Download Fundamentals of Finance Notes
ATD LEVEL III
FUNDAMENTALS OF FINANCE UNIT DESCRIPTION
This paper is intended to equip the candidate with knowledge, skills and attitudes that will enable him/her to apply the principles of finance in business decision making.
Contents
- 1 LEARNING OUTCOMES
- 2 CONTENT
- 3 Overview of finance
- 4 Sources of finance
- 5 Financial markets and systems
- 6 Time value of money
- 7 Introduction to risk and return
- 8 Cost of capital
- 9 Working capital management
- 10 Capital budgeting decisions under certainty
- 11 Dividend decisions
- 12 Fundamentals of Islamic finance
- 13 Emerging issues and trends
LEARNING OUTCOMES
- Identify various sources of finance for organisations
- Calculate non-complex risk and return measures
- Make basic dividend decisions for a firm
- Determine the cost of capital for an organisation
- Apply the basic valuation models to determine value of financial securities
- Evaluate the viability of capital investments using appropriate appraisal techniques
- Apply basic concepts of Islamic Finance.
CONTENT
Overview of finance
Nature and scope of finance
- Relationship between accounting and finance
- Finance functions
- Goals of a firm
- Agency theory: conflicts and resolutions
Sources of finance
- Factors to consider when choosing a source of finance
- Internally generated and externally generated finance
- Short term, medium and long term sources of finance
Download FUNDAMENTALS OF FINANCE ATD NOTES
Financial markets and systems
- Roles and importance of financial markets and systems
- Market participants and financial innovation
- Types of financial markets
- Characteristics of a good market
- Functions of financial markets
- The flow of funds and the financial system
- Organisation, structure and functions of securities markets
- Automation of securities exchanges; automated trading system (ATS), Central depository system (CDS)
- Role of government in the financial system; capital markets authority, central bank, central depository and settlement company
Time value of money
- Time value versus time preference for money
- The relevance of time value of money
- Discounting techniques
- Compounding techniques
- Preparation of the loan amortisation schedule
Introduction to risk and return
- Components of risk and return
- Sources of risk
- Measures of risk and return for a single asset
- Distinction between risk-free and risky assets
- Relationship between risk and return on investments
Cost of capital
- Significance of cost of capital to firms
- Factors influencing a firm’s cost of capital
- Components of cost of capital
- Weighted average cost of capital
- Weighted marginal cost of capital
Working capital management
- Nature and importance of working capital management
- Determinants of working capital
- Working capital operating cycle
- Working capital financing policies
- Cash management
- Accounts receivable management
- Accounts payable management
- Management of inventory, debtors and creditors
Capital budgeting decisions under certainty
- Importance, characteristics and types of capital investment decisions
- Capital investment cash flows; total initial cash outlay, the total terminal cash flows and annual net operating cash flows
- Investment evaluation criteria
- The features of an ideal capital budgeting technique
- Investment appraisal techniques; Accounting Rate of Return (ARR), Payback period, Internal Rate of Return, Net Present Value, Profitability index
Dividend decisions
- Factors influencing the dividend decision of a firm
- Forms of dividend payment
- The dividend policies; pay-out ratio policy, residual policy, stable predictable policy, low regular plus extra policy
- Dividend payment chronology- declaration date, holder of record date, ex- dividend date and payment date
Fundamentals of Islamic finance
- Principles and trends in Islamic banking
- Differences between Islamic and conventional banking
- The concept of interest (riba) and how returns are made by Islamic financial securities
- Sources of finance in Islamic financing