FINANCIAL MANAGEMENT Ateneo-Standard MBA Program Revised: August 2020 ECONOMICS, FINANCE & ACCOUNTING DEPARTMENT Ateneo-Standard MBA Program COURSE TITLE: FINANCIAL MANAGEMENT COURSE CODE: SPFINMAN COURSE DESCRIPTION: The course deals with the application of contemporary finance theory to the solution of management problems. The focus is on policy formulation and decision making under uncertainty. Critical evaluation of concepts is emphasized to assess their usefulness in practical business situations. Problem-solving methodology is used to illustrate the theories and tools in financial decision-making. The course likewise tackles the ethical issues and dilemmas faced by the finance manager in his day-to-day work and how these are solved. The learners will be taught how to resolve these issues using an ethical decision analysis framework. The course also discusses the implications of financial management decisions in the life of the enterprise and how such impacts the national economy as a whole. COURSE OBJECTIVES: Upon the successful completion of the course, learners are expected to competently: 1. Discuss the objectives of the finance function in the organization, the role and importance of the finance manager in the modern firm; 2. Apply financial planning and forecasting tools in projecting a firm’s financials; 3. Apply the various tools in managing cash, accounts receivable and inventory in appropriate situations; 4. Evaluate long-term investments – capital expenditures, projects, and financial investments – using tools and techniques for project evaluation and investment management; 5. Evaluate a firm’s capital structure and the various sources of short, medium and long-term financing; 6. Discuss dividend and payout policies and their effects on firm value 7. Analyze the risks a finance manager faces in the normal course of business and explain how real options, derivatives, hedging, and other techniques can minimize or avoid risk; and, 8. Discuss the ethical and economic implications of decisions related to financial management as they affect the enterprise and the nation as a whole. NOTE: THE FOLLOWING SKILLS SHOULD BE MASTERED IN PREPARATION FOR THE CAPSTONE COURSE, STRATEGIC MANAGEMENT (STRAMA), AS THESE SKILLS WILL BE REQUIRED TO BE DEMONSTRATED IN THE STRAMA PAPER TO BE PRESENTED AND DEFENDED IN FRONT OF A PANEL. 1. Financial planning and forecasting (see Course objective No. 5) – the Learner is expected to prepare 3-year projected income statements and balance sheets using the percentage-of-sales method and other techniques learned in connection with financial statement analysis such vertical and horizontal analysis, ratios, the Du Pont method; he is also expected to prepare a master budget to complement/validate the financial projections if he is thoroughly familiar with the company which is the object of the STRAMA paper 2. Working capital management (see Course Objective No. 7) – the Learner is expected to assess the operating cycle of the company through calculations of receivable and inventory turnovers and days in receivables and inventories as part of his internal analysis of the company’s financial performance 3. Capital budgeting/Long-term Financial investing (see Course Objective No. 8 and 10) – the Learner must know how to evaluate long-term investments using the discounted cash flow method through a working knowledge of how to determine cash flows, calculate present values of cash flows, and calculate weighted average cost of capital (WACC) to serve as a discount factor. He should also be able to determine the internal rate of return. This skill is needed to be demonstrated in the Strama paper especially when there is a strategic option to acquire a company or set up factories which require commitment of significant resources. The Learner is also expected to evaluate long term financial investments in stocks and bonds through a working knowledge of portfolio theory, pricing of stocks and bonds, diversification techniques, especially when the company which is the object of STRAMA is a financial institution. 4. Capital structuring (see Course objective No. 9)- the learner must know how to structure the company’s proportion of debt and equity to arrive at the least possible WACC and to minimize the possibility of insolvency due to extensive interest-bearing debt. This proper balance should be incorporated in the financial projections and master budgets prepared for the STRAMA paper. 5. Risk assessment and management (see Course objectives No. 6 and 11) – the Learner is expected to be alert to business and financial risks and be able to manage them through hedging techniques. This is useful as a paradigm when performing internal analysis of the object company in the STRAMA. COURSE OUTLINE (LIST OF MODULES) Module 0: Module 1: Module 2: Module 3: Module 4: Module 5: Module 6: Module 7: Introduction Financial Planning Working Capital Management Project Evaluation and Capital Budgeting Capital Markets and Investments Capital Structure, Equity Financing & Payout Policy Long-term Financing (Debt, Leasing, Joint Ventures) Special topics (Derivatives, M&As, International Finance) FORMATIVE AND SUMMATIVE ASSESSMENTS: Formative assessment 1. Prepare 3-year financial projections for a chosen entity Additional guidance: a) Ideally, you should be making projections on the entity that will be the subject of your paper in Strategic Management. This makes the exercise both relevant and efficient. b) You will need the financial reports of at least the last three years and some idea of the plans of the firm in the next few years. The past financials give you insights on trends and on the range of figures that are reasonable. The plans help in the projections. c) Project 3 years of financial reports, with each year projected separately. Articulate the bases for the projected values of major accounts. (e.g., management plan, trends, some law the firm has to comply, a ratio, average, etc). The bases are more important than the numbers! d) Submit the past financials, the plans, and the projections. e) The instructor will provide feedback to improve the projections and your skills in this area. Course Learning Outcome assessed: Apply financial planning and forecasting tools in projecting a firm’s financials Summative assessments 1. Midterm Examinations 2. Final Paper Section A Each learner shall submit a final paper on a situation/ issues, problems, challenges in a chosen company that can be resolved or decided on with the help of tools learned in financial management. The student will research the situation currently faced by their firm, either a problem that has strategic financial implications or a decision issue that will lead to further improvement in wealth creation and enhancement of the firm’s value. The student will do an analysis of the situation including all related issues and will make a proposal specifying actions that will provide a response to the situation. Relevant concepts and tools learned in Financial Management must be used in the analysis and become a basis for the recommendations. The estimated financial impact or benefit of those recommendations if implemented should be shown. The paper should contain the following parts: 1. Brief company background 2. Presentation and discussion of the case 3. Analysis, including how the case situation is affecting the financial condition or performance of the firm 4. Application of a financial tool/s or concept/s on the case and the initial recommendation reached based on said application. Show the estimated financial benefit derived from implementing this recommendation. 5. Other considerations and final recommendation Course Learning Outcomes assessed: The final paper addresses any combination of the following course outcomes: 1. Apply the various tools in managing cash, accounts receivable and inventory in appropriate situations; 2. Evaluate long-term investments - capital expenditures, projects, and financial investments - using tools and techniques for project evaluation and investment management; 3. Evaluate a firm’s capital structure and the various sources of short, medium and long-term financing; 4. Analyze the risks a finance manager faces in the normal course of business and explain how real options, derivatives, hedging, and other techniques can minimize or avoid risk; 5. Apply financial planning and forecasting tools in projecting a firm’s financials. Section B. Each learner will write a reflection paper on his/ her experience of the stock market game. Course Learning Outcome assessed: Evaluate long-term investments – capital expenditures, projects, and financial investments – using tools and techniques for project evaluation and investment management Rubrics for the final paper: Criteria for Assessment Needs Improvement Meets Standards Exposition of an authentic workplace situation Presents a current situation of strategic importance in the workplace, with adequate facts, issues, and options Level of argument and analysis Demonstrates well-structured and clearly expressed arguments and analyses. Application of tools learned in Financial Management Correctly applies the proper financial management tools to the situation Recommendation Comes up with recommendations that flow from the analysis; implementation challenges are discussed Projections Estimates the value created and the changes to the accounts affected by the recommendation. Exceeds Expectations INTEGRATION AND METHODOLOGY: Because of its integrative and wide-ranging features, this course is normally offered to senior learners who are expected to have completed the prerequisite or foundation courses in accounting. The facilitator will show the relationship of topics in this course with issues faced in accounting, operations, marketing, human resources, and management. Interactive methods and various strategies will be used to provide the best learning experience possible considering the students’ academic and professional background. This module serves as the blueprint on how the course will unfold. The facilitator, however, may introduce new topics and modify certain strategies in order to be more responsive to the students’ expressed needs. This course will be conducted with the use of interactive methods appropriate for adult learners, focusing on cases of specific and broad topics, group discussions and exercises, quizzes, individual and group presentations, simulation and other learning skills-building approaches. These methodologies are designed to enhance the personal development of learners who will take leadership roles in their future endeavors. GRADING CRITERIA: Learner performance will generally be graded in the following manner: Individual Work Group Work Midterm Examinations Final Paper Total 20% 20% 20% 40% 100% The following Quality Point Index (QPI) applies to all MBA courses. 4.0 3.5 3.0 2.5 2.0 0.0 INC UW W 98-100 95-97 92-94 89-91 86-88 (minimum pass) Failed Incomplete Unauthorized Withdrawal (equivalent to a Failing mark) Officially Withdrawn SPECIAL ACCOMMODATIONS: A learner in need of course adaptation or special considerations due to certain disability or other problems or constraints should discuss the same with the professor ASAP. 7 ACADEMIC INTEGRITY POLICY: Each learner is responsible to know the standards of conduct and expectations of academic integrity that apply to academic undertakings. Academic dishonesty will not be tolerated and will result in the maximum penalty allowable as defined in the student guidebook. The following are considered serious violations per guidebook: • • • Cheating during exams. Submitting spurious reports copied from previous materials other than his/her own. Plagiarism. In understanding what constitutes Plagiarism, see the following sites: http://www.engl.niu.edu/comskills/students/plagiarism/Plagiarism.html http://www.monet.k12.ca.us/Challenge/Plagiarism/Plagiarism.htm In addition to what is stated in the guidebook, the following are examples of academic dishonesty that are pertinent to the requirement of this course: • • • Copying another learner’s work including assignments and reports Use of “crib” sheets or other hidden note for a quiz or an exam Receiving assistance from anyone else for take-home quizzes MATERIALS OF INSTRUCTION: 1. Textbook: Ross, Westerfield, Jaffe, Jordan CORPORATE FINANCE, 12TH EDITION New York: McGraw-Hill Education © 2019 2. Facilitator-prepared booklet of materials, cases, and exercises to be distributed in Module 0. 3. Web References: The following APS online library resources are available for access: a. EBSCO b. Accessing Marketline Advantage Online The following internet resources can also be used: http://www.quickmba.com/finance/black-scholes/ A brief description of the black-scholes option pricing formula, and how to apply it to the valuation of options and warrants. http://www.finpipe.com/equity/finratan.htm Contains lectures about Financial Ratio Analysis. http://www.ventureline.com/FinAnal.asp Provides tools and topics about Financial analysis and industry ratios, Financial analysis of a public company with ratio analysis, Financial analysis of a private company with ratio analysis & Financial analysis comparisons. http://www.quickmba.com/finance/financial-ratios/ A listing of some useful financial ratios, including leverage, 8 gross margin, asset turnover, and liquidity ratios. http://fisher.osu.edu/fin/resources_education/credit An article by Professor Tin Opler of Ohio State University on .htm the changing issues related to corporate financing decisions (debt vs. equity) through time. http://web.utk.edu/~jwachowi/wacho_world.html Another well designed website specially for discerning finance students, includes auxiliary class materials, references to outside readings for chapters of any other finance text and other websites. http://www.treasury-management.com/ Articles by and for international treasures, on topics such as the euro and foreign exchange management. http://www.cfo.com Commercial finance online, largest finance search engine. Search for capital and resources of postings of businesses needing capital. http://www.gonnerman.com/tools.php Contains downloadable financial tools to report on operations, project cash needs, plan for equity-based transactions, etc. http://www.quickmba.com/finance/terminal-value/ Discusses the significance of terminal value and how to calculate it. http://www.themanager.org/Knowledgebase/Finan Discussion about accounting, activity based costing (abc), ce/index.htm budgeting / financial planning, business valuation, financial analysis and miscellaneous articles. http://www.euromoney.com/ Excellent articles on up-to-date topics in the global money and capital markets. http://www.quickmba.com/finance/free-cash-flow/ Explains how to calculate the unleveled free cash flow for valuation purposes. http://www.bonds-online.com/ Explanations and market data on US treasury and other bonds. http://www.stocktrak.com/ For those who wants the chance to test out their investment strategies without losing their shirts the company provides, for a free, the ability to "paper trade" a portfolio. http://www.quickmba.com/finance/invest/ Investment management, topics in investment management, including portfolio risk and return, the capital asset pricing model, single factor model, long-term investing, definedbenefit pension plans, arbitrage pricing theory, mutual fund style analysis and performance and tools. http://www.duke.edu/~charvey/Classes/ba350/cap Lecture from Professor Harvey of duke fuqua business struc/capstruc.htm school on corporate structure and dividend payout decisions. http://www.quickmba.com/finance/cf/ Lectures in corporate finance, finance from the viewpoint of corporate finance decision-makers, including profitability ratios, capital structure, cost of capital, discounted cash flow methods, and mergers and acquisitions. http://www.bizmove.com/finance/m3b3.htm Lectures on financial ratios analysis. http://www.moneyadvisor.com/ Lectures on loans and savings calculations, general financial calculators, mortgage calculators, college financial and calculators and just for fun calculators. http://www.quickmba.com/finance/invest/timing/ Discusses the predictive ability required in order to outperform the market by timing changes between equities and cash. http://www.quickmba.com/finance/mergersA short overview on mergers and acquisitions focusing on acquisitions/ the synergies required to make such combinations worthwhile. http://www.quickmba.com/finance/debt-valuation/ Methods for valuing the debt of a corporation. Includes a section on modeling the possibility that bond ratings will change over time. http://www.nyse.com/ New York stock exchange, primary US stock market, Information on the stocks that are sold on this exchange can be found here. http://www.schwab.com/ One can sign up to receive Schwab’s company research information or electronic trading. 9 http://www.mapnp.org/library/finance/fp_fnce/fp_fn ce.htm http://pages.stern.nyu.edu/~adamodar/New_Home _Page/cflect.htm http://www.a1abusinessanalysistools.com/ Presents related libraries for financial management and small for-profit businesses. Professor Damodaran of the Stern School of Business Corporate Finance Lectures. Provides a wide range of accounting and financial analysis tools. http://www.arprogram.com/ Provides annual reports solutions for financial institutions. http://finance.pro2net.com/ Provides finance news, research, articles and marketing for financial professionals. http://www.quickmba.com/finance/securities/ Security analysis, lectures on how to value the assets, debt, warrants, and equity of companies. Includes valuation methods, free cash flow, leverage, cost of capital, share buybacks and more. http://www.quickmba.com/finance/invest/indices.sh An introduction to commonly used stock price indices tml including price-weighted, market cap weighted and unweighted indices. http://fisher.osu.edu/fin/journal/jof.html This magazine is focused much more specifically on academic research regarding the financial markets. http://www.quickmba.com/finance/invest/tradecost/ A short discussion on the costs associated with equity trades, including commissions, fees and taxes the market maker spread the impact of trading on market price, and the opportunity cost concludes with two ways of reducing trading costs. http://www.nasdaq.com/ US over-the counter stock market Information on the stocks that are available on this exchange can be found here. http://pages.stern.nyu.edu/~igiddy/ Usage of derivative contracts in international investments. http://www.ml.com/ Provides data in making stock selections, Information on the broader investment market and on the economy. http://www.forecasts.org/ Web site of the financial forecast center provides six month forecasts for major stock indexes, money rates, foreign exchange, and general economic indicators. http://dir.yahoo.com/Business_and_Economy/finan Yahoo's finance and investment section. ce_and_investment 10