Strategic Financial Management in 12 sildes. Best way to remember all the concepts in a nutshell is to develop story around it.

1. Summary:
CA Final
Paper 2: SFM
• By- Shubham Agrawal
WRO0393640

2. CHAPTER 1: Financial Policy & Corporate Strategy
Fundamentals of
Business
Agency Theory ( Jenson &
Meckling)
Financing
Decision
Investment
Decisions
Dividend
Decision
Portfolio
Decision
Strategy at Hierarchy
Levels
Corporate
Level
Strategy
Business
Unit Level
Strategy
Functional
Level
Strategy
Strategy Finance Management
Strategic Financial
Management
Financial Planning
Financial
Resources
Financial
Tools
Financial
Goals
Ensuring
Sustainable
Growth

3. CHAPTER 2: Project Planning & Capital Budgeting
Project Feasibility Study
Market Feasibility Technical Feasibility Financial Feasibility
Under Normal
Situation
Financial
Projections
Social Cost Benefit Analysis
Goods &
Services
Labour
Foreign
Exchange
Social
Rate of
Discount
Shadow Price
of
Investment
Risk Adjusted
Discount Rate
Certainty
Equivalent
Approach
Other
Methods
Scenario
Analysis
Sensitive
Analysis
Simulation
Analysis
Decision
Tree
Analysis
Capital Budgeting
Under Capital
Rationing
Internal
Capital
Rationing
External
Capital
Rationing
Under Inflation
Depreciati
on do not
keep
parity
with
Inflation
Rate
Due to
inflation
Investors
require
Nominal rate
of return i.e.
Real Rate +
Inflation Rate
Replacement
Decision
Using CAPM
Estimate Beta of
Capital Project
Project Selection
Real Option
Growth
Option
Abandonm
ent Option
Timing
Option
Project Report
Standard
Deviation
Independent
Cash Flow
Cash Flows
dependent on
each other
Perfectly
Correlated
Moderately
Correlated

4. CHAPTER 3: Leasing Decision
Leases - Types
Operating
Lease
Sales and
Lease Back
Leasing
Financial
Risk
Leveraged
Lease
Sales-Aid
Lease
Evaluation - Financial
Using Present
Value Analysis
(NPV)
Using Bower-
Herringer -
Williamson Method
Evaluation
Collateral Security
Offered
Financial Strength &
Credit Worthiness
Domestic Leasing Cross-Border Leasing
Financial
Aspect
Tax Aspect
Using Internal
Rate of Return
(IRR)
Lessee
Perspective
Lessors
Perspective
BELR is where lessee is
indifferent between Borrowing &
Buying option and Lease finance
option.
BELR is the minimum lease
rental which he would accept.
Selection between
Borrowing & Leasing
Break Even Lease Rental
Structuring Lease Rentals
Decision Making
Deferred
Lease
Rentals
Stepped Up
Lease
Rentals
Ballooned
Lease
Rentals
IF Net Present Value of Leasing
NPV(L) / Net Advantage of
Leasing is +ve select leasing
otherwise Borrowing.

5. CHAPTER 4: Dividend Decision
Dividend Policy i.e. Division of Net
earnings into Retained Earning and
Dividend
Wealth Maximization
Decision
Long Term Financing
Decision
Constraint
On Paying
Dividend
Desire of
Shareholder
Stability of
Dividend
Constant Dividend Per Share
Constant Percentage of Net
Earning
Small Constant Dividend per share
plus Extra dividend
Form of Dividend
Stock
Dividend
Cash Dividend
Theories on Dividend Policies
Traditional
Position;
Graham & Dadd
Walter
Approach
Gordon Growth
Approach
Modigliani &
Miller
Hypothesis
Linter’s Model
Radical
Approach
Dividend
Discount Model
Zero-
Growth
Rate DDM
Constant-
Growth
Rate DDM
Variable-
Growth
Rate DDM
Implied Growth
Rate
Implied Rate on
Equity

6. CHAPTER 5: Indian Capital Market
Primary Market
Secondary
Market
Functions
Liquidity &
Marketability of
Securities
Fair Price
Determination
Sources for Long term
funds
Helps in Capital
Formation
Reflects the general
State of Economy
Stock Exchange
IndicesCapital Market
Instruments
Preference
Shares
Debentures/
Bond
ADR GDR
Stock/ Equity
Shares
Derivatives
Financial
Derivatives
Commodity
Derivatives
OTC
Derivatives
Forward
Contracts
Future
Contracts
Options
Stock
Futures
Index
Futures
Stock
Options
Stock
Index
Options
Binomial
Models
Risk
Neutral
Method
Black-
Scholes
Model
Valuation
Methods
Embedded
Derivatives
Measuring
Performance
Types
Rho
Vega
Gamma
Theta
Delta
Commodity Market
NCDEX MCX ICEX ICEX
Indirect
Investment
Commo
dity
Futures
Stocks of
companies
producing a
commodity`
Bonds
Indexed on a
commodity’s
Price
Reduce
Exposure
using
Commod
ity
Swaps
Fixed-
Floating
Swap
Commodi
ty- for -
Interest
Swap
Swaption
Caps
FRA
Interest
Rate Swaps
OTC Interest
Rate Derivatives
Floors
Collars
Generic
Swap
Non-
Generic
Swap

7. CHAPTER 6: Security Analysis
Equity Oriented Debt Oriented i.e. Bond
Fundamental
Analysis
Technical
Analysis
Bond Valuation
Industry
Analysis
Company
Analysis
Dividend Growth
Model & PE
Multiple
Economic
Analysis
Techniques
Anticipator
y Surveys
Barometer /
Indicator
Approach
Economic
Model
Building
Approach
Techniques
Regressi
on
Analysis
Input-
Output
Ratio
Techniques
Correlation
& Regression
Analysis
Trend
Analysis
Decision
Tree Analysis
Methods of
Technical
Analysis
Evaluation
The Dow
Theory
Market
Indicators
Support &
Resistance
Levels
Price
Patterns
Using data
Analysis
(Averages)
Bollinger
Bands
Momentu
m Analysis
1st Move –
Accumula
tion of
Shares
2nd Move
– Arrival
of first
Report of
good
earning
3rd Move
–
Rampant
Speculatio
n
Breadth
Index
Volume of
Transaction
Confidence
Index
Relative
Strength
Analysis
Odd-Lot
Theory
Channel
Wedge
Head &
Shoulders
Triangle or
Coil Formation
Flags &
Pennants Form
Double Top
Form
Double Bottom
Form
Gap
Simple
Moving
average
Exponenti
al Moving
Average
Duration
Macaulay
Duration
Modified
Duration
Bond Valuation
Model
Bond Value
Theorem (4 basic
theorems)

8. CHAPTER 7: Portfolio Theory
1. Activities in Portfolio Management
2. Objectives of Portfolio Management
Phases of Portfolio
Management
Portfolio Theories Portfolio Strategy
Hedge
Funds
Security Analysis
Portfolio Analysis
Portfolio Selection
Portfolio Revision
Portfolio Evaluation
Traditional Approach
Modern Approach (
Risk-Return
Optimization/Marko
witz Model)
Risk Analysis
Total Risk Diversion of Risk
Expected Risk &
Return
Systematic
Risk
Unsystematic
Risk
Interest
Rate Risk
Market Risk
Purchasing
Power Risk
Business
Risk
Financia
l Risk
Calculation of
Systematic risk
Correlation
Method
Regression
Method
For 1
Security
For 2
Security
More than
2 Securities
Markowitz Model of Risk-return
Optimization
Capital Asset Pricing Model
Arbitrage Pricing Theory Model
Sharpe Index Model
Single Index
Model
Based on
Sharpe &
Treynor Ratio
Active
Portfolio
Strategy
Passive
Portfolio
Strategy
Market Timing
Sector Rotation
Security Selection
Specialized Investment
Selection of Securities
Selection
of Bond
Selection
of Stock
Rebalancing
Buy & Hold Policy
Constant Mix Policy
Constant Proportion
Portfolio Insurance
Policy (CPPI)
Asset Allocation Strategy
Integrated
Asset
Allocation
Strategic
Asset
Allocation
Tactical
Asset
Allocation
Insured
Asset
Allocation
Internation
al Securities
Efficient Mrkt.
Theory
Random Walk Theory
Arbitrage
Strategies
Event-
Driven
Strategies
Directiona
l/ Tactical
Strategies

9. CHAPTER 8: Financial Services in India
Investment
Banking
Credit
Rating
Consumer
Finance
Factoring
Housing
Finance
Asset
Management
Company
Depository
Services
Debit Cards
Online Share
Trading
Includes
areas
Comm. Bank
Vs. Invest.
Bank
Mergers &
Acquisition
Private
Placement
Restructuring
1. Corporate
Finance
2. Sales
3. Trading
4. Research
5. Syndicate
Representing
the target
Representing
the acquirer
Customer approaches
to investment bank
Investment Bank
approaches customer
Financial
Restructuring
Organizational
Restructuring
Concept
Agencies
in India
Credit Rating
Process
Limitation
of credit
rating
Evaluation of
credit
worthiness
1. Credit Risk Evaluation
2. Expressing an opinion & not suggestion
3. As on specific date
4. Largely depends upon interest &
Principal obligation being met timely
CAMEL Model
1. Request from the issuer & Analysis
2. Rating Committee
3. Communicating to management & appeal
4. Pronouncement of ratings
5. Monitoring the assigned ratings
6. Rating watch
7. Rating coverage
8. Rating scores
1. Rating Changes
2. Industry Specific rather than
company specific
3. Cost benefit Analysis
4. Conflict of interest
5. Corporate governance issues
1. Capital
2. Asset
3. Management
4. Earnings
5. Liquidity
Sources
Basis for credit
evaluation ( 3 C’s)
1. Sellers
2. Finance Co.
3. Banks
4. Credit Card Co.
1. Character
2. Capital
3. Capacity
ForfaitingMechanism Types
Functions of
a factor
1. Recourse & Non recourse
2. Advance & Maturity
3. Full Fact. & Partial Fact.
4. Disclosed & Undisclosed
5. Domestic & Export
1. Maintenance/ administration of
sales ledger
2. Collection facility
3. Financing trade debts
4. Credit Control & Credit
Protection
5. Advisory Services
International Trade related but
different from export factoring

10. CHAPTER 9: Mutual Funds
Structure of Mutual Fund
Classification of Mutual
Fund
Factors influencing
selection
Evaluating Performance Signals to exit
Stock or Mutual Fund selection decision
Functional
Basis
Portfolio Basis
Ownership
Basis
Open Ended
Funds
Interval
Scheme
Close Ended
Funds
Equity Debt Special
Growth
Aggressive
Income
Balanced
Bond
Funds
Gilt
Funds
Index Funds
International Funds
Sector Funds
Off shore Funds
Money Market
Funds
Fund of Funds
Gold Funds
Capital Protection
oriented funds
Public Mutual
Funds
Private Mutual
Funds
Foreign Mutual
Funds
Schemes
Balanced Funds
Equity Diversified
Funds
Sector Funds
Equity Linked tax
saving schemes
Thematic Funds
Arbitrage Funds
Cash Funds
Hedge Funds
Exchange Traded
Funds
Index
ETF
Commodity
ETF
Currency
ETF
Net Asset Value
Cost incurred by
Mutual Fund
Returns
Ratio
Sharpe
Treynor
Jensen’s Alpha

11. CHAPTER 10: Money Market Operation
Concept/ Basics Structure Instruments Interest Rate
Recent
Developments in
money market
Features
Pre-Conditions for an
efficient money
market
Rigidities in Indian
Money market
Distinction between
capital & money
market
Vaghul Group report
& recommendation
Organized
Sector
Unorganized
Sector
RBI
PO Saving
Commercial
Bank
Non Banking
Co.
Co-Operative
Banks
Indigenous
Bankers
Chit Funds
Money
Lenders
Nidhis
Securities Trading
Corporation of
India (STCI)
Discount &
Finance House of
India (DFHI)
Functions:
1. Participating in call money market
2. Dealing in treasury bills
3. Repo facility to bank
4. Rediscounting short term
commercial bills
5. Participating in the inter bank call
money
Call/ Notice Money
Inter-Bank Money
Inter Corporate Deposit
Inter-Bank Participation
Certificate
Treasury Bills
Commercial Bills
Certificate of deposit
Commercial Paper
Debt Securitization
Money Market Mutual
Funds
Repurchase options &
Ready Forward Contracts
IBPC
without risk
IBPC with
risk
182 Day
14 Day
364 Day
On the basis of
Derivate Usance
Promissory Note
(DUPN)
Condition under which
CP can be issued
Benefit of CP
Process of
Issue
Restoration of
credit facility
Active Secondary
Market (Absent)
Lead
Bank
Issuer
Issuing &
Paying
Agent
Investors
To Investor::
(Higher Yield,
Portfolio
diversification,
flexibility, liquidity)
To Issuer:
(Low Interest, access to
short term funds,
flexible & liquidity,
Investor Recognition)

12. CHAPTER 11: FDI, FII & International Financial Management
FDI
International Financial
Management
FII
Financing
Decision
Investing
Decision
Internal
Source
External
Source
Capital including
retained earning
Loan from
Parent Company
International
Capital Market
External Commercial Borrowings
Euro-
Currency
Market
Export
Credit
Facility
Bond
Issues
Financial
Institution
Floating
Rate
Notes
International
Money Market
Euro
Bonds
Foreign
Bonds
Fully
Hedged
Bonds
Euro Commercial Papers
Foreign
Currency
Convertible
Bonds
Ordinary Shares
(Through
Depository Receipt)
GDR ADRIDR
Euro Convertible
Bonds
Call Option
(Company’s Right)
Put Option
(Holder’s Right)
Unsponsor
ed ADRs
Sponsored
ADRs
Restricted
ADR
Unrestrict
ed ARD
Euro-
Convertible
Zero Bonds
Euro-Bonds
with Equity
Warrants
Euro
Issues
1.Eligibility for issue
2.Advantage of Euro-Issues
3.Disadvantages of Euro Issue
4.Structuring of Euro-Issue
5.Pricing of the issues
6.Methodology for Euro-Issue
Cross
Border
Leasing
Capital Budgeting
Working Capital
Budgeting/
Management
Inventory
Management
Receivables
Management
Cash
Management
Optimizing
Cash Flow
Movement
Investing
excess cash
Accelerate
Inflows
Managing
Blocked Funds
Leading &
Lagging Strategy
Netting Approach
Minimizing tax
via TP
Project Cash
Flow
Parent Cash
Flow
Bilateral
Netting
Strategies
Multilateral
Netting
Strategies

13. CHAPTER 12: Foreign Exchange Exposure & Risk Management
Foreign Exchange
Market
Risk
ManagementRisk
Consideration
Financial Risk
Business Risk
Credit Risk
Interest Rate Risk
Liquidity Risk
Market/Price
Risk
Reinvestment
Risk
Country Risk
Foreign Exchange
Exposure
Operating
Exposure
Transaction
Exposure
Translation
Exposure
Actions to
control risk
Strategies for
Exposure
Management
Low Risk:
Low
Reward
Low Risk:
High
Reward
High Risk:
Low
Reward
High Risk:
High
Reward
All
Exposure
s Hedged
Selective
Hedging
No
Hedging
Active
Trading
Techniques for
Managing Exposure
Hedging
Netting Matching
Leading &
Lagging
Price
Variation
Invoicing
in Foreign
Currency
Asset &
Liability
Management
Arbitra
ge
Money Market
Hedge
Currency Risk
Hedge
Derivatives
Forward
Based
Derivatives
Options
Forward
Contracts
Swaps
Futures
Contract
Extension
Cancellation
Early
Delivery
Interest Rate
Futures
Currency
Futures
Stock Futures
Commod
ity Swaps
Interest
Rate
Swaps
Currenc
y Swaps
Equity
Swaps
Canape
Swaps
Callable
Swap
Swapti
on
Forw
ard
Swap
Plain
Vanill
a Swap
Basic
Swap
Rate
Asset
Swaps
Mortg
age
Swap
Amor
tizing
Swap
1.Market Participants
2.Nostro, Vostro & Loro Account
3.Exchange Rate Determination
4.Exchange Rate Quotation
5.Cross Rates
ExchangeRate
Forecasting
Technical
Forecasting
Fundamental
Forecasting
Market-Based
Forecasting
Mixed
Forecasting
ExchangeRate
Theories
Interest Rate
Parity
Purchasing
Power Parity
International
Fisher Effect
Pure Expectation
Theory

14. CHAPTER 13: Mergers, Acquisition & Restructuring
Mergers & Acquisition Restructuring
Types of Merger
Reason for M&A
Gains from Synergy
Accounting
Problems for M&A in
India
Acquisition &
Takeover
Acquisition Process
Legal Aspects
Defending a company
in a Takeover Bid
Target Valuation for
M&A’s
Horizontal, Vertical, Conglomerate, Congeneric,
Reverse Merger
Synergistic Operating economics, Diversification,
Taxation, Growth, Consolidation of production
capabilities & increasing market powers
Value of acquirer + Stand alone value of target + Value
of Synergy- Cost of acquisition = Combined Value
Corporate
Restructuring
Financial
Restructuring
Demergers or
Divestment
Corporate Controls
1. Sell off
2. Spin off
3. Split up
4. Carve Outs
5. Sale of a
division
1. Going Private
2. Equity Buyback
3. Restructuring of
an existing
business
4. Buy-outs
Due Diligence
Earning Based
Earning
Market Based
Valuation
Asset Based
Valuation
1. Discounted cash flow/
free cash flow
valuation
2. Cost to create
3. Capitalized earning
method
4. Chop-Shop Method
1. Net adjusted asset
value or economic
book value
2. Intangible Asset
Valuation
3. Liquidation Value
1. Market
Capitalization for
listed companies
2. Market
capitalization of
comparable
companies for
unlisted companies
Legal issues, Financial & tax issue,
Marketing issues, Cross border issues,
Cultural & ethical issues
Divesture, Crown jewels, Poison pill,
poison put, greenmail, white knight,
white squire, golden parachutes, Pac-
man defense
1. Define the acquisition criteria
2. Competitive Analysis
3. Search and screen
4. Strategy development
5. Financial evaluation
6. Target contact & negotiation
7. Due diligence
8. Arranging for finance for acquisition
9. Putting through the acquisition & post
merger integration
Acquisition
Takeover
Strategy:
1. Street Sweep
2. Bear Hug
3. Strategic alliance
4. Brand Power