CSS Business Administration 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 CSS Business Administration, not a summary of it.

1. 1

   Introduction to Financial Management

   4 topics

   • Goals and Functions of Finance
   • Real vs Financial Assets
   • Forms of Business Organization
   • Agency Problem and Corporate Governance
2. 2

   Financial Markets and Instruments

   3 topics

   • Types of Financial Markets
   • Role of Financial Intermediaries
   • Financial Instruments and Securities
3. 3

   Time Value of Money

   4 topics

   • Present and Future Value
   • Annuities and Perpetuities
   • Loan Amortization
   • Compounding Frequency
4. 4

   Financial Statement Analysis

   3 topics

   • Understanding Financial Statements
   • Ratio Analysis
   • Common-Size and Trend Analysis
5. 5

   Risk, Return and Valuation

   4 topics

   • Measuring Risk and Return
   • Portfolio Theory and Diversification
   • Capital Asset Pricing Model
   • Valuation of Bonds and Stocks
6. 6

   Capital Budgeting and Structure

   4 topics

   • Investment Appraisal Techniques
   • Cost of Capital
   • Capital Structure and Financing Decisions
   • Working Capital Management

Financial Management flashcards for CSS Business Administration

18 of 58 cards from the Financial Management deck — real questions with worked answers.

1. What is the primary goal of financial management of a firm?

   To maximize the wealth of shareholders, i.e., maximize the market value (price) of the firm's existing common stock, rather than merely maximizing accounting profit.

2. Why is shareholder wealth maximization preferred over profit maximization as a financial goal?

   Profit maximization ignores the timing of returns, the time value of money, and risk. Wealth maximization accounts for all three by focusing on the present value of future cash flows reflected in share price.

3. What are the three key functions/decisions of financial management?

   The investment (capital budgeting) decision, the financing (capital structure) decision, and the dividend (asset/liquidity management) decision.

4. What does the capital budgeting (investment) decision involve?

   Determining which long-term assets and projects the firm should acquire or invest in, i.e., the allocation of capital to investment proposals whose benefits accrue in the future.

5. What does the financing decision in financial management determine?

   The best mix of debt and equity (capital structure) used to finance the firm's assets and the sources from which funds are raised.

6. Distinguish a real asset from a financial asset.

   A real asset is a tangible or productive asset used to generate income (e.g., land, buildings, machinery, inventory). A financial asset is a claim on the income generated by real assets (e.g., stocks, bonds, loans).

7. Give three examples each of real assets and financial assets.

   Real assets: land, plant and machinery, buildings. Financial assets: shares (stocks), bonds, bank deposits/loans.

8. Why must the value of all financial assets equal the value of real assets in an economy?

   Financial assets are merely claims on the income produced by real assets; for every financial asset (claim) held by one party there is a corresponding liability for another, so they net out, leaving real assets as the economy's true net wealth.

9. What are the three basic forms of business organization?

   Sole proprietorship, partnership, and corporation (company).

10. What is a sole proprietorship and its key liability feature?

    A business owned and run by one individual; the owner has unlimited personal liability for all business debts, and the business is not a separate legal entity from the owner.

11. What is the main disadvantage of a partnership regarding liability?

    In a general partnership, partners have unlimited and joint liability, meaning each partner can be held personally responsible for all the debts of the partnership.

12. What is a corporation and what defines it legally?

    A corporation is a legal entity separate from its owners (shareholders), created under law, with the ability to own property, sue and be sued, and continue indefinitely, while owners enjoy limited liability.

13. List three key advantages of the corporate form of business.

    Limited liability of shareholders, easy transferability of ownership (shares), and unlimited life/continuity of existence (plus easier access to capital).

14. What is the main disadvantage of the corporate form regarding taxation?

    Double taxation: corporate income is taxed at the company level, and dividends distributed to shareholders are taxed again as personal income.

15. What is the agency relationship in corporate finance?

    The relationship arising when shareholders (principals) hire managers (agents) to run the firm on their behalf, delegating decision-making authority to the managers.

16. What is the agency problem?

    The conflict of interest that arises when managers (agents) pursue their own goals (e.g., job security, perks, empire building) rather than maximizing the wealth of shareholders (principals).

17. What are agency costs?

    The costs incurred to monitor and align managers' actions with shareholders' interests, including monitoring costs, bonding costs, and the residual loss from remaining divergence of interests.

18. Name three mechanisms used to reduce the agency problem.

    Managerial compensation tied to performance (stock options/bonuses), monitoring by the board of directors, and the threat of takeover or dismissal (market for corporate control).

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