Strategic-Financial-Management.pdf

F INAL C OURSE S TUDY M ATERIAL

P APER 2

Strategic Financial

Management

BOARD OF STUDIES

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

This study material has been prepared by the faculty of the Board of Studies. The

objective of the study material is to provide teaching material to the students to enable

them to obtain knowledge and skills in the subject. Students should also supplement their

study by reference to the recommended text book(s). In case students need any

clarifications or have any suggestions to make for further improvement of the material

contained herein they may write to the Director of Studies.

All care has been taken to provide interpretations and discussions in a manner useful for

the students. However, the study material has not been specifically discussed by the

Council of the Institute or any of its Committees and the views expressed herein may not

be taken to necessarily represent the views of the Council or any of its Committees.

Permission of the Institute is essential for reproduction of any portion of this material.

or transmitted, in any form, or by any means, electronic, mechanical, photocopying,

recording, or otherwise, without prior permission, in writing, from the publisher.

Website : www.icai.org E-mail : bosnoida@icai.org

Published by Dr. T.P. Ghosh, Director of Studies, ICAI, C-1, Sector-1, NOIDA-201301

Typeset and designed by Gursharan K Madhwal at Board of Studies, The Institute of Chartered

Accountants of India.

PREFACE

Strategic Financial Management is a blend of Strategic Management and Financial

Management. It has acquired a critical significance now-a-days, due to recent surge in

globalization and massive cross border flow of capital. The study of this subject opens new

opportunities for Chartered Accountancy students. The paper stresses the importance of

applying the knowledge and techniques of financial management to the planning, operating

and monitoring of the finance function in particular as well as the organization in general.

Further, this paper not only focuses on these aspects at the domestic level but also at the

international level as well.

This study material provides the concepts, theories and techniques relating to Strategic

Financial Management and aims to develop the students’ ability in understanding the different

concepts and their application in the real life situations.

The study material is divided into thirteen chapters. Latest developments in the field of finance

including international finance have been incorporated in almost all the chapters. The study

material also focuses on the decision making in an international context and it provides

comprehensive coverage of important areas like foreign exchange market, derivatives, foreign

exchange exposure, risk analysis and management, raising of capital abroad, mergers and

acquisitions and portfolio management, capital budgeting and working capital management in

a multinational context. C hapters have been organised in such a way so as to provide a logical

sequence to facilitate easy understanding. A number of self-examination questions are given

at the end of each chapter, which will be useful to test the understanding of concepts

discussed in the chapter. Another helpful feature in this study material is the addition of a

number of illustrations in each chapter to help students to have a better grasp of the subject.

Numerous graphs and figures have also been added to make things more appealing. Some of

the chapters also contain Glossary of terms used.

Students are advised to supplement their knowledge by referring to the recommended books

and the compilation of the subject. They need to practise the practical problems thoroughly.

Students are also advised to update themselves with the latest changes in the financial sector.

For this they may refer to academic updates in the monthly journal ‘The Chartered Accountant’

and the Students ‘Newsletter’ published by the Board of Studies, financial newspapers, SEBI

and Corporate Law Journal etc.

The concerned Faculty of Board of Studies of Strategic Financial Management, Dr. S.Z.H.

Zaidi and Ms. Nidhi Singh have put their best efforts in preparing the study material. The

Board has also received valuable inputs from Dr. Swapan Kanta Basu Chaudhuri of Kolkata,

for which the Board is thankful to him.

In case students have any suggestions to make this study material more helpful, they are

welcome to write to the Director of Studies, The Institute of Chartered Accountants of India, C-

I, Sector-I, Noida-201 301.

S YLLABUS

PAPER 2 : STRATEGIC FINANCIAL MANAGEMENT

(One paper – Three hours – 100 marks)

Level of Knowledge: Advanced knowledge

Objective:

To apply financial management theories and techniques for strategic decision making.

Contents:

1. Financial Policy and Corporate Strategy

Strategic decision making framework

Interface of Financial Policy and strategic management

Balancing financial goals vis-à-vis sustainable growth.

2. Project Planning and Capital Budgeting

Feasibility study

Cash flow Projections – Impact of taxation, depreciation, inflation and working capital

Capital Budgeting Decisions - Certainty Equivalent approach, Evaluation of Risky Investment

Proposals, Risk and Return analysis, Simulation and decision tree analysis, Sensitivity

analysis, Capital Rationing, Adjusted Net Present Value, Replacement decisions, Application

of Real Options in capital budgeting, Impact of inflation on capital budgeting decisions

Preparation of Project Report

Social cost benefit analysis.

3. Leasing decision including cross border leasing

4. Dividend Decisions

Dividend theories, Determinants of dividend policies.

5. (a) Indian Capital Market including role of various primary and secondary market

institutions

(b) Capital Market Instruments

Financial derivatives – stock futures, stock options, index futures, index options

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