Finance for Non-Financial Managers
Finance is about making investment and managerial decisions in the face of uncertainty, based on economic information gleaned from the balance sheet and income statements, macroeconomic announcements or other economics news. Finance for Non-Financial Managers is divided into two, one-day sections: corporate finance and investments. Over these two days, this course will guide you through the financial decision making process from start to finish.
Learning Objectives
- Reading and interpreting balance sheet and income statements
- Synthesizing that information into financial models
- Making decisions based on these models
- Understanding the limits of financial modeling
- Valuing a project from start to finish
- Capital budgeting and project choice: which project to undertake
- How to finance a project
- Valuation in the presence of debt
- Thinking and quantifying financial risk
- What we can do to mitigate risk exposure
- Optimal portfolio allocation: investing for retirement
- Understanding financial statistics
- Advanced topics
PDF VersionWednesday, September 17
- Preliminaries
- Overview of the financial system
- Accounting fundamentals
- Balance Sheet
- Income Statements
- Where to find accounting information for public companies
- Valuing a Project: From Start to Finish
- Time value of money
- The DCF (Discounted Cash Flows) approach to valuation
- Modeling and forecasting cash flows
- Practical considerations: Do I rent or buy?
- Capital Budgeting and Project Choice: What Project to Undertake?
- NPV rule
- IRR rule
- Payback period, hurdle rate, and other widely used ruled. What rule to choose in making capital budgeting decisions?
- How do senior managers make capital budgeting decisions in practice? Evidence from the field: Graham and Harvey (2000) article
- Advanced topics: dynamic capital budgeting, irreversibility of real investments, and options
- How to Finance a Project?
- Equity financing
- Debt, the benefit of leverage, debt overhang
- Other sources of financing: private equity and venture capital
- The Modigliani-Miller Proposition
- Taxes
- Short and long-term financing decisions
- Valuation in the presence of debt: Weighted average cost of capital (WACC)
Wednesday September 24
- Thinking and quantifying financial risk
- Risk and Return Tradeoff
- Types of risk: Idiosyncratic and systematic risk
- Measuring risk
- What can we do to mitigate risk exposure
- Diversification and risk
- What risk can be diversified? Fallacies of diversification.
- The Capital Asset Pricing Model--CAPM
- Hedging vs. diversification
- What risk factors can/should be hedged?
- Costs of hedging?
- Optimal portfolio allocation: Investing for retirement
- The Markowitz approach
- Alternative approaches
- Behavioral biases
- Shortcuts and tips
- Understanding financial statistics: EPS, P/E, alpha, beta, Sharpe
- Why are they useful?
- Connection with valuation, portfolio allocation, and corporate finance
- Advanced Topics
- Synergies: economies of scale, scope, complementarities
- Agency costs, disciplinary costs, hubris
- Empirical evidence: merger waves
- The options approach to capital investment
Dr. Rossen Valkanov is an associate professor of finance at the Rady School. He received his Ph.D. in economics from Princeton University. In 1999, he became an assistant professor of finance at UCLA's Anderson School of Management where he remained until his appointment at UC San Diego. From 2001-2004 he served as an assistant professor of finance at the University of California, Berkeley's Haas School of Management, teaching courses for the master's program in financial engineering. He is a member of many professional organizations including the American Finance Association, the American Economic Association, the Econometric Society and the Bachelier Society. Dr. Valkanov's main research interests are in the areas of financial econometrics, empirical asset pricing, portfolio choice and monetary economics.