lecturer: Dr Johan du P Smith
Financial Management Modular 2
Year of study 2008
Lecturer J du P Smith
021 918 4233
External Moderator F Marais
Prescribed text books
Firer C, Ross SA, Westerfield RW & Jordan BD. 2004. Fundamentals of Corporate Finance (3rd South African ed).
You should regularly access the course webpage during the course where assignments, discussions and additional material
and marks will be made available.
To develop an understanding of the broader aspects of Financial Management through exposure to:
- basic underlying theory
- the practical situation as simulated in case studies
with the emphasis on the determination of value creation
You have to prepare the chapters in prescribed textbook pertaining to the particular class session.
You write two scheduled tests
Preparation for the case studies may be left until you are on campus where you will be expected to do preparation in groups
Consult the webpage regarding any other work or preparation required.
Group assignments should not be left to one or two individuals. Groupmarks will primarily be judged on the
presentation in class. I shall appoint the presenter. Not all groups will necessarily be called upon to present a
particular assignment. All groups have to however hand in the group assignment at the beginning of the particular
session. No more than the presentation slides need to be handed in. A presentation will be approximately 10-15
minutes followed by questions and discussion (10 minutes). An individual’s groupmark is a function of individual
Group Assignment 1:
Discuss the P/E ratio(s) of any company and compare it with the ratios of other companies or a sector on the JSE and how
the P/E relates to characteristics of the particular company or sector (growth, capital structure, profitability, competitive
environment, risk etc). You should also make use of forward P/E ratios and/or PEGs
Group Assignment 2:
Market Efficiency. Graphically show the impact of an event/s/announcement on a the share price of a quoted JSE company.
Consider using comparative price data and volumes traded.
Group Assignment 3:
Comment on the observed capital structure policy of a company and/or determine or discuss the target capital structure of
any company of your choice and/
Groepstaak 4/ Group Assignment 4:
Value any company of your choice or critically review the valuation done by others (stockbroker/ analyst).
Allocation of marks
Students are to come to class well prepared and attend all classes in order to obtain maximum value and return on
investment. The opportunity cost of most MBA students is quite high.
No replacement tests are given irrespective of the reason for absence, illness or other unforeseen circumstances.
class tests 40%
group Assignments 25%
participation group & class 10%
Class tests - 40% of the overall evaluation
There are two modes of assessment; WebCT and two scheduled tests.
The WebCT test will constitute 50% of your class mark and the two tests (combined) conducted in class the other
You must register for the WebCT course Financial Management Full Time 2 811/MS02508 AND only use
this site (not the site of another MBA group)
The WebCT tests are on chapters 5 to 11, 13 to 18, and 24.
There are thus 15 chapters on which you will be tested.
You will have 2 attempts to perform the short tests on each of the above chapters.
Each test consists of 5 randomly selected questions.
If you attempt a test twice, the better mark of the 2 attempts will be your mark
Tests have to be submitted as follows:
Tests on chapters 5 to 11 (7 tests on Concepts and Investment Decisions) prior to commencement of the
second Part 2 of the course (session 8)
Tests on chapters 13, 15 to 18 (5 tests on Markets & Financial Decisions) prior to commencement of the
3rd Part of the course (session 15)
Test on chapters 14, 22& 23combined, and 24 (3 tests on Value Based Management) prior to the
examination (session 20)
NOTE: Students who have participated in all the class tests and have attained both a class mark and
participation mark of 60% or more will not be required to write the examination.
Please further note that unless students obtain at least 40% for the class mark, there is no point in
writing the examination as a mark in excess of 80% will have to be attained to achieve a pass mark
BOTTOM LINE: COME TO CLASS WELL PREPARED
Before commencement of the first module of this course, you will receive a book containing photocopied
material consisting of
Articles & additional reading
Copies of my core transparencies and notes
Note to students studying Financial Management.
This note explains the structure, the learning objectives and gives tips to students studying this demanding course.
The course is similar to what is taught world wide on MBA programmes. We follow the textbook fairly closely.
We approach the subject primarily from a corporate viewpoint and emphasize the planning aspect. Value based management
focuses on the value decisions create or destroy. Evaluating investment opportunities, how to finance them; and understand
and manage the risks, are key components that need to be integrated.
The course commences with revision of work already done; interpretation of financial statements, the difference between
income and cash flow, sustainable growth, and working capital management. These are concepts and tools, students who
have studied the course in Management Accounting at USB, are already familiar with. These topics are however applied and
integrated in a holistic way.
A major topic is that of risk assessment and its impact on the required rate of return. Students are shown that emphasis
should be placed on understanding the forces driving the future and particularly how it could impact on the financial health
and objectives of a company. This requires a grasp of the broader issues and concepts and how they are interrelated; an
understanding that quantification is purely a tool to enhance understanding where relative values or more significant than
absolute and precise figures. A holistic approach to problem solving is thus emphasised right from the outset. Some students
initially encounter problems with this approach and the course to them appears to be lacking in structure.
The concept of value creation, the cornerstone of finance, is then discussed, followed by the basics of investment decisions.
In the second module/part financing and financial structure, the reverse side of the coin to capital budgeting, is then covered.
By the end of this module, students who have worked diligently should feel more confident that they can handle a real world
problem and tackle a case study, were it to form part of the final evaluation.
In the last module/part the topic valuation and risk management is returned to. The discussion on management buyouts,
unbundling and mergers, brings together the three topics of finance, capital budgeting, financing and working capital
management. We thus conclude with revision and the same topics we started the course with.
The textbook is excellent. It is a South African version of a book used widely on MBA programmes all over the world. It
does have a website although I believe the textbook on its own is more than adequate for our needs.
The textbook is supplemented with articles and case studies.
Case studies have been included to try and simulate real world problems. While theory can be compartmentalised (as done
in the textbook), it must be emphasised that real world financial management can not be neatly pigeon holed into little
digestible parts. A case that has been set for a particular session, thus covers far more than simply what is found in the
chapters. In fact, it is sometimes difficult to see any relevance at all to the chapters that have been prescribed for the
Material to relate to real live South African situations is provided by students themselves. You will be required to do group
assignments where you obtain all the information and apply the concepts and theory addressed in the course.
The design of the course to attain the learning objectives
The major objective in compiling and presenting the course is to facilitate a process which will enable students to help
themselves when faced with real world problems and to approach problems in a holistic way. The approach simulating real
problem solving entails the following:
1) Prepare: Obtain information and understand some of the basic driving forces:
Students study the theory (textbook) and articles on their own prior to group or class discussions. Modular students should
cover all the work prior to the module being presented on campus.
2) Group discussions to clarify issues and understanding
Discuss the case study and assignments in groups, a day or two before it is discussed in class. It is however necessary that it
is preceded by individual preparation. Modular students do this while on campus.
3) Action. Students and groups present their views in class sessions.
Class sessions are used primarily to discuss the case study and the application of theory to real world problems. All students
should participate. The objective is to enhance understanding and give feedback.
4) Evaluate results
Individuals should review their tests and clearly understand where they went wrong. Group discussions should also be used
to review what was done in class. Revision for the final evaluation includes group discussions regarding concepts, articles
and cases discussed in class.
I rely totally on the above to reach the course objectives.
The course is not easy. It will challenge you.
The course is very broadly based and covers a lot of ground in a short space of time.
It demands constant commitment, hard work and tenacity.
Regular honest feedback is given with the objective to learn from mistakes.
Do not become demotivated.
You get out of the course what you put into it. We are proud of the high standards set in the subject. I certainly hope that
you will not only be very successful (it is a subject some student attain marks in excess of 95%) but that you will find the
course stimulating, enjoyable and of immediate practical benefit. At the end of this course you should be in position to
converse with experts in different fields and confidently contribute to financial and strategic decision making in your own
Students either hate or love the course. Feedback from students in the past clearly reflected the bimodal distribution of the
marks attained for the subject. In this subject you are definitely the author of your own destiny.
Please do not hesitate to contact me preferably by E-mail or the Bulletin Board on the website or telephonically if I can be of