Session Zero on the Corporate Finance Course provides a quick overview of the structure of first course on Corporate Finance and also serves as an index page. The first course is a basic rudimentary course in corporate finance that covers introductory concepts and opens the first door. If you already have familiarity with core concepts in finance and are looking for applications and case studies, jump straight to Electronic Arts and other management case studies section of the course. The cases is where the real learning is and you can easily skip the basic introductions.
The corporate finance section of case studies includes in addition to EA cases on Office Depot, AMD, Staples and Baldwin Piano. While the names and cases are dated since this material was written and published in early 2000, the concepts and principles are still relevant. In addition a few non numerical case studies are also included in the guide.
Other related course in the corporate finance series include the master credit analysis course as well as the much shorter ratio analysis course. Both courses provide a slightly deeper review than the first course in corporate finance.
You can use this as an index to jump off to the relevant sections of the course that are of interest to you. In addition to the index, a topic list by session is also provided to help guide you to the right session. Although not essential, some knowledge of basic accounting, mathematics and algebra would be useful. There are no other pre-requisites.
There are three central themes in the course.
- What exactly is cash flow and how do we measure it?
- How do we determine cash flow for projects, businesses & investment opportunities?
- Given cash flows for a wide variety of opportunities, on what basis should an investment be made; is there such a thing as good or bad cash flows, or a formal selection and rejection criteria for investment opportunities?
The themes lead to three separate problems.
- The valuation problem – how much is a collection of cash flows worth?
- The investment problem – how do you decide which projects to pick and invest in?
- The portfolio problem – how do you balance risk across a collection of investment choices?
This corporate finance overview uses three case studies to apply these principles & themes. There are seven sessions (0, I, II, III, IV, V, VI) that build up on each other. However, you can now skip directly to the next section or review the course learning plan below.
- Financial Statements – Balance Sheet, Profit & Loss and Cash flows
- The Balance Sheet, Assets, Depreciation
- Equity and the Income Statement
- Risk & Return
- The many faces of Return: ROE, ROIC and Payback
- Discount rate and time value of money
- Present Value in Action
- Calculating Internal Rate of Return or IRR
- Opportunity Cost and Cost of Capital
- Beta, Calculating WACC or Weighted Average Cost of Capital
- Case Study: Electronic Arts (EA)
The sections that follows provide short topic list for each sessions/lesson listed above.
Session I – Basic Financial Concepts review in the Corporate Finance Overview
- The Operating Cycle
- The four sub-cycles within the Operating Cycle
- What are Financial Books and within a financial structure how they relate to a business
- Liquidity and Maturity
- The different forms of ownership and the benefits and drawbacks of each
- The general reasons for looking at financial statements.
- The three major financial statements
- Define a balance sheet
- What information is provided in it
- Define an Income Statement
- What information is provided in it
- Define a statement of cash flow
- What information is provided on it
- The type of cash flows
- What are accounting notes
Session II: Review of Financial Statements
- What is an asset
- About current assets
- Types of current assets
- About Property, Plant and Equipment
- What is depreciation
- What is a liability
- About current liabilities
- Types of current liabilities
- About long term liabilities
- How to calculate net working capital
- Define net working capital
- What a positive/negative net working capital indicates
- What is an equity
- Types of equity
Session III: Risk and Return
- What the term risk & reward implies
- What return means
- Influences on return
- Define Return on Equity
- Explain Return on Invested Capital
- What is a payback period
Session IV: Time Value of Money: An Overview
- What compounding means
- How to calculate compound interest
- Explain what discounting means
- What is present value
- What is future value
- How to calculate: the discount factors, investment stream, return stream, net present value
- Analysis of the results
- How to lower your expected return
- What is IRR
Session V: Opportunity Cost and Cost of Capital
- Define Opportunity cost
- What Cost of Capital is
- What is WACC
- The simple average calculation
- Issues affecting interest rate on debt
- Issues affecting required rate of return
Session VI: Corporate Finance Overview Case Study – Electronic Arts
At the end of this case, you should be able to use previous financial statements to project ones for future periods. You should also be able to evaluate if the stock of the company is priced appropriately and determine if it is ripe for investment.