Tips to solve Financial Management paper
The FM paper generally has around 40 marks numerical and the rest is theory.
Q1. This questions would consist of 5 one line questions carrying 1 mark each. These questions would be straight forward one liners based on the chapters that we have covered in the numerical.
Q2A. There would be 3 or 4 questions carrying 5 marks each. Of which any two should be solved. The level of difficulty would be simple. The following are the expected questions that could come along with their tentative variety
- Leverages (Simple calculation of OL, FL, CL with data given on sales and costs along with interest
- Receivables management (simple question on computation of opportunity cost for credit period given and evaluation of 2 or 3 credit options)
- Cost of capital (sure question on computation of WACC when the amounts and cost of each component of capital is given). You may be asked to compute Kd or Ke on the given data.
- Capital restructuring (Simple sums on merger based on exchange of shares on MPS, EPS method. Basis and straight forward sums)
Q2B. Case study type numerical on capital budgeting or cash management. In capital budgeting computation of NAV and using capital rationing for 3-4 machines/options. Level of difficulty would be moderate. Please don’t leave any questions unanswered. If you are not confident with the whole case, you may atleast make an income statement to compute cash inflow. Also don’t forget to check whether the data given is PAT or EBIT or Cash inflow. Majority of the students make a mistake in identifying the same.
In cash management, moderate level sums where cash inflow and outflow for 3 months would be asked to be computed. Sales information could be bifurcated in a delayed structure over 3 months. Please pay attention to arrears in payment of wages, expenses. Remember that cash management only has to be computed by taking into account only cash expenses.
You may have 2 or 3 numericals and 1-2 theory questions. Each carrying 10 marks
Numericals would be based on
- Working capital management (where information on production, sales and stores maintained in weeks or months. Selling price breakup and then computation of working capital. Else an alternative sum where by annual sales, expenses etc are given and reverse computation of working capital) Some tips here- please keep in mind that working capital is only computed by taking credit purchase and credit sales. Also check if there is a safety margin to be kept.
- Capital structure planning (moderate level sum taking care of capital raising under 3-4 options and computing EPS could be asked).
- Alternatively a sum on capital restructuring on fair value approach, NAV or yield approach
For theory, the following questions need to be done well
- Functions of finance manager
- Reasons for carrying cash
- Types of working capital
- Factors affecting working capital
- Sources of long term finance
- Sources of short term finance
- Capital budgeting techniques
- Types of mergers
For any queries, you can contact Prof. Vipin Saboo at 9820779873
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