Taxmann Fundamental of Financial Management for CBCS B.Com.(HONS) By R.P Rustagi Edition July 2024

This book offers an authoritative and clear presentation of financial management’s essential concepts, procedures, and practices. It is designed to cover the fundamental principles, making it accessible to a broad range of students. The focus is on financial decision-making to maximise firm value and shareholder wealth. The material is presented in a non-mathematical and non-technical manner, informed by classroom interactions, teaching experiences, and student feedback.

This textbook is especially beneficial for students pursuing B.Com. (Hons.) in the IIIrd and Vth semesters at the University of Delhi. It is also suitable for students in the Non-Collegiate Women’s Education Board, the School of Open Learning at the University of Delhi, and other central universities throughout India. The content aligns with the National Education Policy (NEP), ensuring its relevance and applicability to current educational standards.

The Present Publication is the 19^th Edition, authored by Dr R.P. Rustagi, with the following noteworthy features:

• [Concise Synopsis] Each chapter begins with a synopsis, offering a clear overview of the content, ensuring that readers can quickly grasp the main ideas and structure of the chapter
• [Points to Remember] At the end of every chapter, a summary is provided in the form of ‘Points to Remember’, which helps students to recap and reinforce the key concepts covered
• [Illustrative Examples] The book is rich with numerous examples and solved graded illustrations that clarify complex concepts and provide practical applications of financial management principles
• [University Examination Questions] Incorporates questions that have appeared in university examinations at appropriate places, ensuring that students are well-prepared for their assessments
• [MCQs] Multiple Choice Questions at the end of every chapter to test comprehension and facilitate self-assessment
• [Excel Applications] Financial decision-making through Excel is explained with the help of several numerical examples from different topics, enhancing practical understanding and application

The structure of this book is as follows

• Synopsis (Chapter Plan)
• Main Body (Contents)
• Points to Remember
• Graded Illustrations
• Object Type Questions (True/False)
• Multiple Choice Questions
• Theoretical Assignments
• Problems (Unsolved Questions with Answers)

Contents of this book are as follows:

• Background
  • Financial Management – An Introduction
    • Evolution of finance as a discipline, highlighting its development and integration over time
    • Scope of the finance function, including an overview of financial decision-making and its impact on different groups
    • Basic propositions and axioms of financial management, emphasising foundational concepts
    • Overview of the financial system and environment in India
    • Points to Remember, Objective Type Questions, Multiple Choice Questions, Assignments to reinforce learning
  • The Mathematics of Finance
    • Concept and relevance of financial mathematics
    • Techniques of compounding and discounting to calculate present and future values
    • Applications of the time value of money (TVM) in various financial decisions
    • Points to Remember, Graded Illustrations, Objective Type Questions, Multiple Choice Questions, Assignments to practice mathematical concepts
• Long-Term Investment Decisions
  • Capital Budgeting – An Introduction
    • Features and significance of capital budgeting in long-term investment decisions
    • Problems and difficulties encountered in the capital budgeting process
    • Types of capital budgeting decisions and their implications for fund availability
    • Incremental approach to cash flows, including the treatment of depreciation and non-cash items
    • Points to Remember, Graded Illustrations, Objective Type Questions, Multiple Choice Questions, Assignments to solidify understanding
  • Techniques of Evaluation
    • Evaluation of capital budgeting proposals using various techniques
    • Traditional or non-discounting techniques: Payback Period and Accounting Rate of Return (ARR)
    • Discounted Cash Flow (DCF) techniques: Net Present Value (NPV), Internal Rate of Return (IRR), Modified Internal Rate of Return (MIRR), Profitability Index (PI), and Discounted Payback Period
    • Risk analysis in capital budgeting, including conventional techniques and selecting appropriate methods
    • Capital budgeting with unequal lives of proposals
    • Points to Remember, Graded Illustrations, Objective Type Questions, Multiple Choice Questions, Assignments to apply evaluation methods
• Financing Decision
  • Cost of Capital
    • Concept and significance of the cost of capital in financial decision-making
    • Factors affecting the cost of capital and its measurement
    • Types of cost of capital: cost of long-term debt, preference share capital, equity share capital, and retained earnings
    • Weighted Average Cost of Capital (WACC) and Marginal Cost of Capital
    • Points to Remember, Graded Illustrations, Objective Type Questions, Multiple Choice Questions, Assignments for practical application
  • Leverage Analysis
    • Concept of leverage and its importance in financial management
    • Types of leverage: operating leverage, financial leverage, and combined leverage
    • Impact of leverage on a firm’s profitability and risk
    • Points to Remember, Graded Illustrations, Objective Type Questions, Multiple Choice Questions, Assignments to analyse leverage effects
  • EBIT-EPS Analysis
    • Relationship between EBIT (Earnings Before Interest and Taxes) and EPS (Earnings Per Share) under different financing patterns
    • Financial break-even analysis and indifference point/level
    • Limitations of EBIT-EPS analysis in decision-making
    • Points to Remember, Graded Illustrations, Objective Type Questions, Multiple Choice Questions, Assignments to explore different financing options
  • Leverage, Cost of Capital, and Value of the Firm
    • Theories on the relationship between capital structure, cost of capital, and firm value
    • Net Income Approach: Capital structure matters
    • Net Operating Income Approach: Capital structure does not matter
    • Traditional Approach: A practical viewpoint
    • Modigliani-Miller Model – Behavioural justification of the NOI Approach, including the arbitrage process and MM Model with taxes
    • Points to Remember, Graded Illustrations, Objective Type Questions, Multiple Choice Questions, Assignments to understand capital structure theories
  • Capital Structure: Planning and Designing
    • Factors determining the capital structure of a firm
    • Profitability and capital structure through EBIT-EPS analysis
    • Liquidity and capital structure using cash flow analysis
    • Points to Remember, Graded Illustrations, Objective Type Questions, Multiple Choice Questions, and Assignments to design optimal capital structures
• Dividend Decision
  • Dividend Decision and Valuation of the Firm
    • Concept and significance of dividend policy
    • Models explaining the relevance of dividend policy: Walter’s Model and Gordon’s Model
    • Irrelevance theories: Residual theory of dividends and Modigliani-Miller Approach
    • Points to Remember, Graded Illustrations, Objective Type Questions, Multiple Choice Questions, Assignments to evaluate dividend policies
  • Determinants and Constraints
    • Factors influencing dividend payout ratios and stability of dividends
    • Different dividend policies: constant payout ratio, steady dividends per share, and extra dividends
    • Legal and procedural considerations, including scrip dividends and bonus shares
    • Points to Remember, Graded Illustrations, Objective Type Questions, Multiple Choice Questions, Assignments to understand dividend policy determinants
• Management of Current Assets
  • Planning and Management of Working Capital
    • Understanding the operating cycle and its impact on working capital needs
    • Factors determining working capital requirements and policies for managing current assets
    • Financing of current assets and monitoring working capital
    • Points to Remember, Graded Illustrations, Objective Type Questions, Multiple Choice Questions, Assignments for working capital management
  • Estimation and Calculation
    • Methods for estimating working capital requirements based on net sales, total assets, and operating cycle
    • Techniques for accurate calculation and management of working capital
    • Points to Remember, Graded Illustrations, Assignments to apply estimation methods
  • Management of Cash and Marketable Securities
    • Motives for holding cash and theoretical frameworks for cash management
    • Planning and controlling cash flows, managing float, and electronic fund transfers
    • Models for optimal cash balance, including Baumol’s Model and Miller-Orr Model
    • Management of marketable securities for liquidity
    • Points to Remember, Graded Illustrations, Objective Type Questions, Multiple Choice Questions, Assignments for cash management strategies
  • Receivables Management
    • Costs and benefits of receivables management
    • Credit policies, evaluation, and control of receivables
    • Methods for evaluating credit policies and managing credit risk
    • Points to Remember, Graded Illustrations, Objective Type Questions, Multiple Choice Questions, Assignments for receivables management
  • Inventory Management
    • Types of inventories and reasons for holding them
    • Costs associated with inventory, including stock-out costs
    • Techniques for inventory management, such as ABC analysis and Economic Order Quantity (EOQ)
    • Re-order levels, safety stock, and quantity discounts
    • Points to Remember, Graded Illustrations, Objective Type Questions, Multiple Choice Questions, Assignments for inventory control techniques
• Valuation of Securities
  • Valuation of Securities
    • Concept and significance of securities valuation
    • Basic valuation models and required rates of return
    • Valuation of bonds, including semi-annual interest and yield to maturity (YTM)
    • Valuation of convertible debentures, deep discount bonds, preference shares, and equity shares
    • Methods for valuing equity shares based on accounting information, dividends, and earnings
    • Points to Remember, Graded Illustrations, Objective Type Questions, Multiple Choice Questions, Assignments to practice valuation techniques
• Appendices
  • Appendix I
    • Financial Decision-Making with Excel – Practical examples and exercises using Excel for financial decision-making
  • Appendix II
    • Past Year Question Papers – Suggested answers to practical questions from previous financial management exams at the University of Delhi
  • Appendix III
    • Mathematical Tables – Useful for quick reference and calculations

About The Author

Dr. R.P. Rustagi is Associate Professor, Department of Commerce, Shri Ram College of Commerce, University of Delhi. He is M.Com., M.Phil. (Accounting and Finance) from Delhi School of Economics, University of Delhi, besides being a Fellow Member of the Institute of Company Secretaries of India, New Delhi. He obtained Doctorate from Jiwaji University, Gwalior. He has been teaching Accounting and Finance at Shri Ram College of Commerce (his alma mater) for more than three decades. He is also associated with Post-graduate teaching in Department of Commerce, University of Delhi. He is a visiting faculty in Executive Development Programmes in Finance arranged by the ICAI, ICSI and other Management Institutes. As an academician, his areas of interest are Strategic Financial Management, Investment Management, Capital Market, etc. He is an established author in Accounting and Financial Management.