COMMON
CORE COMPONENT: FTX5042W CORPORATE FINANCE & VALUATIONS
1. AIMS AND OBJECTIVES
The broad aim of FTX5042W is the
preparation of participants for executive positions in corporate finance. The approach is interdisciplinary with the
emphasis on the development of conceptual knowledge and problem solving ability
in issues regarding corporate finance within the context of strategic
management planning.
The objectives of the course are to:
- focus on the underlying
concepts in corporate finance within the context of strategic management,
through the study of appropriate case studies, textbooks and research
articles;
- create the structure which
affords the participants an opportunity to develop a decision focused
approach to financial management
- provide opportunities for
participants to explore and to discuss corporate finance and capital
markets;
- develop the ability, given
a particular financial situation within a business environment to:
·
identify
key issues,
·
focus on relevant information,
·
rank
issues in order of importance,
·
process
required computations and undertake financial modelling,
·
suggest
and debate alternative courses of action,
·
select
the most appropriate course of action,
·
develop
the ability to present a motivated solution to a complex financial issue, given
the possibility of alternative solutions, to small and large groups of
participants,
·
develop
the participant's oral and written communication skills.
2. COURSE DURATION
The course extends over the period from
March to November and comprises weekly class meetings, which are held on Monday
to Thursday evenings (please consult your program as venue availability is
driving the choice of evening) from 18.00 to about 20.30 in room 4J, Leslie
Social Sciences Building. Saturday mornings are often used for additional
lectures and tests and examinations.
The proposed programme for FTX5042W is set
out in the ANNEXURE but may be subject to change:
Class, or individual sessions may be held
to consider proposals for and/or discussions on Research Proposals. Staff is
available to assist with Research Proposals already during this course.
Attendance at all sessions is an essential
requirement for continued permission to remain on the course and for
registration. We do understand that your
work commitments are important. However,
attendance at lectures must be a priority.
If you are going to miss a class, please email us with an explanation
and go the extra mile for your group. Non-attendance
will not be accepted without a detailed reason for such absence.
3.
COURSE CONTENT
The
course has a decision making focus
within a strategic context. Value
creation and the principles of valuations
are stressed throughout the programme.
The content is organised in key areas:
3.1 Accounting Information, Financial
Analysis and Financial Modelling
Accounting data reflects the firm’s
relationship between capital markets and investment opportunities, and the
results of operations. The course
focuses on interpreting this information for decision making. Forecasting
financial statements and funding requirements are also covered as well as
financial analysis and credit ratings.
3.2 Risk & Return, Cost of Capital and
EVA
These are key underlying concepts in the
creation of value. It is not enough for
firms to earn a profit, in order to add value the profit must exceed the firm’s
cost of capital. The use of Economic
Value Added as a measure of performance is evaluated Joel Stern – the founder
of EVA normally lectures on this topic.
3.3 Capital Budgeting & Risk Analysis
The analysis of long-term investments is
crucial in maximising value, especially in situations of capital rationing and
inflation. The evaluation of capital
projects emphasises the tax implications, real options and the estimation of
project cash flows. Risk analysis
includes sensitivity analysis, tornado graphs, scenario manager, goal seek, and
financial modelling in Excel. We also apply Monte Carlo Simulation using Crystal
Ball.
3.4 Source of Finance and Capital Structure
Excessive use of debt can expose a firm to
unacceptable levels of risk. Conversely,
conservative debt policies may limit the opportunity for the leverage effect to
increase wealth. How do firms select
their debt/equity ratios? Which sources
of finance should firms use? The course
evaluates MM and other capital structure theories
3.5 Valuation of Companies and Fixed Income
securities
The valuation techniques required to value
equity and fixed income securities are fundamental to decision making in
corporate finance and portfolio management.
Topics include Yield to Maturity, Free Cash Flow, EVA, Growth models,
net asset values and price earnings multipliers. Financial Modelling is a key component of
this section and this topic also refers to the IPEV and IVSC guidelines.
Forecasting methods are analysed and you will be referred to readings on the
topic. The valuation of financial
institutions will be included.
3.6 Specialised topics in Finance
Specialised topics covered in the course
include real options, share buybacks, BEE financing structures, securitisation
and behavioural finance.
4.
KEY ELEMENTS
The course provides an integrated package
built around a number of key elements, each of these supports and is supported
by the other elements. No part of the
programme stands alone and students are expected to participate fully in each.
4.1
Participants
The course is designed to assist
participants in achieving the course objectives, while allowing sufficient
scope for individuals to achieve personal objectives. Those invited to join the programme will be
selected because it is believed that they have something to offer to, as well
as gain from the course.
4.2
Working Groups
The class will be divided into groups of
between 4 and 5 students. The objective
of the working group is to simulate organisational behaviour. Various people in an organisation will
observe clues to problems and will propose action: in the working group the
participant should develop reasoning and persuasive abilities and also the
ability to draw on the knowledge, experience and perceptions of others in the
group. Groups prepare material for each
session of the full class and will also be allocated group assignments. Working groups normally meet once a week at a
time convenient to the group members.
Many corporate finance assignments in practice revolve around
teams. The course reflects the new
corporate reality.
4.3
Case Studies
The Programme follows the Harvard Business
School approach of making extensive use of case studies. The objective of a case study is to simulate
real financial management situations.
Good case studies will therefore have a certain level of
"noise", which is irrelevant, distracting or misleading information,
and also clues to various problems.
These relevant problems then compete for priority. The task of the group is:
- to eliminate the
"noise",
- identify the relevant
problems,
- rank them in order of
priority,
- research the finance theory
and literature relevant to these problems,
- identify alternative
courses of action,
- propose and motivate the
preferred alternative.
Case study work forms the core of FTX5042W.
The typical procedure for case study preparation will be as follows: the
individuals in the group will analyse the case and research material where
appropriate. They will then formulate a
written solution. They will then meet in
the working groups to exchange, propose and debate their views. A group member will document its conclusions
and supporting arguments. This document
is typed, including a reference list and is submitted by 12.00 p.m. of the day
of the class meeting where the case is to be discussed. Each Group can email their submission but need
to set out the worksheets in such a way that it is easy to print. Always identify your Group in file names.
In addition, each group will appoint a
chairperson on a rotating basis to co-ordinate and manage each group’s
submission on a weekly basis. It is
mandatory that the functions of chairperson be rotated through the working
group. However, I will retain the right to call on anyone to open a case. No
other mandatory rules apply to working groups.
It is essential that all students prepare for and participate in each
case study. Abdication in favour of the
chairperson will devalue the quality of solutions and defeat the function of
the case. It is critical that all members
are fully prepared as I will call on any student within a group to answer a
question.
At the full class meeting a group will be
selected and the spokesperson for that group will present their views. Other groups will also be given an
opportunity to present their case.
General discussion and questions will proceed. Circumstances may however require this
procedure to be altered on occasions.
4.4
Class Meetings
Besides the presentation of assignments and
discussion papers, weekly class meetings serve to create learning experiences
for the class as a whole. They are
conducted in various modes of which the following are the most frequent.
- Case Study. The session is used for presentation of
case study findings and discussion of the issues which arise.
- Unstructured Seminar. This results from students being given a
topic to research. On arrival at the class meeting, a chairperson is
appointed, a framework for discussion is agreed and the topic is
discussed, drawing on the reading and research of the whole group.
- Structured Seminar. This combines the features of a lecture
conducted by a staff member with specific preparation based on prescribed
readings.
- Guest Speakers. On occasions, visiting speakers with
specialist expertise are invited to address the class.
4.5 Assignments:
The objective of assignments is to develop
the participant's ability to:
- perform limited research on
a specific issue;
- to present varied opinions
thus obtained into a succinct summary; and,
- to select and justify
conclusions.
The group assignments have the added
objective (as with case studies) of developing the participant's reasoning and
human relations skills.
A major valuation research project is also required to be undertaken during
the programme. We make extensive use of
Adobe and your submissions should be in PDF format, if possible – otherwise use
Word. All references should be properly acknowledged and a reference list
should be provided. In general, marks will be awarded for content (adequacy of
coverage, analysis and research) and structure (clarity, logic, strength of
conclusions). Marks may be lost for poor
presentation (typographical errors, defective bibliography, poor layout).
4.6
Tests and examinations
A series of examinations will be held
during the year and usually after each section.
Participants will be permitted to bring reference material into
examinations. However, in some modules,
students will not be able to bring in any materials. The examinations will
primarily take the form of short case studies or problems and may include
questions on cases covered in the programme.
The scheduled dates for the tests and examinations are set out in the
programme.
4.7 Reference Material
The reference material is drawn mainly from
three sources. Firstly, prescribed
texts, which provide a basic reference document on selected issues. Secondly, the libraries have the resources of
books and journals (access is available to the Jagger Linear Library and UCT’s
electronic database resources). Thirdly,
it is expected of students to remain current with reporting in the local
financial press. It is included in the
objective of the course that participants should develop the ability to find
relevant reference material from the library and other sources.
The prescribed texts are:
- Brigham, Eugene F, &
Davies Phillip R, Intermediate Financial Management, Eighth
or later Edition. Otherwise,
order any Intermediate
Financial Management or Corporate Finance Textbook. Damodaran’s Corporate Finance – Theory
& Practice is recommended.
- Correia, Flynn, Uliana
& Wormald, Financial Management,
7th ed., Juta & Co., 2011
- Bruner, Robert F, Eades,
Kenneth M. and Schill, Michael J. Case Studies in Finance - Managing
for Corporate Value Creation, Irwin McGraw-Hill, 6th Edition, 2010 (Note: the 5th
edition should also be fine for this course)
5. COURSE CONVENOR
The programme director is Prof Francois
Toerien and the course convenor for
FTX5042W is Dr Phillip de Jager.
Download PDF copy
Example
Programme Outline
_
Last updated : 07 Feb 2017
Staff Members on this course :
Dr. Francois Toerien
Associate Professor