Summary of the Corporate Finance Course
The purpose of this course is to learn, using real-life examples, how companies manage their finances. The course focuses on three main areas. First, cashflow management. Have you ever wondered how a successful company with ф great product starts growing and then goes bankrupt? Most likely, the company has mismanaged its working capital.
Second, financing. Most of the companies always need more money (just like most of people). But how much exactly is needed? And what is the best way to raise it – via borrowing or via selling a stake in the company? Every option has different costs and different risks, and the choice can have very serious consequences.
Finally, valuation. When a company considers building a new plant, or relocating to another country, or replacing equipment, or even buying another company – it needs to understand what is the monetary benefit of doing it. Over the long term, the companies that do the best, are those which have consistently identified and undertaken the most valuable projects available. So how exactly do we estimate value?
Recommended Textbook the Corporate Finance Online Course
The recommended textbooks for this course are: “Principles of Corporate Finance” by Brealey, Myers, Allen and “Analysis for Financial Management” by R. Higgins. They complement each other and are best when used together.
Duration of the course can vary, depending primarily on the amount of time a student is able to commit and previous experience with accounting and finance. In most cases, the course can be completed within 6-8 weeks, given 2 sessions per week.
Pre-requisites to the Corporate Finance Online Course
Success during the course is impossible without working knowledge of basic financial and accounting concepts, therefore Introduction to Finance and Introduction to Financial Accounting are pre-requisite courses for this course. In addition, almost all the case studies and exercises in this course require some degree of financial modeling, and because of this, fluency in Excel is critical as well.
Recommended follow up courses for Introduction to Corporate Finance Course
Recommended follow-up courses for students who would like to get a deeper knowledge of specific areas:
- Advanced Corporate Finance – building on the previous course, discusses advanced topics and techniques such as valuing joint ventures and real options. This course would be particularly useful for students interested in corporate finance.
- Mergers and Acquisitions – studies why companies sometimes decide to buy other companies, how they come up with the price and what else surrounds the process (for example why a friendly merger is usually better than a hostile one). This course is essential for investment banking and corporate finance professionals.
- Entrepreneurial Finance – focuses on valuing early-stage companies and structuring venture capital investments. This course will be useful to students who are interested in start-ups and venture capital.
Introduction to Corporate Finance Course Outline
1. Introduction – key tasks of the CFO:
a. Valuation.
b. Financing.
c. Cash management.
2. Identifying funding needs.
a. Using Sources and Uses of Funds.
b. Cash cycle.
c. Implications of trade credit.
d. Ratio analysis.
e. Using pro forma statements to forecast funding need.
f. Sustainable growth rate.
g. Implications of business cyclicality.
3. Optimal capital structure – basics.
a. Possible source of funds.
b. Characteristics of financial claims.
c. Key questions for capital structure decisions.
d. Modigliani-Miller Theorem.
e. Adding real-world pieces to the MM picture:
i. taxes;
ii. cost of financial distress;
iii. asymmetric information;
iv. agency costs.
f. Pecking order theory.
g. Summary – checklist for capital structure decision.
4. Valuation using Free cash flows.
a. Introduction to valuation.
b. Using NPV versus other criteria.
c. Using comparables.
d. Estimating free cashflow.
e. Estimating discount rate.
5. Weighted Average Cost of Capital (WACC) and Adjusted Present Value (APV).
a. Introduction – how to include effects of interest payments.
b. Using WACC method
i. using CAPM to estimate cost of equity.
c. Using APV method.
d. WACC vs. APV.
6. Real options.
a. Review of options as financial instruments.
b. Spotting real options.
c. Examples of real options.
d. Valuing real options:
i. “dynamic” DCF method;
ii. Black-Sholes model.
7. Valuing a company.
a. Enterprise value vs. Equity value.
b. Estimating terminal value.
c. Assessing growth using Economic Value Added (EVA).
d. Using valuation by multiples (comparables).
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