Corporate finance: Know your numbers 2

Macquarie University via Coursera

Go to Course: https://www.coursera.org/learn/corporate-finance-know-your-numbers-2

Introduction

### Course Review: Corporate Finance: Know Your Numbers 2 In the world of corporate management, understanding financial management is not merely advantageous—it’s essential. "Corporate Finance: Know Your Numbers 2," offered on Coursera, is a comprehensive course designed to equip managers with the foundational knowledge required for responsible and sustainable leadership from a financial perspective. This course dives deep into the key aspects of effective financial management, covering everything from assessing an organization’s financial health to planning for future performance and financing operational activities. #### Overview This course presents a structured learning approach through a rich blend of video lectures, engaging quizzes, interactive discussion prompts, and written assessments. The content is tailored to enhance your grasp of financial management basics, ensuring you can make informed decisions that positively impact your organization. The course emphasizes practical financial management decisions and introduces crucial concepts, making it suitable for anyone seeking to sharpen their financial acumen, regardless of their prior experience level. It also highlights the importance of a shareholder perspective in business decision-making, adding a strategic layer to financial management understanding. #### Syllabus Breakdown 1. **Financial Management Decisions**: Week 1 lays the groundwork by reviewing various capital allocation decisions within a business. It explores the significance of a shareholder perspective and introduces key terminology associated with business life cycles and ownership models, such as venture capital and private equity. 2. **Time Value of Money and Discounted Cash Flow Analysis**: The second week tackles the critical concept of the time value of money, teaching participants how to quantify the difference between current and future cash flows. This knowledge is fundamental for making investment decisions and will enhance your capabilities in handling financial transactions confidently. 3. **Valuation of Financial Securities**: In week 3, the course elaborates on estimating enterprise value and introduces capital budgeting techniques like Net Present Value (NPV) and Internal Rate of Return (IRR). Understanding these tools is necessary for making informed investment decisions and ensuring efficient capital allocation within a business. 4. **Estimating Enterprise Value**: Week 4 extends valuation tools further, introducing the Residual Income model, focusing on existing businesses, and addressing risk profiles of investment opportunities. This comprehensive approach ensures that participants understand both the valuation and risk management aspects of finance. 5. **Application of Financial Valuation Tools**: During week 5, participants apply previously learned valuation techniques to improve existing business operations. This week emphasizes performance measurement and the concept of capital rationing, enabling managers to make more informed choices regarding project evaluation and resource allocation. 6. **Putting It All Together: Applying Financial Valuation Techniques**: The final week revises key concepts through practical applications, reinforcing learning with a focus on an imaginary online business scenario. This hands-on approach helps solidify understanding and application of complex techniques. #### Recommendations **Who Should Take This Course?** This course is particularly beneficial for aspiring managers, current executives seeking to refine their financial knowledge, and entrepreneurs aiming to grasp core financial principles that can improve their decision-making skills. It strikes a balance between theoretical concepts and practical applications, making it accessible for individuals from various backgrounds. **What You’ll Gain:** Completing "Corporate Finance: Know Your Numbers 2" will leave you with a holistic understanding of financial management principles applicable in real-world scenarios. You’ll enhance your ability to engage with financial data, make strategic investment decisions, and assess the financial health of your organization—skills vital for effective leadership in today’s dynamic business landscape. #### Conclusion "Corporate Finance: Know Your Numbers 2" is a thorough and insightful course that offers a wealth of knowledge for anyone looking to master the fundamentals of financial management. With its structured approach and practical insights, this course is aptly designed for future leaders aiming to make informed and strategic decisions. I recommend this course as an excellent investment for your professional development in corporate finance. Whether you're a novice or looking to enhance your existing knowledge, this course will empower you to navigate the financial landscape with confidence.

Syllabus

Financial management decisions

In Week 1 we have three main objectives. Firstly, we review the main types of decisions made when management and owners allocate capital within a business. Secondly, we will discuss why it is important to bring the shareholder perspective to these decisions. Thirdly, to introduce key terminology around the business life cycle and different types of ownership models, including venture capital, private equity and listed companies.

Time value of money and discounted cash flow analysis

This week we will consider the time value of money. We will learn how to put a numerical value on the difference between money today and money at a specific time in the future. We will look at simple and compound interest, present and future value of money, annuities and perpetuities. Understanding the time value of money will help us to make investment decisions or, as corporate finance managers, decisions about whether to buy or sell an entire business or to invest in an advertising campaign. It’s an important skill and will require you to work through financial models that involve some equations and numbers. Knowledge of the time value of money will make you more confident dealing with financial transactions and better understand how the world of finance operates.

Valuation of financial securities

This week we will consider applying our knowledge of interest rates to some real world problems. We will learn how to estimate the value of an enterprise. We will learn about capital budgeting techniques to help us decide intelligently which projects that are available to a business should be pursued.The techniques we will learn include Net Present Value, Internal Rate of Return, Pay Back Period, and the Money Multiple Method. We will also discuss briefly the capital asset pricing model, or CAPM, which enables us to estimate the cost of capital for a business, which is the return demanded by the providers of the capital, that is, the investors.

Estimating enterprise value

In week 4 we extend the valuation tools developed in the course so far to evaluate a series of new business investment opportunities. We will start off by considering the value of an existing, established business. We have already seen how we can use the traditional Operating Free Cash Flow (OFCF)/Weighted Average Cost of Capital (WACC) model to estimate the Enterprise value of a business. We will now use an alternate model, the Residual Income model, for the same purpose. Once we are comfortable with the various different business valuation models, we will turn our attention to an assessment of the risk profile of the investment. We will firstly differentiate between the risks that are being allowed for in the discount rate, or “systematic risks”, and those that are specific to the project being considered, or “idiosyncratic risks”. Towards the end, we will look at tools that help assess the idiosyncratic risk of the investment.

Application of financial valuation tools

This week, we will apply the valuation tools we have developed in the course so far to improve our existing business. We start by revisiting the NPV rule for individual project investment decisions, and then extend that to think about how individual projects impact value at the Enterprise level. We then consider a range of specific applications for our project evaluation tools, including capital rationing, asset replacement, and outsourcing decisions. After this we will turn our attention to the question of how well our existing businesses are performing. We will start by introducing a range of performance measurement tools. This will help us to develop a framework for both recognising how well we are currently performing, and selecting from a series of deliberate choices to improve that performance.

Putting it all together - Applying financial valuation techniques

This week is all about revision. There’s not much new content. We’ll focus on applying the theories to a small example, an imaginary online business, and cover some of the more difficult techniques including annuities, perpetuities, Net Present Value, and how to turn profits into cash flows.