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Financial Management

Course developer

Prior knowledge

Ekon5159, Finance and Accounting

Replaced course

Ekon5108 [GEKO5108] Financial Management

Course abstract

The purpose of the study course is to provide students with theoretical and practical knowledge of international financial management methods, the decision-making process in the field of financial management. In the study course, students learn how to purposefully and continuously, using the principles and methods of financial management, it is possible to increase the value of the company, increase the efficiency of operation, ensure stability and profitability, as well as avoid financial losses, irrational costs.

Learning outcomes and their assessment

Knowledge
1. Comprehensive knowledge of the theoretical guidelines of the science of financial management, to understand their development trends in today's international business environment. (practical group work, discussion).
2. Knowledge of the basic principles and methods of sustainable financial management of companies, characterized by methods of financial analysis, planning and forecasting. (practical group work, discussion).
3. Knowledge of the decision-making process in the field of financial management and the impact of these decisions on company financing, asset management, investments, value creation and profitability. (test 1).
Skills
1. Able to argue about theoretical knowledge and use acquired skills in practical activities to analyze, identify and solve practical financial management problems, as well as to make competent financial management decisions appropriate to the situation. (practical group work, discussion).
2. Able to evaluate the financial environment of the business, apply financial analysis methods to evaluate the company's operation and development, choose appropriate sources of company financing, plan long-term investments and optimize the capital structure and profit. (1st permanent work, individual work presentation).
Competences
1. Able to independently select and analyze information on financial management issues at the company, industry and international level. (practical group work, discussion).
2. Based on the acquired theoretical and practical knowledge, performs financial analysis, planning and management functions in the company, formulates financial management problems and offers reasonable solutions, integrates financial management issues into the overall company strategy. (2nd test).
3. Able to independently formulate and critically analyze acquired theoretical knowledge and practical skills in order to use knowledge based on international and local experience and to form their own attitude towards financial management, financial analysis, financial planning and control, management of working capital and own and borrowed capital. (2nd permanent work - Report, individual work presentation).

Course Content(Calendar)

1. The place of financial management in company management. The role of financial management in achieving the company's strategic goals. The concept of financial management. The essence of financial management. The purpose and tasks of financial management. Expansion of profitable activities. Increasing the profitability of economic activity. Effective use of company resources. Creating an optimal capital structure. Structure of financial strategy development. The role of financial management in achieving the company's long-term and short-term goals. Financial management tasks in managing the company's operational activities and achieving short-term goals. (lecture – 4 hours, practical work – 4 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 the 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. The effect of revenue and cost management. Liquidity indicators: total liquidity indicator, current liquidity indicator, absolute liquidity indicator. Essential in the assessment of liquidity indicators. Working capital cycle. Working capital cycle scenarios. Increasing the efficiency of economic activity. Efficiency indicators: asset turnover ratio, fixed assets turnover ratio, current assets turnover ratio. Factors influencing asset turnover. Solvency indicators. Formation of the structure of assets and liabilities of companies. Net working capital. Factors Affecting Net Working Capital. Economic profit. Comparison of accounting and economic profit. Opportunity cost. Economic Value Added (EVA). Interrelationships of indicators. Bankruptcy test. (lecture – 2 hours, practical work – 2 hours).
3. Current assets and their management. Working capital policy. Working capital management strategy. Effective use of working capital. Analysis of the circulation of current assets. Stock adequacy indicator. Optimum inventory order sizing. Indicators of debtor policy, strategy and debt management effectiveness. Cash management. Liquidity and solvency management. Effective use of working capital. Balance of risk and return. (lecture – 6 hours, practical work – 6 hours).
4. 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).
5. Management of business financing sources. Long-term financing. Short-term financing. Choice of long-term and short-term financing. Long-term financing is used to finance long-term investments. Short-term financing using working capital financing. The required amount of financing according to the company's operational plans. Techniques for determining the necessary funding. Budgeting. Cash flow budgets: sales and other revenue budgets, cost budgets, inventory purchase budgets, investment budgets, financial payment budgets. Working capital financing (extrapolation). Determination of the company's working capital and turnover ratio by extrapolating data for the future period. Working capital financing (working capital cycle calculation). Balanced turnover. Calculating the cost of capital in business. Factors affecting the price of bank loans: tax rate, interest rate, company performance. The cost of capital formed by retained earnings. Financial asset return assessment model (CAMP). Discounted Cash Flow Model (DCF). (lecture – 2 hours, practical work – 2 hours).

Requirements for awarding credit points

Exam - average rating in points, which consists of successfully completed 2 control tasks, developed and presented group and individual 3 practical tasks, developed and defended Report.

Description of the organization and tasks of students’ independent work

Studying lecture materials, gaining an understanding of financial management issues. The student participates in practical works, discussions.
Prepares for 2 tests and passes them successfully.
1st permanent work – "Interpretation of financial ratios and applicable indicators and justification for making the right decisions."
2nd permanent work - "Evaluation of the financial position of companies in a specific industry". Prepare in writing in accordance with the tasks and presentation rules of the independent work. Submit to E: studies. Prepare a presentation and (Microsoft PowerPoint Presentation), present and answer questions.

Criteria for Evaluating Learning Outcomes

The grade of the study course exam is determined by the cumulative assessment - 100%, where 10% corresponds to one point on the 10-point study results evaluation scale.
The evaluation of the study course consists of:
1st test – 15%
2nd test – 15%
1 permanent job - 10%
2 permanent work – 20%
Exam - 40%.

Compulsory reading

1) Eun Cheol S. International Financial Management ISE 10th edition. McGraw-Hill, Education,2023,p.624.
2) Fridson M., Alvarez F. Financial Statement Analysis: A Practitionerʻs Guide. Fifth Edition. Hoboken, New Jersey: John Wiley & Sons Inc., 2022, p. 428.
3) Rodriguez E. Risk Analytics: Data-Driven Decisions under Uncertainty, The University of Ottawa, Ontario, Canada, 2023, p. 469.
4) Pasquale De Luca. Corporate Finance: Fundamentals of Value and Price 1st ed. Springer Nature Switzerland AG, 2023, p.638.

Further reading

1) Bragg S. The Interpretation of Financial Statements. Third Edition. Centennial, Colorado: Accounting Tools, 2021, p. 204.
2) Elliott J., Elliott B. Financial Accounting and Reporting. Twentieth Edition. Harlow; UK: Pearson Education Limited, 2022, p. 801.
3) Mucenieks K. Veiksmīga uzņēmumu apvienošana un iegādes integrācijas noslēpums. Monogrāfija. Rīga: Turība, 2022, 207 lpp.
4) Robinson T., et al International Financial Statement Analysis (CFA Institute Investment Series), 4th Edition. Hoboken, New Jersey: John Wiley & Sons Inc., 2020, p. 978.

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.

Notes

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