Financial management. Modelling financial decisions

Programme

Managing financial flows

• What is financial management? The place of the financial manager in the company and the roles they perform
• Applying the opportunity cost concept in financial management. Opportunity costs and the time value of money

Question for discussion: what are the problems of using company value as the corporation's main objective in periods of financial instability

Calculating and analysing the cash flow indicator

• The indirect method of calculating cash flow
• The optimal ratio between operating, investing and financing flows
• Forecasting cash flows

Assignment: analysing the structure of a company's cash flows

Fundamentals of valuing financial assets

• Principles of valuing the main financial assets. Method of valuing the main financial assets. Valuing a coupon bond
• The term-yield relationship as a characteristic of the situation on the financial market

Assignment: solving a bond analysis problem (done on computers) to draw conclusions about the variants of the term-interest rate relationship

Assignment: the term-yield relationship for government bonds of two countries

Choosing the discount rate

• Risk classification. Measuring risks. Systematic and unsystematic risks. The significance of diversification for risk management. The capital asset pricing model and its methodological premises. Criticism of the CAPM model. Alternative approaches to valuing financial assets. Methods of expert risk assessment
• Methods of determining the discount rate. The main content of the capital asset pricing model. The risk premium for investing in shares compared with the risk-free rate

Assignment: determining the discount rate as WACC (weighted average cost of capital)

The system of financial models in analysing investment projects

• The concept of financial models
• The relationship between the various forecast forms: the assumptions section, costs, income, investment and financing
• Forecast financial statements (balance sheet, profit and loss statement, cash flow statement)
• Summary project reporting, calculating the discounted performance indicators of an investment project

The system of input assumptions

• Types of input assumptions. Their classification
• Consistency check

Designing financial models

• The role of formatting and structuring in modelling
• Classification of financial models
• Comparative analysis of business valuation models and investment project models. Can the same model be used for different valuation purposes

Verifying financial models

• Sensitivity analysis to changes in input parameters
• Stress testing
• Identifying key success factors — value drivers
• Sensitivity analysis

Dynamic methods of analysing investment projects and company valuation

• The discounted cash flow method and the indicators calculated within this method: net present value NPV, internal rate of return IRR, discounted payback period DPP, profitability index PI

Assignment: build a financial model for evaluating an investment project (done on computers)

The essence of business valuation, types of value and their characteristics

• Classification of types of value
• The going concern concept and the liquidation concept
• The cost approach to business valuation
• The income approach to business valuation

Assignment: valuing an oil company using the DCF method. Factor analysis of value