CHARTERED LEVEL

C3 - Strategic Financial Management

Weightage

Part-CPart-D

Part-E

Part-F Part-A

Part-B

Part-A Finance, Financial Analysis and

Financial Strategy Formulation 15%

Part-B Working Capital Management 15%

Part-C Valuation of Securities 15%

Part-D Cost of Capital, Capital Structure

and Financing Decisions 25%

Part-E Business Valuations, Mergers &

Acquisitions and Dividend Policy 15%

Part-F Treasury Management 15%

Syllabus Overview: Learning Outcomes:

This course is designed to equip students with the skills

that would be expected from a finance manager

responsible for the finance function of a business. The

course starts by introducing the role and purpose of the

financial management function within a business. Before

looking at the three key financial management decisions

of investing, financing, and dividend policy, the syllabus

explores the economic environment in which such

decisions are made. The next section of the syllabus is

the introduction of investing decisions. This is done in two

stages, investment in working capital and it’s

management. The next area introduced is financing

decisions. This section of the syllabus starts by examining

the various sources of business finance, including

dividend policy and how much finance can be raised from

within the business. It also looks at the cost of capital and

other factors that influence the choice of the type of

capital a business will raise. The principles underlying the

valuation of business and financial assets, including the

impact of cost of capital on the value of business, is

covered next.

On completion of this course, students will be able to:

Identify the objectives of the business in financialterms and evaluate their attainment

Learn role of financial information in financial controlprocess

Identify various financial techniques and describetheir applications

Suggest optimal capital structure

Identify and evaluate sources of long term financeand the best source of finance

Explain the criteria that management uses todetermine whether profit should be reinvested orpaid out as dividends

Outline the factors to be considered in thedevelopment of dividend policy

Describe how to manage financial risks of proposalsfor mergers and acquisitions

Perform Treasury Management

Manage short term financing activities

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Detailed Contents Weightage Level ofin % Study Required

PART-A: FINANCE, FINANCIAL ANALYSIS AND FINANCIAL STRATEGY FORMULATION

1. Role of Financein Business

2. Financial Markets

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Introduction to Corporate Finance UMajor areas and functions of Financial Management U

Goals of the firm U

Introduction to Corporate Governance U

Organization of Financial Management Function 15 U

Forms of Business Organizations U

The purpose of Financial Markets U

Classification of Financial Markets U

Financial Intermediaries U

Determination of Interest Rates U

Term Structure of Interest Rates, the Yield curve U

SYLLABUS 2016

ICMAP

Estd. 1951

120Institute of Cost and Management Accountants of Pakistan(Constituted under Cost and Management Accountants Act, 1966)

PART-B: WORKING CAPITAL MANAGEMENT

7. Overview of Working

Capital Management

8. Cash and Marketable

Securities

Management

9. Receivables,

Payables and

Inventory

Management

10.Short Term

Financing

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Working Capital concepts A

Working Capital issues, significance of working A

capital management

Profitability and risk: Optimal level of Current Assets D

Financing currents assets: Short term and D

long term mix

Combining liability structure and Current asset D

decisions

Motives for holding cash A

Speeding up Cash receipts A

Slowing down cash payments A

Electronic Commerce A

Cash balances to maintain U

Investment in marketable securities A

Money market instruments U

Miller and Orr Model of Cash Management 15 A & D

Baumol Model of Cash Management A & D

Credit and Collection policies D

Costs and Benefits D

Credit Standards, terms and analysis U

Payment Terms and Settlement Discounts U

Inventory management and control A

Costs and benefits of holding inventory D

Economic order quantity, re-order levels and D

safety stocks

Spontaneous Financing A

Negotiated Financing A

Factoring Account Receivable A

Composition of Short Term Financing A

SYLLABUS 2016

ICMAP

Estd. 1951

121

3. Analysis ofFinancialStatements

4. Cash Flow Analysisand FinancialPlanning

5. An Introduction toFinancial Strategy

6. PerformanceMeasurement inStrategic Finance

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Financial Statements ABalance Sheet Ratios AIncome Statement, Balance Sheet A

Income Statement and Balance Sheet Ratios A

Market Ratios A

Trend Analysis D

Common Size and Index Analysis D

Sources and Uses of Funds DStatement of Cash Flows DCash Flow Forecasting D

Forecasting Financial Statements D

Sustainable Growth Modelling D

Strategic Objectives of an Organization AImportance of Financial Strategy to the Organization A

Relationship between Investment, Financing and DDividend Decisions

Internal and External Constraints of Strategy D

Stakeholder Conflicts D

Impact of Regulation on Business combinations D

Performance Evaluation DEvaluation for Attainment of Organization's DFinancial Objectives

Forecasting Financial Statements D

Evaluation of Alternative Financial Strategies for Dan Organization

Institute of Cost and Management Accountants of Pakistan(Constituted under Cost and Management Accountants Act, 1966)

PART-C: VALUATION OF SECURITIES

11. Returns, Spreadsand Yields

12. The Valuation of

Long Term

Securities

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Gross and net realized returns, and the realized Dreturn for a bond over a holding period including

reinvestments

Spread of a bond, and how a spread is derived from a Dbond price and a term structure of rates

Bond's yield-to-maturity (YTM) to bond pricing D

Bond's YTM given a bond structure and price D

Price of an annuity and a perpetuity A

Relationship between spot rates and YTM A

Coupon effect and the relationship between coupon Drate, YTM, and bond prices

Decomposition of P&L for a bond into separate Dfactors including carry roll-down, rate change, andspread change effects

Most common assumptions in carry roll-down Dscenarios, including realized forwards, unchangedterm structure, and unchanged yields 15

Valuation concepts A & D

Bonds valuation: Perpetual bonds, bonds with A & D

finite maturity, zero coupon bonds

Preferred Stock valuation A & D

Common Stock valuation A & D

Dividend discount models (no growth, constant Dgrowth and phased growth)

Earnings Multiplier approach D

Rates of return (Yields): Common Stock, Preferred DStock, Bonds (YTM, YTC)

PART-D: COST OF CAPITAL, CAPITAL STRUCTURE AND FINANCING DECISIONS

13. Risk and Return

14. Operating andFinancial Leverage

15. Capital Structure

Defining risk and return A

Measures of risk and return A

Using probability distribution to measure expected Dreturn and risk

Attitude towards risk A

Risk and return in a portfolio context D

Systematic and Unsystematic risk D

Diversification D

The Capital Asset Pricing Model (CAPM) D

The Efficient Market Hypothesis, forms of market Uefficiency 25

Concept of Leverage DOperating Leverage D

Operating Break Even Analysis D

Degree of Operating Leverage and Business Risk D

Financial Leverage D

EBIT-EPS Analysis D

Degree of Financial Leverage and Financial Risk D

Total Leverage D

Cash Flow ability to service debt D

Capital Structure Concept and Overview D

Net Operating Income approach D

Traditional approach D

The total value principle D

Presence of market imperfections and incentive issues D

The effect of taxes D

Financial signalling D

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SYLLABUS 2016

ICMAP

Estd. 1951

122Institute of Cost and Management Accountants of Pakistan(Constituted under Cost and Management Accountants Act, 1966)

PART-E : BUSINESS VALUATIONS, MERGERS & ACQUISITIONS AND DIVIDEND POLICY

20. Business Valuation

21. Financial and

Strategic

Implications of

Mergers and

Acquisitions

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Introduction to business valuation A

Different valuation methods: Asset based models, D

Market relative (Earning multiple) models, Dividend

discount models, Free Cash flow models FCFF, FCFE,

Market value based approach, Market value added

(MVA), Economic value added (EVA)

Valuation of intangible assets: Calculated Intangible D

Value (CIV)

Types of Mergers/Acquisitions D

Reasons for mergers or acquisitions D

The exchange ratio 15 D

Bootstrapping and post acquisition values D

Defence against hostile takeover bids D

Form of consideration for a takeover D

Post-merger or post-acquisition integration process D

The role and scope of competition authorities D

Divestment D

Management buyouts (MBOs) D

Leverage buyouts (LBOs) D

Exit Strategies D

16. Cost of Capital

17. Financing

Equity Finance

18. Financing Debt

Finance

19. Financing Capital

Structure Decisions

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Creation of value D

Sources of finance D

Determining component cost of funds D

Determining component weights D

Determining Overall Weighted Average Cost of D

Capital (WACC)

Risk Adjusted WACC D

Introduction to financing and sources of Finance A

Criteria for selecting sources of finance D

Equity Finance D

Capital Markets and their types U

Methods of issuing new shares U

Right issues A

Theoretical Ex-Right Price (TERP) A

Debt Finance: Security, Covenants A

Types of Debt Finance A

Interest rate risk and refinancing risk exposures A

Other sources of finance A

Lease Vs Buy decisions D

Changing Capital Structure D

Financing Mix and the cost of capital D

Capital Structure - Traditional view D

Capital Structure - Modigliani and Miller's view D

Homemade Leverage D

Gearing and de-gearing of beta factors: Asset betas, D

equity betas and debt betas

Real World practical implications D

Taxes and Capital Structure D

Agency theory, pecking order hypothesis, information D

asymmetry, bankruptcy costs

SYLLABUS 2016

ICMAP

Estd. 1951

123Institute of Cost and Management Accountants of Pakistan(Constituted under Cost and Management Accountants Act, 1966)

PART-F : TREASURY AND PORTFOLIO MANAGEMENT

TOTAL WEIGHTAGE 100

23. Treasury -

An Introduction

24. The Mathematics

of Treasury

Management

25. Financial

Derivatives

26. Accounts and

Audit of Treasury

Operations

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Treasury - evolution, importance, theories, U

functions, classification

Liquidity Management in Treasury - Cash Forecasting D

Banking Relationships A

Credit Management D

Treasury Products and Services U

Risk management policy 15 U

Cross-currency forwards calculation of premium / D

discount etc. pre-utilization of contracts

Exchange Rate and Interest Rate arbitrage - A

NDF markets

Forwards, Futures and FRAs D

Use of derivative products like interest rate futures A

and currency futures

Collars & Options A

Futures & Options their uses D

Treasury Units - accounting, administration, A

planning, MIS

Internal Audit of Treasury functions and departments A

Audit of regulatory compliance A

Issues in the management of integrated U

treasury function

22. Dividend Policy

and Decision

Making: Theory

and Practice

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Dividend policy an introduction D

Passive versus Active Dividend policies D

Irrelevance of dividend: Modigiliani and Miller (MM) D

Hypothesis and model

Hamada equation D

Relevance of dividends: Walter's Model and D

Gordan's Model

Factors influencing dividend policies D

Dividend stability D

Administrative Considerations D

Practical implications: Taxes, Clientele effect, Bird in D

hand argument, Signalling effect

Dividend policies in practice D

Stock dividends, Stock splits and share repurchase D

as a part of dividend policy

Managerial considerations as to dividend/share D

repurchase policy

NOTE:-

U = Understanding

A = Application

D = Decision

SYLLABUS 2016

ICMAP

Estd. 1951

124Institute of Cost and Management Accountants of Pakistan(Constituted under Cost and Management Accountants Act, 1966)