JIMMA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE
COURSE OUTLINE
PROGRAMME: Master of Business Administration (MBA)
COURSE TITLE: Financial Management
COURSE CODE: MBA 622
CREDIT HOURS: 2
ACADEMIC YEAR: 2020/2021
SEMESTER: II
INSTRUCTOR: Abiy G.

Course Description
This course is a comprehensive study of the financial tools and the skills needed by managers responsible
for managing corporate financial holdings. The emphasis of the course is on developing analytical skills and
sound financial institutions. Fundamental principles are applied on topics such as financial performance
analysis, time value concepts, valuation of investment projects, risk and return theory, capital structure and
dividend policy issues, etc.

Course Objectives
The primary objective of the course is to expose students to the types of financial issues that they are likely
to encounter as corporate managers, decision makers and investors. This course gives students who already
have a basic understanding of financial theory and the related analytical techniques with experience in the
application of that theory and those techniques to evaluate a firm’s investment and financing decisions.
This experience is obtained through the analysis and discussion of real-life financial situations that have
been faced by corporate managers and investors.

The main emphasis of the course is on the identification of value-creating strategies and investments. At
the end of the course, students are expected to be able to define a firm’s financial problem and the available
courses of actions, and to determine an appropriate course of action. Students should find the skill useful
as they grow as corporate managers and decision-makers.

Course Contents
Chapter One: Introduction to Financial Management and Analysis: 4Hrs
1.1. Definition of Financial Management
1.2. Major Areas of Finance
1.3. Roles of Financial Managers
1.4. Finance and Related Disciplines
1.5. Scope of Financial Management
1.6. Objectives of Financial Management
1.7. Measure of Owners’ Economic Well-Being
1.8. Economic Profit Versus Accounting Profit: Share Price Versus Earnings per Share
1.9. Financial Management and the Maximization of Owners’ Wealth
1.10. The Agency Relationship
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 1.10.1. Problems with the Agency Relationship
1.10.2. Costs of the Agency Relationship
1.10.3. Motivating Managers: Executive Compensation
1.10.4. Shareholder Wealth Maximization and Accounting “Irregularities”
1.10.5. Shareholder Wealth Maximization and Social Responsibility
Chapter Two: Financial Performance Analysis: 3Hrs
2.1. Financial Analysis
2.2. Why Financial Analysis?
2.3. Financial Statements and Process of Financial Analysis
2.4. Users of Financial Analysis
2.5. Considerations in Financial Analysis
2.6. Types and Tools of Financial Analysis
2.6.1. Time Series Analysis
2.6.2. Cross-Sectional Analysis
2.6.3. Industry Analysis
2.6.4. Pro Forma Analysis
2.7. Types of Financial Ratios and Interpretations
2.7.1. Liquidity Ratios
2.7.2. Leverage Ratios
2.7.3. Activity Ratios
2.7.4. Profitability Ratios
2.7.5. Market Value Ratios
2.8. Benefits of Ratio Analysis
2.9. Problems (Limitations) in Ratio Analysis
2.10. Du Pont Analyses
Chapter Three: The Time Value of Money: 2Hrs
3.1. Compound Interest and Future Value
3.2. Compound Interest with Non-Annual Periods
3.3. Present Value
3.4. Annuities–Ordinary and Annuity Due
3.5. Present Value of Complex Stream
3.6. Perpetuities and Infinite Annuities
3.7. Making Interest Rates Comparable
Chapter Four: Risk, Return, and the Portfolio Theory: 5Hrs
4.1. Meaning of Risk
4.2. Measuring Risk
4.3. Risk and Return of a Single Asset
4.4. Risk Profiles of Individuals
4.5. Portfolio Theory and Risk Diversification
4.6. Systematic and Unsystematic Risk
4.7. Capital Asset Pricing Model (CAPM)
4.8. Security Market Line (SML)
4.9. Implications and Relevance of CAPM
4.10. The Arbitrage Pricing Model (APM)
4.11. Modern Portfolio Theory

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Chapter Five: The Concept of Leverage and Leverage Analysis: 4Hrs
5.1. The Concept of Leverage
5.2. Types of Leverage
5.3. Operating Leverage
5.3.1. Effect of Operating Leverage
5.3.2. Break-even Analysis
5.3.3. Degree of Operating Leverage
5.4. Financial Leverage
5.4.1. EBIT-EPS Break-even (Indifference) Analysis
5.4.2. Effect of Financial Leverage on Risk
5.4.3. Degree of Financial Leverage
5.5. Total (Combined) Leverage
5.6. Effects of Leverages
Chapter Six: Capital Structure and the Cost of Capital: 4Hrs
6.1. Capital Structure Defined
6.2. Capital Structure Question
6.3. The Effect of Financial Leverage
6.4. Capital Structure Theories
6.4.1. Modigliani and Miller (M&M) Propositions
6.4.2. M&M Assumptions
6.4.3. M&M Propositions without Taxes
6.4.4. Capital Structure and Taxes
6.4.5. Capital Structure and Financial Distress
6.5. The Optimal Capital Structure
6.6. Managerial Recommendations
6.7. The Pecking-Order Theory
6.8. Determinants of Capital Structure
6.9. Cost of Capital
6.9.1. Meaning
6.9.2. Theories
6.9.3. Basic Assumptions
6.10. The Concept of Cost of Capital
6.11. Specific/Component Cost of Capital
6.12. The Overall Cost of Capital (Weighted Average Cost of Capital)
Mode of Delivery
 Lecture
 Project Work (Group Assignment)
Course Requirements
 Case Analysis and class room presentation (25% of the total marks).
 Group Assignment: Students will be given assignment on selected topics and are required to
conduct classroom presentations (25% of the total marks).
 Final Examination (50% of the total marks).
References
1. Richard A. Brealey and Stewart C. Myers, (2003), Principles of Corporate Finance, McGraw – Hill
Companies, Seventh Edition.
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2. Euregene F. Brighman, (2003), Fundamentals of Financial Management, Harcourt Brace College
Publishers. Eighth Edition.
3. I M Pandey, (1999), Financial Management. Vikas Publishing House PVT LTD, Eighth Edition.
4. Stephen A. Ross, Randolph W. Westfield, and Bradford D. Jordan, (2000), Fundamentals of Corporate
Finance, McGraw–Hill Higher Education. Fifth Edition.
5. Lawrence J. Gitman, (xxxx), Principles of Managerial Finance. Eighth Edition.
6. Lawrence J. Gitman, (2009), Principles of Managerial Finance, Pearson Prentice Hall. Twelfth Edition.
7. Euregene F. Brighman and Joel F. Houston (2006), Fundamentals of Financial Management, Harcourt
Brace College Publishers. Tenth Edition.
8. Robert C. Higgins, (1998), Analysis for Financial Management. Irwin McGraw – Hill Companies. Fifth
Edition.
9. Tom Copeland, Tim Koller, and Jack Murrin, (2000), Valuation: Measuring and Managing the Value of
Companies. Third Edition, New York McKinsey and Company.
10. Yaregal Abegaz, (2007), Fundamentals of Financial Management. Published by Accounting Society of
Ethiopia. First Edition.

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