Why Study FM if I do not plan to Major in Finance?

• The numbers or finances speak better story about

market.

Marketing • Understanding financial indicators and economic

trends can provide valuable insights into consumer
Planning behavior.

• Learning this can make marketing students more

Market and Credit Risk Management flexible for jobs, especially in finance or banking.

• To understand the CFO's logic to cut down on

Marketing funds and convince him to shell out
more money using financial jargons.
 • HR helps businesses to add human angle to it
looking just beyond ROI.
HR
• To decide when to fire and hire people.
Workforce Planning
• Communication with Finance Teams

• When a company merges with another,

Negotiations
understanding money markets can help HR manage
the staff better. So, while it's not a must for HR, it can
be a useful extra skill for some HR jobs.
 • FM expertise is required to guarantee that activities
are in line with financial goals.

• Communication with Finance Teams

Operations • No PMS or anyone can make a fool out of you by

throwing around jargons.
Resource Optimization
• Comprehend financial markets' dynamics, like
interest rates, exchange rates, and investment
Negotiations
instruments that directly impact operational
Costs and Risk Management decisions.

• While not a primary requirement….. valuable for

managing international operations.
All of the Corporate Decision have Financial Implications

and

Any Decision that Impacts the Finances of the Corporate is Corporate

Finance.
 Course Learning Objectives?
CLO 1: Understand the role of Financial Institutions and Markets

Yatra IPO price set at ₹135-142 apiece, steep discount to pre-issue share deal

– Mint Sep 12, 2023

• Financial markets refer broadly to any marketplace where the issuance and trading (buying and

selling) of Financial Instruments occurs.

• Central to facilitating transfer of funds from Investors (surplus economy) to Borrowers (deficit

economy)

• Creates liquidity for Businesses and Entrepreneurs

• Information transparency enables efficient and appropriate pricing of the financial instrument.
 Course Learning Objectives?

CLO 2: Apply the concept of Time Value of Money

Axis Bank revises FD interest rates; earn up to 7.1% fixed deposit interest rate– ET Aug 28, 2023

Why does bank pay interest on fixed deposits?

Will Axis Bank pay interest @7.1% p.a. for any tenure of deposit?

Assuming the rate pertains to a maturity of one year, how much money would an FD investor get by

depositing ₹10,000 for a period of one year?

10000*(1.071)=10,710
 Course Learning Objectives?
CLO 3: Estimate the value of bonds and stocks

CLO 4: Analyze the risk -return trade off associated with financial markets

Power Grid Corporation of India Ltd. 7.34% issues Unsecured redeemable non-convertible bonds
with following details: (indiabonds.com)
1. Issue Size - ₹ 1,800 Cr 2. Coupon Rate – 7.34%
3. Maturity – 10 years and 10 months 4. Face Value - ₹ 10,000
5. AAA Care rating

Should one be investing in Power Grid Bond bond and why?

Should one be investing in Yatra IPO and why?

 Course Learning Objectives?

CLO 5: Determine the relevant cash flows associated with investment decisions

CLO 6: Evaluate capital investment projects using appropriate technique

Bharti Realty plans to invest over Rs 6,595 crore in Global Business Hub - ET Aug, 2023

Bharti Real Estate plans to invest more than Rs 6,595 crore ($794 million) for the establishment of a
global business hub near the Delhi airport, said SK Sayal, the company's CEO in an interview with ET.

How does Bharti Reality decide how much to invest?

Will it all be upfront or in a phased manner?

If in a phased manner, over what time period, and what would be the amounts for the respective periods?
 Introduction to Corporate Finance

Financial Snapshot of a Firm Non-Current Assets Creation:

Investment Decisions or Capital
Total Value of Firm
Total Value of Assets Budgeting Decisions
to Investors
Financing Options:
Current Liabilities Capital Structure Decisions or
Current Assets
Defining a Mix of Equity and Long
Long Term
Borrowings Term Debt
Dividend Decisions
Non-Current or Fixed Working Capital Management:
Assets Shareholders’ Equity
Liquidity management
Corporate Goals

Survive
Beat the Competition
Avoid Bankruptcy
Maximise Sales or Market
Maintain Steady Earnings
Share
Growth
Minimize Cost

Maximize Profit

Controlling Risk
Profit Related

Maximise Shareholders’ Value / Wealth!

 Profit Maximisation vs Wealth Maximisation

Profit Value Created

Which year’s profit and how it is derived? Current vs Future?
Covering opportunity cost of capital? Technique ambiguous?
Ambiguous: Risk and return?
Long Term or Short Term
Pre tax or Post tax Does nature of risk align with shareholders’
Returns on Total Capital Employed or Total Assets objectives?
or Shareholders’ equity..
Timing of Benefits: Entails both – Time and Risk
Pattern of timing of the benefits
Profits over the life of the assts
Quality of Benefits: Discounted expected cash flows
Degree of certainty with which the befits can be
expected
Goal Characteristics

Unknown???

• Specific

• Measurable

• Challenging yet Attainable

• Relevant

• Time bound

SMART

Don’t Just Measure the Past!!!

 Economic Value Added

“There is no profit unless you earn the cost of capital.”

– Alfred Marshall

Components of Income Statement

Profit

Cost of Cost of sales & Interest on

Revenues - production
- administration
- borrowings
- Taxes = or
Loss

Provision only for cost of debt funds!

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 Economic Value Added
Cost of shareholders’ funds?
Value created
(Residual Income / EVA*)
Accounting Opportunity cost of
Profit shareholders’ funds
= or
Value destroyed Pseudo
Case of Pseudo Profitability Profitability

Shareholders’ Funds Rs. 100 Cr.

Opportunity Cost of Equity Funds 15%
Scenario I Scenario II
EAT Rs. 10 Cr. Rs. 25 Cr.
Cost of S/H Funds Rs. 15 Cr. Rs. 15 Cr.
EVA (Rs. 5 Cr.) Rs. 10 Cr

*Economic Value Added (EVA) / Residual Income: A measure of true profitability!

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