CMA Intermediate Financial Management Syllabus

Financial Management syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Financial Management in CMA Intermediate, not a summary of it.

1. 1

   Introduction to Financial Management

   2 topics

   • Objectives of Financial Management
   • Financial Planning
2. 2

   Capital Structure and Financing

   2 topics

   • Sources of Finance
   • Cost of Capital
3. 3

   Investment Decisions

   2 topics

   • Capital Budgeting
   • Risk Analysis in Capital Budgeting

Financial Management flashcards for CMA Intermediate

18 of 50 cards from the Financial Management deck — real questions with worked answers.

1. What is the primary objective of Financial Management?

   Wealth maximization (maximizing the net present value / shareholders' wealth), which is preferred over profit maximization because it considers the time value of money, risk, and long-term value.

2. Why is wealth maximization considered superior to profit maximization?

   It accounts for the time value of money, recognizes risk and uncertainty, focuses on long-term cash flows rather than short-term accounting profit, and aligns with maximizing market value per share.

3. What are the three key decisions in Financial Management?

   Investment decision (capital budgeting), financing decision (capital structure), and dividend decision.

4. Distinguish between profit maximization and wealth maximization.

   Profit maximization targets the largest accounting profit, ignores timing and risk, and is short-term. Wealth maximization targets the highest shareholder value, considers time value of money and risk, and is long-term.

5. What is the agency problem in Financial Management?

   A conflict of interest between managers (agents) and shareholders (principals), where managers may pursue personal goals rather than maximizing shareholder wealth, leading to agency costs.

6. What is Financial Planning?

   The process of estimating the capital required and determining its competition; it involves framing financial policies relating to procurement, investment, and administration of funds of an enterprise.

7. What are the main objectives of Financial Planning?

   To determine capital requirements, decide the capital structure, frame financial policies, and ensure that scarce financial resources are used optimally (neither over- nor under-capitalization).

8. What is over-capitalization?

   A situation where a company has more capital than it can profitably employ, resulting in a rate of earnings lower than expected and a low return on investment.

9. What is under-capitalization?

   A situation where a company has insufficient capital to support its scale of operations, or earns disproportionately high profits relative to its capital, often indicated by a high rate of earnings.

10. What is a financial plan supposed to contain?

    Estimation of capital requirements, determination of capital structure (debt-equity mix), and laying down financial policies/procedures for procurement, investment and control of funds.

11. Differentiate between fixed capital and working capital.

    Fixed capital is funds invested in long-term/permanent fixed assets (land, plant, machinery). Working capital is funds invested in current assets to meet day-to-day operating needs (current assets minus current liabilities).

12. Classify sources of finance based on time period.

    Long-term (e.g., shares, debentures, term loans), medium-term (e.g., lease finance, public deposits), and short-term (e.g., trade credit, bank overdraft, commercial paper).

13. Classify sources of finance based on ownership.

    Owners' funds (equity shares, retained earnings) and borrowed funds (debentures, loans, public deposits).

14. What are the main sources of long-term finance?

    Equity shares, preference shares, debentures/bonds, retained earnings, and long-term loans from financial institutions/banks.

15. What are equity shares?

    Ownership shares that carry voting rights and a residual claim on profits (dividends) and assets; equity shareholders bear the highest risk and have no fixed return.

16. What are preference shares?

    Shares carrying a fixed rate of dividend with preference over equity for dividend payment and capital repayment, but normally without voting rights.

17. What are debentures?

    Debt instruments acknowledging a loan to the company, carrying a fixed rate of interest, repayable after a fixed period, with no voting rights and interest payable whether or not profits are earned.

18. What are retained earnings as a source of finance?

    Profits ploughed back/reinvested in the business instead of being distributed as dividends; an internal source of finance with no explicit issue cost (also called self-financing or ploughing back of profits).

See more Financial Management flashcards →

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