Finance for Decision Making new syllabus Notes kasneb CS

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CONTENT
1. Overview of financial management

– Nature and scope of finance
– Finance functions – Managerial, Routine and other emerging functions
– Goals of a firm; financial and non-financial objectives, overlaps and conflicts among the objectives
– Agency theory, stakeholder’s theory and corporate governance
– Ethical issues in financial management

2. Introduction to financing decision

– Nature and objectives of the financing decision
– Factors to consider when making financing decisions
– Sources of finances for organisations; internally generated funds and the externally generated funds, long term sources, medium term and short term sources of finance
– Sources of finance for small and medium sized enterprises (SMEs)
– Methods of issuing ordinary shares

3. Financial Statement Analysis and Forecasting

– Definition of financial statements analysis
– The roles of financial reporting and financial statements analysis
– Users of financial statements and their information needs
– Importance of financial statement analysis
– Cost of disclosing financial information; direct costs, indirect costs
– Analysing financial statements
• Income statement: Components and format of the income statement
• Statement of financial position; components and format of statement of financial position
• Statement of changes in equity; components of equity, equity valuation ratios
• Cash flow statements; component and format of the cash flow statement
– Ratio analysis; Meaning and uses of financial ratios – Calculation and interpretation of profitability ratios, Liquidity ratios, efficiency ratios, capital structure ratios, coverage ratios and equity ratios, and limitation of financial ratios
– Common size statements – Vertical and horizontal analysis
– Red flags and accounting warning signs that may indicate financial statements are of poor quality

4. Budgeting and budgetary control

– Nature and purposes of budgets
– Limitations of budgeting
– Preparation of budgets; master budgets, functional budgets, department budgets, cash budgets.
– Purpose of budgetary control; operation of a budgetary control system, organisation and coordination of the budgeting function
– Distinction between budgeting and budgetary control in the private and public sectors
– Cost-Volume-Profit (CVP) Analysis

5. Time value of money

– Concept of time value of money
– Time value of money versus time preference of money
– Relevance of the concept of time value of money
– Compounding technique
– Discounting techniques
– The loan amortisation schedule

6. Basic valuation models

– Concept of value
– Relevance of valuation of securities/firms
– Valuation of debentures, preference shares and ordinary shares

7. Introduction to capital structure decisions.

– Firms capital structure and factors influencing capital structure decisions
– The meaning and relevance of cost of capital
– Factors influencing firms cost of capital
– Component costs of capital
– The firm’s overall cost of capital – Weighted average cost of capital (WACC) and
– Weighted marginal cost of capital (WMCC)

8. Introduction to capital budgeting under certainty

– The nature and importance of capital investment decisions
– Capital investment’s cash flows – initial cash outlay, terminal cash flows and annual net operating cash flows, incremental approach to cash flow estimation
– Capital investment appraisal techniques; Features of an ideal capital budgeting technique, Non-discounted cash flow methods – payback period and accounting rate of return and discounted cash flow methods – net-present value, internal rate of return, profitability index and discounted payback period, Strengths and weaknesses of the investment appraisal techniques
– Incorporating capital rationing in capital budgeting – The meaning and types of capital rationing
– Challenges encountered when making capital investment decisions in reality

9. Working capital management.

– Introduction and concepts of working capital
– Working capital versus working capital management
– Factors influencing working capital requirements of a firm
– Importance and objectives of working capital management
– Working capital financing policies

10 Dividend decision.

– Forms of dividend payments
– When to pay dividends – Interim and final dividend
– Factors influencing dividend payments
– The firm’s dividend policy – The residual policy, stable predictable policy, constant payout ratio policy and regular plus extra policy
– Why pay dividends/Dividend theories – Dividend relevance theories; Bird in hand theory, Clientele effect theory, Information signaling theory, Walter’s theory, Tax differential theory, Modigliani and Miller’s dividend irrelevance theory
– Impact of a dividend decision on share price

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