CA Intermediate PAPER 6: FINANCIAL MANAGEMENT AND STRATEGIC MANAGEMENT Syllabus

PAPER 6: FINANCIAL MANAGEMENT AND STRATEGIC MANAGEMENT syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for PAPER 6: FINANCIAL MANAGEMENT AND STRATEGIC MANAGEMENT in CA Intermediate, not a summary of it.

1. 1

   FINANCIAL MANAGEMENT

   5 topics

   • Financial Management and Financial Analysis
     • Introduction to Financial Management Function
     • Objective and scope of financial management
     • Profit Maximisation, Wealth Maximisation and Value Creation
     • Role of Financial Manager and Financial Controller
     • Financial management environment
     • Functions of finance executives in an organization
     • Financial distress and insolvency
   • Financial Analysis through Ratios
     • Users of the financial analysis
     • Sources of financial data for analysis
     • Calculation and Interpretation of ratios
     • Limitations of ratio analysis
   • Financing Decisions and Cost of Capital
     • Sources of Finance
     • Cost of Capital
     • Capital Structure Decisions
     • Leverages
   • Capital Investment and Dividend Decisions
     • Capital Investment Decisions
     • Methods of Investment appraisal
     • Dividend Decisions
   • Management of Working Capital
     • The management of working capital- Liquidity and Profitability
     • The Working capital financing decisions-Primary and Secondary Sources of Liquidity
     • The Working Capital Cycle (Operating Cycle), Effectiveness of Working Capital based on its operating and cash conversion cycles
     • Assessment of working capital requirement
     • Management of Accounts Receivables (Debtors)
     • Factoring and Forfaiting
     • Credit Management
     • Management of Accounts Payables (Creditors)
     • Management of Cash, Treasury management
     • Banking norms of working capital finance
2. 2

   STRATEGIC MANAGEMENT

   5 topics

   • Introduction to Strategic Management
     • Meaning and Nature of Strategic Management
     • Importance and Limitations of Strategic Management
     • Strategic Intent - Vision, Mission, Goals and Values
     • Strategic Levels in Organizations (Network, Corporate, Business and Functional)
   • Strategic Analysis: External Environment
     • International and Macro Environment: PESTLE Analysis
     • Defining the industry for analysis (Value Chain, PLC)
     • Porters Five Forces - Industry environment analysis
     • Understanding customers and markets
     • Competition in the industry
   • Strategic Analysis: Internal Environment
     • Understanding key stakeholders (Mendelow’s Model)
     • Strategic drivers (Industry & markets, Customers, Channels, Product & Services, Competitive Advantage)
     • The role of resources and capabilities
     • Combining external and internal analysis (SWOT Analysis)
     • Gaining competitive advantage (Michael Porter’s Generic Strategies)
   • Strategic Choices
     • Strategic Choices: Concentric, Conglomerate, Market Development, Product Development, Innovation, Horizontal integration, vertical integration, Turnaround, Divesture, Liquidation
     • How to Develop Strategic Options: Ansoff’s Matrix, ADL Matrix, BCG Matrix, GE Matrix
   • Strategy Implementation and Evaluation
     • Implementation: Formulation vs. Implementation Matrix, Linkages and Issues
     • Strategic Change through Digital Transformation
     • Organisation Structure (hard) and Culture (soft)
     • Strategic Leadership
     • Strategic Control
     • Strategic Performance Measures

PAPER 6: FINANCIAL MANAGEMENT AND STRATEGIC MANAGEMENT flashcards for CA Intermediate

21 of 51 cards from the PAPER 6: FINANCIAL MANAGEMENT AND STRATEGIC MANAGEMENT deck — real questions with worked answers.

1. What are the three core objectives of Financial Management?

   Investment decision (where to invest), Financing decision (how to raise funds), and Dividend decision (how much profit to distribute vs. retain).

2. Distinguish between the 'profit maximization' and 'wealth maximization' objectives of financial management.

   Profit maximization focuses on maximizing accounting profit (ignores time value of money and risk). Wealth maximization maximizes the net present value / shareholders' wealth (market value of shares), accounting for time value of money and risk; it is the preferred objective.

3. What is the formula for the Future Value of a single sum under compound interest?

   FV = PV x (1 + r)^n, where r = interest rate per period and n = number of periods.

4. How is the Present Value of a single future amount calculated?

   PV = FV / (1 + r)^n = FV x [1 / (1 + r)^n], where the bracketed term is the PV factor.

5. What does the Current Ratio measure and what is its general ideal benchmark?

   Current Ratio = Current Assets / Current Liabilities; it measures short-term liquidity. The conventionally ideal level is 2:1.

6. What is the Quick (Acid-Test) Ratio and its ideal level?

   Quick Ratio = (Current Assets - Inventory - Prepaid Expenses) / Current Liabilities. It tests immediate liquidity; the ideal level is 1:1.

7. Define the Debt-Equity Ratio and state its commonly accepted standard.

   Debt-Equity Ratio = Long-term Debt / Shareholders' Equity. It measures financial leverage / solvency; the conventional norm is 2:1.

8. What is the Inventory Turnover Ratio and how is the average holding period derived from it?

   Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory. Inventory holding period = 365 (or 12 months) / Inventory Turnover Ratio.

9. State the formula for Return on Equity (ROE) / Return on Net Worth.

   ROE = (Net Profit after Tax and Preference Dividend / Shareholders' Equity) x 100.

10. State the three components of the DuPont analysis of Return on Equity.

    ROE = Net Profit Margin x Total Asset Turnover x Equity Multiplier = (PAT/Sales) x (Sales/Total Assets) x (Total Assets/Equity).

11. What is the Interest Coverage Ratio and what does it indicate?

    Interest Coverage Ratio = EBIT / Interest. It indicates how many times earnings cover interest obligations; a higher ratio means greater ability to meet interest payments.

12. Define Cost of Capital.

    Cost of Capital is the minimum rate of return a firm must earn on its investments to maintain the market value of its shares; it is the weighted-average required return of all sources of finance (the hurdle rate).

13. How is the Cost of Debt (Kd) after tax calculated for irredeemable debt?

    Kd (after tax) = [I (1 - t)] / Net Proceeds, where I = annual interest, t = tax rate. The (1 - t) factor reflects the tax-deductibility of interest.

14. State the formula for Cost of Equity using the Dividend Growth (Gordon) Model.

    Ke = (D1 / P0) + g, where D1 = expected dividend next year, P0 = current market price, g = constant growth rate of dividends.

15. State the Cost of Equity formula under the Capital Asset Pricing Model (CAPM).

    Ke = Rf + Beta x (Rm - Rf), where Rf = risk-free rate, Rm = market return, and (Rm - Rf) = market risk premium.

16. What is the Weighted Average Cost of Capital (WACC) and its formula?

    WACC is the average cost of all capital sources weighted by their proportions: WACC = (We x Ke) + (Wd x Kd) + (Wp x Kp), using market or book value weights.

17. Define Operating Leverage and give its formula.

    Operating leverage measures the effect of fixed operating costs on EBIT. Degree of Operating Leverage (DOL) = Contribution / EBIT = % change in EBIT / % change in Sales.

18. Define Financial Leverage and give its formula.

    Financial leverage measures the effect of fixed financial costs (interest) on EPS. Degree of Financial Leverage (DFL) = EBIT / (EBIT - Interest - Preference dividend before tax) = % change in EPS / % change in EBIT.

19. What is Combined Leverage and how is it computed?

    Combined Leverage = DOL x DFL = Contribution / (EBIT - Interest). DCL = % change in EPS / % change in Sales; it measures total risk.

20. What is the Net Present Value (NPV) method and its decision rule?

    NPV = Present value of cash inflows - Present value of cash outflows. Decision rule: accept if NPV > 0 (positive); among alternatives, choose the highest NPV.

21. Define the Internal Rate of Return (IRR) and its acceptance rule.

    IRR is the discount rate at which NPV = 0 (PV of inflows = PV of outflows). Accept the project if IRR > the cost of capital / cutoff rate.

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