Course code Ekon6013

Credit points 3

Financial Management

Total Hours in Course81

Number of hours for lectures12

Number of hours for seminars and practical classes12

Independent study hours57

Date of course confirmation19.02.2019

Responsible UnitInstitute of Economics and Finance

Course developer

author Ekonomikas un finanšu institūts

Romēna Šulca

Dr. oec.

Prior knowledge

Ekon5082, Financial Accounting I

Ekon5144, Enterpreneurship Financing

VadZ5046, Business Management

Course abstract

The course deepens the knowledge and broadens the understanding of financial management and the role of financial management in enterprise management. Students acquire practical knowledge how to achieve an increase in the value, operational efficiency and stability and viability of a company, as well as to avoid a financial loss and irrational costs through purposefully and persistently employing financial management principles and methods. The course summarizes and analyses a company's financial situation in order to timely identify and address shortcomings in the company's financial and economic activities, as well as to find ways to improve its financial situation.

Learning outcomes and their assessment

Students will be able to
1. Demonstrate an extended understanding of the theoretical aspects of financial management, a structured knowledge of the role of financial management in enterprise management and financial management principles and methods- Specialised literature studies, a test.
2. Demonstrate a structured knowledge of how to apply financial management methods in enterprise management - Independent work – theses on how to solve particular problems, a test .
3. Independently use relevant theory and methods and reasonably substantiate the results – Test.
4. Independently develop their own competences, analyse and assess opportunities to achieve an increase in the value, operational efficiency and stability and profitability of a company as well as to avoid a financial loss and irrational costs - Independent work – a report and a presentation on key theses.
5. Responsibly plan the completion of the assignments given - Independent work.
6. Select information and present the calculations performed and proposals made as well as communicate - Independent work and group work.

7. Independently formulate and critically analyse the acquired theoretical knowledge and apply the built-up practical skills to employ findings based on international and national experience and shape their own attitude to financial management, financial planning and control as well as management of current assets and own and borrowed capital - Tests (multiple choice questions); a project report .

Course Content(Calendar)

1) The place of financial management in the company's management. The concept of financial management. The essence of financial management. Purpose and tasks of financial management. Principles of increasing the value of the company: Expansion of profitable activities. Efficient use of company resources. Increasing the profitability of economic activity. Financial management and company capital. Raising capital: own and borrowed funds. Capital investment: acquisition of assets, operating costs. Receipt of income from economic activity: profit or loss. The value of equity as a result of capital movements. Company capital movement and cash flow: investment flow; flow of economic activity; financial activity flow. Financial management decisions. Investment cash flow decisions. Choosing the most optimal solution to the problem identified in the project. Ensuring efficient use of long-term investments. Awareness and assessment of development risks of different project scenarios. Cash flow decisions. Return on capital and determination of factors influencing the profitability of economic activity. Financial management organization. The four priorities of the company's financial management system: The company's cost management. Increase of the company's turnover. Long - term investment management. The role of financial management in achieving the company's strategic goals. Financial strategy development structure. The role of financial management in achieving the company's long-term and short-term goals. Financial management tasks in achieving the company's operational management and short-term goals. (lecture - 2 hours).
2) Financial analysis and its role in financial management decision making. The essence of financial analysis. Accuracy of financial analysis, purpose, use of selected methods. Economic interpretation of results. Objects of financial analysis. Methods of financial statement analysis. Revenue management. Cost management. Detailed cost analysis: horizontal cost analysis, vertical cost analysis, comparison method. Determining cost - effectiveness. Revenue and cost management effect. Liquidity ratios: total liquidity ratio, current liquidity ratio, absolute liquidity ratio. Important in assessing liquidity ratios. Life cycle of current assets. Working capital cycle scenarios. Increasing the efficiency of economic activity. Efficiency indicators: asset turnover ratio, fixed asset turnover ratio, current assets turnover ratio. Factors affecting the movement of assets. Solvency ratios. Creating the structure of companies' assets and liabilities. Net working capital. Factors affecting net working capital. Economic profit. Comparison of accounting and economic profit. Opportunity costs. Economic added value (EEA). Correlations of indicators. Bankruptcy tests (lecture - 2 hours, practical work - 2 hours).
3) Current assets and their management. Production cycle. Working capital management guidelines. Movement of current assets. Working capital management. Dependence of current assets management on factors. The concept of return on equity. Return on equity ratio. Company's current assets management policy and control. Efficient use of working capital. Current assets policy. Working capital management strategy. Balance of risk and return. Factors hindering the management of current assets. (lecture - 2 hours, practical work - 2 hours).
4) Inventory management. The purpose of inventory management from a financial point of view. Stock turnover analysis. Large stock balances. Insufficient stocks. Inventory management method "just in time". Stock turnover analysis. Stock adequacy ratio. Determining the optimal stock order volume. Calculation of stock storage costs. Calculation of stock delivery costs. Calculation of the optimal stock order volume. Calculation of stock orders. Determination of the amount of the reserve. Application of discounts on the amount of procurement. (lecture - 1 hour, practical work - 2 hours).
5) Receivables and cash management. Receivables. Receivables structure. Receivables management: permissible payment term, post-payment rights, analysis of potential creditors' creditworthiness, debt collection policies, possible discounts for payment before the due date. The specified payment procedure in the company for goods or services. Defined criteria for the analysis of buyers' solvency. Debt collection tasks and responsibilities set by the company. Bonuses provided by the company, discounts for early payment of debts. Receivables analysis and control. Turnover and cash receipts. Impact of receivables on cash flow. Ensuring control of receivables: preparation of forecasted cash flow, planning of necessary financing and control of flows. Debtor policy, strategy and debt management efficiency indicators. Debtor payment discipline analysis. Cash management. Choices: high liquidity of the company or maximum investment in profitable projects. Liquidity and solvency management. Efficient use of free resources. Providing positive cash flow and liquidity. Free cash management. Deposits with the bank. Investments in securities and funds. Decision-making. (lecture - 1 hour, practical work - 2 hours).
6) Capital structure management. The concept of capital structure. The essence of the optimal capital structure. Principles of creating the optimal capital structure. Determining the amount of long-term and short-term financing required. Financial risk assessment and ensuring the company's solvency and liquidity. Determining the optimal capital structure. Financial and business risk assessment. Assessing the leverage effect. Determining the break - even point in relation to the capital structure. (lecture - 2 hours, practical work - 2 hours).

7) Management of business financing sources. Long - term financing. Short - term financing. Choice of long-term and short-term financing. Long-term financing using long-term investment financing. Short-term financing using working capital financing. The required amount of financing in accordance with the company's business plans. Techniques for determining the required funding. Budgeting. Cash flow budgets: sales and other revenue budgets, cost budgets, inventory purchase budgets, investment budgets, financial payment budgets. Working capital financing (extrapolation). Determining the company's working capital and turnover ratio by extrapolating data for a future period. Working capital financing (working capital cycle calculation). Balanced turnover. Capital price calculation in business. Factors influencing the price of bank loans: tax rate, interest rate, company's operating results. Retained earnings capital price. Return on Financial Assets (CAMP) model. Cash flow discount model (DCF). (lecture - 2 hours, practical work - 2 hours).

Requirements for awarding credit points

During the acquisition of the study course it is necessary to successfully write 2 tests (test): Test 1 (20%): Place of financial management in the company's management. Objectives of financial analysis and its role in business. Test 2 (20%): Current assets. Capital management. Independent work - report (20%) "Evaluation of financial analysis of companies in the sector" development, presentation, discussions. Exam (40%)

Description of the organization and tasks of students’ independent work

To master and strengthen the issues of theory, to study literature in preparation for tests and exam. Develop individual work and present it.

Criteria for Evaluating Learning Outcomes

All work must be completed. Each work is evaluated with a mark. 2 tests (20% + 20%). Independent work (20%). Exam (40%). 10% corresponds to one point on the 10-point assessment scale.

Compulsory reading

1) Altman E., Hotchkiss E., Wang W. Corporate Financial Distress, Restructuring, and Bankruptcy. Analyze Leveraged Finance, Distreesed Debt, and Bankrupcy. Fourth Edition. Hoboken, New Jersey: John Wiley & Sons, 2019. 349 p.
2) Alexander D., Jorissen A., et al. International Financial Reporting & Analysis. Hampshire; UK: Cengage Learning EMEA, 2020. 908 p.
3) Amir E., Ghitti M. Financial Analysis of Mergers and Acquisitions: Understanding Financial Statements and Accounting Rules with Case Studies.Switzeland AG: Springer Nature, 2020. 298 p.
4) Bragg S. The Interpretation of Financial Statements. Third Edition. Centennial, Colorado: Accounting Tools, 2021. 204 p.
5) Bragg S. Financial Analysis. Fourth Edition. Centennial, Colorado: Accounting Tools, 2020. 337 p.
6) Berk J., DeMarzo P. Corporate Finance: The Core. 5th Edition.Harlow, England,London: Pearson Educations Limited, 2020. 804 p.
7) Brooks R. (2016) Financial Management. Pearson Education Limited, United Kingdom, 645.p.
8) Elliott J., Elliott B. Financial Accounting and Reporting. Twentieth Edition. Harlow; UK: Pearson Education Limited, 2022. 801 p.
9) Fridson M., Alvarez F. Financial Statement Analysis: A Practitionerʻs Guide. Fifth Edition. Hoboken, New Jersey: John Wiley & Sons Inc., 2022. 428 p.
10) Hillier D., et al. Corporate Finance. Fourth European Edition. London: McGraw-Hill Education, 2021. 864 p.
11) McLaney E, Atrill P. Accounting and Finance an Introduction. Tenth Edition. Harlow; UK: Pearson Education Limited, 2020. 857 p.
12) Madura Jeff, Fox Roland. (2014) International Financial Management. Cengage Learning EMEA, UK,671.p.
13) Mucenieks K. Veiksmīga uzņēmumu apvienošana un iegādes integrācijas noslēpums. Monogrāfija. Rīga: Turība, 2022. 207 p.
14) Robinson T., et al International Financial Statement Analysis ( CFA Institute Investment Series), 4 th Edition. Hoboken, New Jersey: John Wiley & Sons Inc., 2020. 978 p.
15) Saksonova S. Uzņēmuma finanšu vadības praktiskās metodes. Rīga: Merkurijs LAT, 2006, 225.lpp.
16) Šneidere R. Finanšu analīzes metodes uzņēmuma maksātnespējas prognozēšanai. Rīga: Lietišķās informācijas dienests, 2009,232.lpp.

17) Welc J. Evaluating Corporate Financial Performance: Tools and Applications. Switzerland AG: Springer Nature, 2022. 324 p.

Further reading

1) Kudinska M.Kreditēšana, Rīga, Latvijas Komercbanku asociācijas Konsultāciju un mācību centrs, 2008, 126.lpp.
2) Iveta Mietule, Aļona Jackaniča.Uzņēmuma finanšu analīze. Teorija un praktiskā pielietošana.Rēzekne: Rēzeknes Augstskola, 2013,82.lpp.
3) Saksonova S. Finanšu informācijas un pārskatu praktiskā izmantošana uzņēmumu finanšu lēmumu pieņemšanā. Rīga: I.K. Info Tilts,2012, 313.lpp.

Periodicals and other sources

1) Business Week / nedēļas izdevums. Business Week [tiešsaiste]. Bloomberg L.P. Businessweek ISSN 0007-7135. Pieejams: http://www.businessweek.com.
2) Dienas Bizness / nedēļas laikraksts. Rīga. [tiešsaiste], Pieejams: https://www.dienasbizness.lv/
3) European Business / žurnāls. European Business Journal [tiešsaiste]. International Business Verlag GmbH. ISSN 0955-808X. Pieejams: http://www.european-business-journal.com.
4) Financial Times / laikraksts. Financial Times [tiešsaiste]. England based finance newspaper. London: The Financial Times Ltd. ISSN 0307-1766. Pieejams: http://www.ft.com/home/europe.
5) Forbes / žurnāls. Rīga: SK Media, ISSN 1691-6018.
6) Kapitāls / žurnāls lietišķiem cilvēkiem: krāsains biznesa un ekonomikas žurnāls. Rīga: Lietišķās informācijas dienests, ISSN 1407-2505.
7) Latvijas Ekonomists / žurnāls. Rīga: Mamuts.

8) The Economist / nedēļas laikraksts. The Economist. London: Economist Newspaper Ltd. [tiešsaiste]. ISSN 0013-0613. Pieejams: http://www.economist.com.

Notes

Restricted elective study course for ESAF academic master's study program “Economics” for specialization direction “Financial Management and Accounting” for full-time students