Business Studies IV: Financial Management, Human Resources, and Information Systems
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Financial Management
Financial management involves three decisions: investment (capital budgeting), financing (capital structure), and dividend decisions, with the aim of maximizing shareholder wealth (Brealey et al., 2020).
- Sources of finance: short-term (trade credit, bank overdraft, short-term loans, factoring) and long-term (equity, retained earnings, debentures, term loans, leasing); internal versus external sources.
- Cost of capital and the WACC: WACC = (E/V) × Re + (D/V) × Rd × (1 − t). Example: equity 600 at a cost of 15 percent, debt 400 at 10 percent, tax 25 percent: WACC = 0.6 × 15 + 0.4 × 10 × 0.75 = 9 + 3 = 12 percent.
- Capital structure: the debt-equity mix; benefits of debt (tax shield) and risks (financial distress).
- Working capital management: net working capital = current assets − current liabilities; the cash conversion cycle = inventory days + receivable days − payable days; managing cash, receivables, inventory, and payables.
- Capital budgeting: payback, NPV, IRR (Chapter 8).
- Dividend policy: stable dividends, residual, and bonus or scrip issues.
- Financial markets and institutions in Sri Lanka: the Central Bank of Sri Lanka, commercial banks, licensed finance companies, insurance companies, the Colombo Stock Exchange (CSE) (with indices such as the All Share Price Index), and the Securities and Exchange Commission of Sri Lanka. Basic knowledge of risk and return, diversification, and financial literacy is valuable (Lusardi & Mitchell, 2014).
Human Resource Management (HRM)
HRM attracts, develops, motivates, and retains employees (Armstrong & Taylor, 2020).
| Function | Key points |
|---|---|
| Human resource planning | Forecasting demand and supply; job analysis, job description, and job specification |
| Recruitment and selection | Sources (internal and external); selection methods (application, tests, interviews, references); induction |
| Training and development | Needs analysis, on-the-job and off-the-job methods, evaluation |
| Performance management | Appraisal methods (ratings, management by objectives, 360-degree feedback); feedback |
| Compensation and benefits | Wages and salaries, incentives, and benefits |
| Employee relations | Communication, grievance and discipline, trade unions, collective bargaining |
| Health, safety, and welfare | Safe workplaces and wellbeing |
| Labour law context in Sri Lanka | The Employees' Provident Fund (EPF) and Employees' Trust Fund (ETF) are statutory schemes (as a rule, employers contribute 12 percent to the EPF and 3 percent to the ETF, and employees contribute 8 percent to the EPF; check the current rates), and laws such as the Shop and Office Employees Act and the Wages Boards Ordinance regulate employment |
Issues include diversity and inclusion, work-life balance, remote and hybrid work, and strategic HRM.
Information Systems in Business
- Data, information, and knowledge; the role of information systems in supporting operations, management, and strategy (Laudon & Laudon, 2020).
- Types: transaction processing systems (TPS), management information systems (MIS), decision support systems (DSS), executive information systems, enterprise resource planning (ERP), and customer relationship management (CRM).
- E-commerce and e-business: online retail, digital payments, and mobile commerce.
- Security and ethics: data protection, privacy, cybersecurity, and responsible use of AI.
- Information systems and competitive advantage.
Common Mistakes
- Confusing profit maximization with shareholder wealth maximization.
- Forgetting the tax shield in WACC.
- Treating HRM as only recruitment.
CHAPTER 13