Course Preview | Building Financial Acumen for Non-Financial Managers from The Rotman School of Management
7:13 min
32
Hello. Welcome to our course. I'm Professor Rotenberg, I teach finance and accounting. My name is Walid Hejazi and I teach economics and finance. Our course has six modules. Walid teaches Module 1, an introduction to financial markets. Then I teach Modules 2, 3 and 4 on the language of investments, the language of financial reports, and management accounting concepts and project analysis. And I teach Module 5 corporate finance, the cost of capital and taxes, and Module 6 on options. We'd like to give you a brief introduction to each of the six modules now.
In Module 1, an introduction to financial markets, the key takeaways are as follows. We cover a wide variety of topics that provide a foundational understanding of what financial markets are and how they work. We develop an understanding of what it means when you hear news or announcements of already priced inter-markets, which relates to the concept of market efficiency. We cover concepts of insider trading and why that can undermine confidence in financial markets. How to think about investing for retirement, reviewing concepts of risk and return, well-diversified portfolios, and also investment horizons. We also discussed the causes of the 2008 financial crisis. Finally, we cover issues of inflation, why inflation is bad for an economy, and how central banks that are raising interest rates can reduce inflation.
In Module 2, we work on the language of investments. The key takeaways are as follows. We refresh on types of investments and their role in financing organizations. We also calculate the future value of an investment with compound interest. We develop your understanding of cash flows to bond and equity investors. And how to value the cash flows of a bond and the cash flows of an equity investment. So, where do bondholders and shareholders get their information? It's from financial reports. So, in Module 3, we work on the language of financial reports. And accounting is important in all organizations, for both internal and external users. Internal accounting is called management accounting, and external reporting is called financial accounting. There are two key financial reports.
The balance sheet measures the resources of an organization and how they're financed at a point in time. The income statement measures earnings over the period between two balance sheets. We can compare the reports of one organization at different points in time. That's called time series analysis. Or we can compare the reports of different organizations at one point in time, and that's called cross-sectional analysis. We also learn how to analyze financial reports to understand key financial attributes of the organization. These include growth, liquidity, which is the ability to pay bills on time, profitability, which is the ability to earn income, asset utilization, we need measures of whether an organization has the right amount of assets for its activity level, and also the financing mix, the mix of debt and equity financing. Then in Module 4 we go on and work on internal management accounting concepts and project analysis. We start with financial planning and budgeting. Financial planning for different types of business units is different, and performance evaluation is done as variations from budgets or plans. We also work on types of costs, different cost classifications. Fixed costs and variable costs, when we distinguish between those we can calculate something called contribution margin, and we can do break-even analysis. We also work on capital project or long-term investment analysis. We talk about different types of projects and the decisions that are required, and also different methods of evaluating expected project cash flows.
In Module 5, we talk about corporate finance, the cost of capital, and the implication of corporate taxation. The key takeaways are how to value stocks and bonds using the present discounted value formula. How to conceptualize models of risk and incorporate risk-adjusted discount rates in the valuation of stocks and bonds. Understand the four standard methods used in valuing projects and how to explain why decisions may depend on the method chosen. We apply the capital asset pricing model, that is the CAPM, to the valuation of companies and projects, and understand what a company's WACC is, that is its weighted average cost of capital, and how corporate taxes impact the company's capital structure decision. We also incorporate the likelihood of financial distress into the capital structure decision of corporations.
Module 6, we talk about options. The key takeaways are as follows. We define what options are; what are call options and what our put options, and how does their value depend upon the value of the underlying asset. We think about when it might be appropriate to buy a call option or to buy a put option, that is, when do such options pay off.
In Module 1, an introduction to financial markets, the key takeaways are as follows. We cover a wide variety of topics that provide a foundational understanding of what financial markets are and how they work. We develop an understanding of what it means when you hear news or announcements of already priced inter-markets, which relates to the concept of market efficiency. We cover concepts of insider trading and why that can undermine confidence in financial markets. How to think about investing for retirement, reviewing concepts of risk and return, well-diversified portfolios, and also investment horizons. We also discussed the causes of the 2008 financial crisis. Finally, we cover issues of inflation, why inflation is bad for an economy, and how central banks that are raising interest rates can reduce inflation.
In Module 2, we work on the language of investments. The key takeaways are as follows. We refresh on types of investments and their role in financing organizations. We also calculate the future value of an investment with compound interest. We develop your understanding of cash flows to bond and equity investors. And how to value the cash flows of a bond and the cash flows of an equity investment. So, where do bondholders and shareholders get their information? It's from financial reports. So, in Module 3, we work on the language of financial reports. And accounting is important in all organizations, for both internal and external users. Internal accounting is called management accounting, and external reporting is called financial accounting. There are two key financial reports.
The balance sheet measures the resources of an organization and how they're financed at a point in time. The income statement measures earnings over the period between two balance sheets. We can compare the reports of one organization at different points in time. That's called time series analysis. Or we can compare the reports of different organizations at one point in time, and that's called cross-sectional analysis. We also learn how to analyze financial reports to understand key financial attributes of the organization. These include growth, liquidity, which is the ability to pay bills on time, profitability, which is the ability to earn income, asset utilization, we need measures of whether an organization has the right amount of assets for its activity level, and also the financing mix, the mix of debt and equity financing. Then in Module 4 we go on and work on internal management accounting concepts and project analysis. We start with financial planning and budgeting. Financial planning for different types of business units is different, and performance evaluation is done as variations from budgets or plans. We also work on types of costs, different cost classifications. Fixed costs and variable costs, when we distinguish between those we can calculate something called contribution margin, and we can do break-even analysis. We also work on capital project or long-term investment analysis. We talk about different types of projects and the decisions that are required, and also different methods of evaluating expected project cash flows.
In Module 5, we talk about corporate finance, the cost of capital, and the implication of corporate taxation. The key takeaways are how to value stocks and bonds using the present discounted value formula. How to conceptualize models of risk and incorporate risk-adjusted discount rates in the valuation of stocks and bonds. Understand the four standard methods used in valuing projects and how to explain why decisions may depend on the method chosen. We apply the capital asset pricing model, that is the CAPM, to the valuation of companies and projects, and understand what a company's WACC is, that is its weighted average cost of capital, and how corporate taxes impact the company's capital structure decision. We also incorporate the likelihood of financial distress into the capital structure decision of corporations.
Module 6, we talk about options. The key takeaways are as follows. We define what options are; what are call options and what our put options, and how does their value depend upon the value of the underlying asset. We think about when it might be appropriate to buy a call option or to buy a put option, that is, when do such options pay off.
