FINANCE 1 (FINC 301)

AIM

This course aims to develop knowledge and understanding of ways organisations finance their operations, plan and control cash flows, optimise their use of working capital and allocate resources to long term investment projects.
  • COURSE DESCRIPTION
  • ROLE IN CURRICULUM
  • LEARNING OUTCOMES
  • STUDY PLAN
  • TEACHING METHODS
  • ASSESSMENT AND GRADING
  • TEXTBOOKS AND REFERENCES

COURSE DESCRIPTION

Finance 1 introduces students to different ways of managing finance within an organisation with the aim of enhancing business performance. This includes planning and controlling cash flow in both the short and long term, how to manage capital investment decisions and managing trade credit for an efficient flow of cash.

The course starts by introducing the principles of effective working capital management, and the impact working capital has on an organisation’s cash flow. It then looks at the techniques for forecasting cash to aid an organisation in planning its cash needs.

The next area of the course looks at the different ways of managing cash in the short, medium and long term, including investing funds in capital projects. It finally looks at procedures for effective credit management to maximise flow of cash to the business.

Credits: 5
Lecture Hours: 75

Self-Study Hours:

  • Reading: 60 (256 pages Lecture note, study text)
  • Review: 50 (Quiz & Homework, Past exam)
  • Assignment: 40 (Research, Analysis, Writing)

Total Study Hours: 225

ROLE IN CURRICULUM

Prerequisites

Students must have completed Management Accounting 1 before attempting this course.

LEARNING OUTCOMES

The learning outcomes for this course cover four main areas: knowledge, ability to use the concepts, understand and apply the principle analytical skills and tools used in finance, ability to use the information systems (mainly Microsoft Office). On successful completion of this course, students will be able to:

1  Knowledge

Level of Learning PLO CLO Learning Outcome
Understand PK1 CK1 Explain and apply the principles of working capital management
Understand PK1 CK2 Describe methods and procedures for managing cash balance
Understand PK1 CK3 Explain and apply the principles in making medium to long term financing decisions.
Understand PK1 CK4 Explain and apply the principles in making capital investment decisions

2  Cognitive Skills

Level of Learning PLO CLO Learning Outcome
Evaluate PC2, PC3 CC1 Evaluate general business problem to identify assumptions and decision making constraints.
Apply PC1, PC2 CC2 Solve quantitative problem solving with or without use of spreadsheets
Apply PC3, PC6 CC3 Apply a range of techniques to forecast cash flow

3  Communication, Information Technology, and Numerical Skills

Level of Learning PLO CLO Learning Outcome
Apply PCIT1 CCIT1 Use Excel to conduct basic analysis of data for purposes of forecasting, simulation and scenario analysis and to Use spreadsheets to model business.
Apply PCIT1 CCIT2 Present forecasts, spreadsheets and output thereof in a clear and professional format.

4   Interpersonal Skills and Responsibilities

Level of Learning PLO CLO Learning Outcome
Apply PIP1, PIP2, PIP3 CIP1 Work in a team

STUDY PLAN

The course targets the study plan below. Implementation may vary somewhat depending on the progress and needs of students. For example, some topics may be allocated more or less than 1.5 hours.

No  Lesson Learning Outcomes Teaching and Learning Activities, Assessment
1

Introduction, Working Capital

  1. Define working Capital
  2. Explain why working capital management. ( CK1)
  3. Explain the relationship between cash flow and working capital cycle. ( CK1, CC3)
 Lecture Calculate over-trading and over-capitalization financial indicatorsPractice Reading: Chapter 1
2

Introduction, Working Capital (continued)

  1. Demonstrate the calculation of the working capital cycle. ( CK2)
  2. Outline the possible relationships between inventory levels and sales. ( CK2)
  3. Define and explain over-trading and over-capitalisation. ( CK2) 
 Lecture PracticeReading: Chapter 1
3 Exercises & Review ( CK1, CC1, CCIT1) Practice Quiz
4

Inventory Management and Control 

  1. Discuss the key considerations. ( CK1)
  2. Define and explain work-in-progress. ( CK1)
  3. Define economic order quantity. ( CK1)
 Lecture PracticeReading: Chapter 2
5

Inventory Management and Control (continued)

  1. Apply the EOQ model ( CK1)
Lecture Practice Discuss the effects of just-in-time on inventory controlReading: Chapter 2
6 Exercises & Review ( CK1, CC1, CCIT1) Practice Quiz
7

Management of Accounts Payable, Cash and Cash Flows

  1. Explain the role of accounts payable and receivable in the working capital cycle. ( CK1)
  2. Explain the need to monitor accounts payables ( CK1)
  3. Explain accounts payables control operations and the importance of accounts payables management ( CK1)
 Lecture PracticeReading: Chapter 3, 4
8

Management of Accounts Payable, Cash and Cash Flows (continued)

  1. Describe the various type and form of accounts payables ( CK1)
  2. Describe the various accounts payable payment method and procedures  ( CK1)
  3. Evaluate and demonstrate the issues involved with early payment and settlement discounts  ( CK1)
  4. Identify the risks of taking increased credit and buying under extended credit terms ( CK1)
Lecture Identify the risks of taking increased credit and buying under extended credit terms PracticeReading: Chapter 3, 4
9 Exercises & Review ( CK1, CC1, CCIT1) Practice / Quiz
10

Cash Budgeting and Forecasting

  1. Define cash, cash flow and funds ( CK2, CC3)
  2. Explain the importance of cash flow management and its impact on liquidity and company survival( CK2, CC3)
  3. Outline the various sources and application of finance ( CK2)
  4. Distinguish between the cash flow patterns of different types of organisations( CK2, CC3)
 Lecture PracticeReading: Chapter 5
11

Cash Budgeting and Forecasting (continued)

  1. Explain the importance of cash flow for sustainable growth of such organisations ( CK2, CC3)
  2. Define cash accounting` and `accrual accounting`( CK2)
  3. Reconcile cash flow to profit ( CK2, CC3)
 Lecture Discuss the difference between cash accounting and accruals accounting PracticeReading: Chapter 5
12 Exercises & Review ( CK1, CK2, CC1, CCIT1) Practice Quiz
13

Cash Forecasting Techniques

  1. Explain and illustrate statistical techniques used in forecasting cash flows( CK2, CC3)
  2. Carry out simple sensitivity analysis on a cash budget or forecast.( CK2)
 Lecture PracticeReading: Chapter 6
14

Cash Forecasting Techniques (continued)

  1. Explain cleared funds forecasts  ( CK2)
 Lecture PracticeReading: Chapter 6
15 Exercises & Review Practice Quiz
16

Treasury Function and Managing Surplus Cash

  1. Outline the main treasury functions (CK2)
  2. Discuss the advantages and disadvantages of a centralised treasury function ( CK2)
 Lecture PracticeReading: Chapter 7
17

Treasury Function and Managing Surplus Cash (continued)

  1. Describe cash handling procedure  ( CK2)
  2. Describe the issues to be considered when attempting to hold optimal cash balances. ( CK2)
  3. Outline the statutory and the other regulations relating to the management of cash. ( CK2)
 Lecture Discuss the advantages and disadvantages of centralised cash control PracticeReading: Chapter 7
18

Treasury Function and Managing Surplus Cash (continued)

  1. Outline how the Baumol cash management model works  (CK2)
  2. Discuss the limitations of Baumol cash management model. ( CK2)
  3. Suggest the appropriate liquidity levels for a range of different organisations ( CK2)
 Lecture Practice Reading: Chapter 7
19 Exercises & Review ( CK1, CK2, CC1, CCIT1)   Practice Quiz
20

Overview of Financial Markets (1)

  1. Explain the role  and functions of various types of banks ( CK3)
  2. Identity the major financial intermediaries( CK3)
  3. Outline the general roles and key benefits of financial intermediaries.( CK3)
 Lecture Practice Reading: Chapters 7, 10
21

Overview of Financial Markets (1) (continued)

  1. Outline the relationships between financial institutions.( CK3)
  2. Explain the basic nature of a money market.( CK3)
  3. Describe the way in which a stock market.( CK3)
  4. Discuss ways in which a company may obtain a stock market listing and the advantages and disadvantages of having a stock market listing.( CK3)
 Lecture Outline the key benefits of financial intermediations PracticeReading: Chapter 8
22 Exercises & Review ( CK2, CK3, CC1, CCIT1) Reading: Chapter 8
23

Overview of Financial Markets (2)

  1. Explain the purpose and main features of Bank deposits, Certificate of deposit, Government stocks, Local authority bonds, Bills of exchange.( CK3)
 Lecture PracticeReading: Chapter 9
24

Overview of Financial Markets (2) (continued)

  1. Explain the purpose and main features of Equity, Preference shares, Secured loan note, Unsecured loan stock, Convertible and redeemable debt, Warrants.( CK3)
 Lecture PracticeReading: Chapter 9
25 Exercises & Review ( CK3, CC1, CCIT1) Practice Quiz
26

Money in the Economy

  1. Define what is meant by “money supply” in an economic context.( CK3)
  2. Outline how money supply may be controlled in an economy.( CK3)
  3. Outline the basic relationship between the demand for money and interest rates.( CK3)
 Lecture PracticeReading: Chapter 11
27

Money in the Economy (continued)

  1. Explain briefly and illustrate the interaction between the inflation and interest rates.( CK3)
  2. Discuss the possible consequences of inflation in an economy and its effect on organisations in general.( CK3)
  3. Describe how the application of different monetary policies can affect the economy.( CK3)
 Lecture PracticeReading: Chapter 11
28 Exercises & Review ( CK3, CC1, CCIT1) Practice Quiz
29

Short-term Finance, Long-term Finance, Finance of SMEs 

  1. Discuss situations where it maybe appropriate to raise short-term finance( CK3)
  2. Describe the different forms of bank loans and overdrafts, their terms and conditions.( CK3)
  3. Explain the legal relationship between bank and customer( CK3)
  4. Explain the nature of trade credit and its use as a short-term source of finance.( CK3)
 Lecture Compare and contrast the main feature of hire purchase and leases PracticeReading: Chapters 12, 13, 14
30

Short-term Finance, Long-term Finance, Finance of SMEs (continued) 

  1. Evaluate the risks associated with increasing the amount of short-term finance in organisation.( CK3)
  2. Discuss the relative merits and limitations of short-term finance.( CK3)
  3. Discuss situations where it may be appropriate to raise medium-term finance ( CK3)
  4. Describe the main features of of hire purchase, and lease ( CK3)
 Lecture Discuss situations where it may be appropriate to raise long-term finance PracticeReading: Chapters 12, 13, 14
31 Exercises & Review ( CK3, CC1, CCIT1) Practice / Quiz
32

Short-term Finance, Long-term Finance, Finance of SMEs (continued) 

  1. Describe the key factors that should be considered in deciding the mix of short/medium/long term finance in an organisation. ( CK3)
  2. Calculate relative gearing and earning per share under different financial structure( CK3)
  3. Outline the requirements for finance of SMEs.( CK3)
  4. Describe and discuss the response of government agencies and financial institutions to the SME financing problem.( CK3)
 Lecture Discuss the nature and importance of internally generated funds PracticeReading: Chapters 12, 13, 14
33 Exercises & Review ( CK3, CC1, CCIT1) Practice Quiz
34

Relevant Costs, Capital Expenditure Budgeting, Investment Appraisal

  1. Explain the differences between simple and compound interest.( CK3)
  2. Calculate future values ( CK3)
  3. Discuss the concept of the time value of money and concept of discounting. ( CK3)
  4. Calculate present values, making use of present value tables to establish discount factors.  ( CK3)
 Lecture PracticeReading: Chapters 15, 16, 17
35

Relevant Costs, Capital Expenditure Budgeting, Investment Appraisal (continued) 

  1. Discuss the concept of relevant cash flows for decision-making. ( CK4)
  2. Identity and evaluate relevant cash flows for individual investment decisions ( CK4)
  3. Discuss the importance of capital investment planning and control.( CK4)
  4. Outline the issues to consider and the steps involved in the preparation of capital expenditure budget ( CK4)
 Lecture PracticeReading: Chapters 15, 16, 17
36 Exercises & Review ( CK4, CC1, CCIT1) Practice Quiz
37

Relevant Costs, Capital Expenditure Budgeting, Investment Appraisal (continued) 

  1. Define and distinguish between capital and revenue expenditure. ( CK4)
  2. Compare and contrast investment in non-current assets and investment in working capital. ( CK4)
  3. Describe capital investment procedures.( CK4)
 Lecture PracticeReading: Chapters 15, 16, 17
38

Relevant Costs, Capital Expenditure Budgeting, Investment Appraisal (continued) 

  1. Calculate the payback and discounted payback of a project and assess its usefulness as a method of investment appraisal. ( CK4)
  2. Calculate the accounting rate of return of a project and assess its usefulness as a method of investment appraisal ( CK4)
  3. Explain the concept of net present value and how it can be used for project appraisal.( CK4)
  4. Calculate net present value and interpret the results. ( CK4)
 Lecture PracticeReading: Chapters 15, 16, 17
39

Relevant Costs, Capital Expenditure Budgeting, Investment Appraisal (continued)

  1. Outline the concept of internal rate of return and how it can be used for project appraisal.( CK4)
  2. Calculate internal rate of return and interpret the results.( CK4)
  3. Discuss the relative merits of NPV and IRR, including mutually exclusive projects and multiple yields.( CK4)
  4. Explain the superiority of DCF methods over payback and accounting rate of return.( CK4)
 Lecture PracticeReading: Chapters 15, 16, 17
40 Exercises & Review ( CK4, CC1, CCIT1) Practice Quiz
41

Managing Receivables, Assessing and Granting Credit

  1. Explain the role of accounts receivable in the working capital cycle.( CK5)
  2. Explain the key elements of a basic contract.( CK5)
  3. Briefly outline specific terms and conditions that may be included in the contracts with credit customers.( CK5)
  4. Explain the importance of credit management, including the level of trade credit, the role of the credit control function and the activities of the credit control function.( CK5)
 Lecture Practice Reading: Chapters 18, 19
42

Managing Receivables, Assessing and Granting Credit (continued)

  1. Explain the need to establish a credit policy and outline the steps involved, including setting maximum credit amounts and period and total credit levels.( CK5)
  2. Describe ways in which credit customers could be encouraged ,to pay promptly including effects of offering discounts.( CK5)
  3. Identity the main data protection issues that should be considered when dealing with accounts receivable records.Credit scoring. ( CK5)
 Lecture Explain the key categories that should be considered when assessing the creditworthiness of a customer Practice Reading: Chapters 18, 19
43

Managing Receivables, Assessing and Granting Credit (continued)

  1. Outline the various internal / external  sources of information that may be used in assessing the creditworthiness of a customer. ( CK5)
  2. Identity possible reasons for rejecting an application for credit or extending credit. ( CK5)
 Lecture Define and explain credit scoring Practice Reading: Chapters 18, 19
44 Exercises & Review ( CK5, CC1, CCIT1) Practice Quiz
45

Assessing and Granting Credit, Monitoring and Collecting Debts

  1. Describe how the financial statements of a customer can be used to assess the creditworthiness of a customer.( CK5)
  2. Identity and apply the common benefit-cost ratios that may be used to analyse change of credit policy ( CK5)
 Lecture Evaluate the usefulness and limitations of ratio analysis in assessing credit-worthiness Practice Reading: Chapters 19, 20
46

Assessing and Granting Credit, Monitoring and Collecting Debts (continued)

  1. Describe the main external sources that may be used to monitor accounts receivables ( CK5)
  2. Explain the importance of credit management, including the level of trade credit, the role of the credit control  ( CK5)
 Lecture Monitor accounts receivable (include credit rating agencies, industry sources, financial reports, press coverage, official publications, bank or supplier reference) Practice Reading: Chapters 19, 20
47 Exercises & Review ( CK1, CK2, CK5, CC1, CCIT1) Practice Quiz
48 Exam review 1 (All s) Review practice test questions
49 Exam review 2 (All s) Review practice test questions
50 Exam review 3 (All s) Review practice test questions
 

TEACHING METHODS

This course is primarily lecture and assignment based; assigned readings will support learning and serve as a reference to material covered in class. During class, approximately half of the class will be devoted to lecture with another half of the class for working on case studies and problem sets and reviewing the solutions.

ASSESSMENT AND GRADING

Grades will be determined based on a grading score, calculated using the following assessments and score allocations:

Assessment Weight of each assessment Learning Outcome Assessed
CLO PLO
Participation 10% All CK, CC PCIT1, PIP1
In-class tests 25% All CK, CC1, CCIT1, CIP1 PK1, PC2, PCIT1
Assignments 15% CK1, CK2, CK3, CC1, CCIT1 PC1, PC2, PCIT1, PIP2, PIP3
Midterm exam 20% CK1, CK2, CK3, CK4, CC1, CCIT1 PK1, PC2, PCIT1
Final exam 30% All CK, CC1, CCIT1 PK1, PC2, PCIT1
Total grading score 100%  

During the course, there is one assignment:

Business Plan Assignment

Work Group: Group
Output format: Professional Format, Presentation
Language: English
Assignment:

In groups of 3-5, students are required to prepare a business plan, including the following:

  • Business description
  • Business market and competitors
  • Business strategy
  • Working capital requirement
  • Capital requirement and proceeds
  • Cash budget for the first twelve months
  • Pro-forma income statement and balance sheet for the first 5 years
  • Free cash flow for the first 5 years
  • Business valuation using NPV of free cash flows, IRR, PBP, DPBP, ARR
  • Valuation sensitivity analysis to changes in sales

 

TEXTBOOKS AND REFERENCES

Textbooks

  1. BPP Learning Media, FFM Foundations in Financial Management, 2019.
  2. BPP Learning Media, Practice & Revision Kit Paper FFM Foundations in Financial Management, 2019.

References

  1. Kaplan Publishing, FFM Foundations in Financial Management, 2019.
  2. Kaplan Publishing, Practice & Revision Kit Paper FFM Foundations in Financial Management, 2019.

Education Resources