Finance for Decision Making KASNEB Notes

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CS Advanced Level Notes


This paper is intended to equip the candidate with knowledge, skills and techniques that will enable him/her to analyse and interpret financial statements and apply financial management principles to guide decision making.


A candidate who passes this paper should be able to:

  • Describe the roles of the statement of financial position, statement of comprehensive income, statement of changes in equity, and statement of cash flows in evaluating a company’s performance and financial position
  • Identify various sources of finance
  • Make basic capital budgeting decisions under environment of certainty
  • Prepare budgets for organisations and explain budgetary controls
  • Make basic capital structure decisions
  • Make appropriate dividend decisions


Overview of Finance

  • Nature and scope of finance
  • Finance functions – Managerial, Routine and other emerging functions
  • Goals of a firm; financial and non-financial objectives, overlaps and conflicts among the objectives
  • Agency theory, stakeholder’s theory and corporate governance
  • Ethical issues in financial management

Introduction to financing decision

  • Nature and objectives of the financing decision
  • Factors to consider when making financing decisions
  • Sources of finances for organisations; internally generated funds and the externally generated funds, long term sources, medium term and short term sources of finance
  • Sources of finance for small and medium sized enterprises (SMEs)
  • Methods of issuing ordinary shares

Financial Statement Analysis and Forecasting

  • Definition of financial statements analysis
  • The roles of financial reporting and financial statements analysis
  • Users of financial statements and their information needs
  • Importance of financial statement analysis
  • Cost of disclosing financial information; direct costs, indirect costs
  • Analysing financial statements
    • Income statement: Components and format of the income statement
    • Statement of financial position; components and format of statement of financial position
    • Statement of changes in equity; components of equity, equity valuation ratios
    • Cash flow statements; component and format of the cash flow statement
  • Ratio analysis; Meaning and uses of financial ratios – Calculation and interpretation of profitability ratios, Liquidity ratios, efficiency ratios, capital structure ratios, coverage ratios and equity ratios, and limitation of financial ratios
  • Common size statements – Vertical and horizontal analysis
  • Red flags and accounting warning signs that may indicate financial statements are of poor quality

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Budgeting and budgetary control

  • Nature and purposes of budgets
  • Limitations of budgeting
  • Preparation of budgets; master budgets, functional budgets, department budgets, cash budgets.
  • Purpose of budgetary control; operation of a budgetary control system, organisation and coordination of the budgeting function
  • Distinction between budgeting and budgetary control in the private and public sectors
  • Cost-Volume-Profit (CVP) Analysis

Time-value of money

  • Concept of time value of money
  • Time value of money versus time preference of money
  • Relevance of the concept of time value of money
  • Compounding technique
  • Discounting techniques
  • The loan amortisation schedule

Basic Valuation models

  • Concept of value
  • Relevance of valuation of securities/firms
  • Valuation of debentures, preference shares and ordinary shares

Introduction to capital structure decision

  • Firms capital structure and factors influencing capital structure decisions
    • The meaning and relevance of cost of capital
    • Factors influencing firms cost of capital
    • Component costs of capital
    • The firm’s overall cost of capital – Weighted average cost of capital (WACC) and
    • Weighted marginal cost of capital (WMCC)

Introduction to Capital Budgeting decision under Certainty

  • The nature and importance of capital investment decisions
  • Capital investment’s cash flows – initial cash outlay, terminal cash flows and annual net operating cash flows, incremental approach to cash flow estimation
  • Capital investment appraisal techniques; Features of an ideal capital budgeting technique, Non-discounted cash flow methods – payback period and accounting rate of return and discounted cash flow methods – net-present value, internal rate of return, profitability index and discounted payback period, Strengths and weaknesses of the investment appraisal techniques
  • Incorporating capital rationing in capital budgeting – The meaning and types of capital rationing
  • Challenges encountered when making capital investment decisions in reality

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Working capital management

  • Introduction and concepts of working capital
  • Working capital versus working capital management
  • Factors influencing working capital requirements of a firm
  • Importance and objectives of working capital management
  • Working capital financing policies

Dividend decision

  • Forms of dividend payments
  • When to pay dividends – Interim and final dividend
  • Factors influencing dividend payments
  • The firm’s dividend policy – The residual policy, stable predictable policy, constant payout ratio policy and regular plus extra policy
  • Why pay dividends/Dividend theories – Dividend relevance theories; Bird in hand theory, Clientele effect theory, Information signaling theory, Walter’s theory, Tax differential theory, Modigliani and Miller’s dividend irrelevance theory
  • Impact of a dividend decision on share price

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  1. hello admin,if possible i request for a sample of revision kit for ATD ii of either unit.
    and also inform me about the price for @ unit. Thanks you

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