[JBIMS][FM] Intro
Thankfully, our prof hasn't changed for this topic from previous semester. Prof Phophale is going to take up this subject for us. He has been one of the best faculties we had in last sem and so we all were quite relieved to see him come back in this sem for us. He has warned us that this subject has more failure rates in comparison to the first sem subject essentially because no longer do we enjoy the consideration of being new to the "finances" subject. He stressed upon practicing problem solving as well as understanding multiple terminologies that cloud the subject. I was surprised to hear this because till date, I used to think that only IT sector is full of Jargons and multiple terminologies but seemingly finance too suffer from same pain.
Books to refer: Financial Management by Khan & Jain
Syllabus Coverage by faculty:
a) Ratio Analysis
b) Fund Flow/Cash Flow
c) Sources of Funds
d) Dividend Policy
e) Capital Budgeting
f) Working Capital Budgeting
g) Cost of Capital
h) Capital Structuring
He explained the mapping of horizontal versus vertical structuring of Balance Sheet. He then moved on to the classification of source of funds which so far has this picture -
Sources of Funds
1) Longer Term
1.1) Owned Funds
1.1.1) Shares Capital
1.1.1.1) Equity Shares
1.1.1.2) Preference Shares
1.1.2) Accumulated Profits
1.2) Borrowed Funds
2) Short Term
He started from bottoms up (viz., types of Shares Capital) and managed to close discussion till Shares Capital. Owned Funds onwards as well as short term are left for next session. Prof explained the implications of going for Shares Capital mode in terms of initial investments followed by the market expectations in terms of dividend releases. For example, investment incurred in going for an IPO can be between 5% to 10% at times depending upon market conditions. In case the IPO doesn't meet the targeted objective then again expenses rise for underwriting (Note: To be read in detail myself). For equity shares, the dividend release also increases load/expectations in terms of profit margins that one has to target. For example, to give a dividend of 10 rupees, the kinds of margins that are worked out at different levels need to be taken care. Reason being that company would need to have some profit reserved for itself while releasing part of it as dividend to share holders. Paying dividends are critical to maintain reputation in the market. Sometimes one even has to work out dividend based upon what competitors are offering. I remember this example even taken up in last semester by one of the professor (or may be the same professor). When Infosys started giving out bonus shares to its share holder, it has put pressure on its competitive companies like TCS etc to do similar. He explained also the psych for companies to utilize their earnings in increasing shares capital versus putting in reserves/accumulated funds. While doing so, he took up the topic of Preference shares and how companies that have close relatives as its only share holders going in for increasing shares capital (in order to increase security of their heirs) versus using the money for own purposes. He introduced to his personalized term of "floating owners, fixed management" during the course of the discussions.
One thing I personally appreciate of Prof Phophale is that he goes into understanding of concepts. For example, he asked the class about derivatives (lim x tends to 0/infinity thingy). While the whole class stared at him blankly, he then stated that derivative indicates the fluctuation in your own value against the changes happening in the one of which you are derivative (dependent) of. This happened while he was talking about impact of globalization and money flow between countries. He explained that a company from other country would not invest in your country if they do not have guarantees of getting it back whenever they need it. While prof was discussing money flow, I was somehow tempted to think that probably that's the reason though everyone is claiming that economy is good, rupee is unable to grow stronger. May be because the money flowing in the country isn't ours in first place :P.
Phew... There's lot of ground for me to cover. Don't know how I am going to do but I gotta do it somehow.
Books to refer: Financial Management by Khan & Jain
Syllabus Coverage by faculty:
a) Ratio Analysis
b) Fund Flow/Cash Flow
c) Sources of Funds
d) Dividend Policy
e) Capital Budgeting
f) Working Capital Budgeting
g) Cost of Capital
h) Capital Structuring
He explained the mapping of horizontal versus vertical structuring of Balance Sheet. He then moved on to the classification of source of funds which so far has this picture -
Sources of Funds
1) Longer Term
1.1) Owned Funds
1.1.1) Shares Capital
1.1.1.1) Equity Shares
1.1.1.2) Preference Shares
1.1.2) Accumulated Profits
1.2) Borrowed Funds
2) Short Term
He started from bottoms up (viz., types of Shares Capital) and managed to close discussion till Shares Capital. Owned Funds onwards as well as short term are left for next session. Prof explained the implications of going for Shares Capital mode in terms of initial investments followed by the market expectations in terms of dividend releases. For example, investment incurred in going for an IPO can be between 5% to 10% at times depending upon market conditions. In case the IPO doesn't meet the targeted objective then again expenses rise for underwriting (Note: To be read in detail myself). For equity shares, the dividend release also increases load/expectations in terms of profit margins that one has to target. For example, to give a dividend of 10 rupees, the kinds of margins that are worked out at different levels need to be taken care. Reason being that company would need to have some profit reserved for itself while releasing part of it as dividend to share holders. Paying dividends are critical to maintain reputation in the market. Sometimes one even has to work out dividend based upon what competitors are offering. I remember this example even taken up in last semester by one of the professor (or may be the same professor). When Infosys started giving out bonus shares to its share holder, it has put pressure on its competitive companies like TCS etc to do similar. He explained also the psych for companies to utilize their earnings in increasing shares capital versus putting in reserves/accumulated funds. While doing so, he took up the topic of Preference shares and how companies that have close relatives as its only share holders going in for increasing shares capital (in order to increase security of their heirs) versus using the money for own purposes. He introduced to his personalized term of "floating owners, fixed management" during the course of the discussions.
One thing I personally appreciate of Prof Phophale is that he goes into understanding of concepts. For example, he asked the class about derivatives (lim x tends to 0/infinity thingy). While the whole class stared at him blankly, he then stated that derivative indicates the fluctuation in your own value against the changes happening in the one of which you are derivative (dependent) of. This happened while he was talking about impact of globalization and money flow between countries. He explained that a company from other country would not invest in your country if they do not have guarantees of getting it back whenever they need it. While prof was discussing money flow, I was somehow tempted to think that probably that's the reason though everyone is claiming that economy is good, rupee is unable to grow stronger. May be because the money flowing in the country isn't ours in first place :P.
Phew... There's lot of ground for me to cover. Don't know how I am going to do but I gotta do it somehow.