decision with the liability structure decision.

Chapter 9: Cash and Marketable Securities Management