Strategic Financial Management

BRIEF COURSE DESCRIPTION

Strategic Financial Management is an advanced course of Finance in the MBA and MS programs. It has been designed to equip students with the basic tools and techniques necessary to be a successful financial manager or a non-financial manager with a good understanding of the principles of finance. The main objective is to give students a comprehensive overview of how valuation is done in finance. The course has been divided into two parts. Part 1 deals with introduction to valuation where basic concepts and terminologies will be discussed. We will discuss the valuation of Financial Instruments (bonds, preferred/common stock etc) and Projects (capital budgeting) here. Part 2 is more applied in nature where the emphasis will be on valuation of corporations and a complete corporate valuation framework will be discussed here.

COURSE OBJECTIVES

  • Develop awareness of the responsibilities of a financial manager while acquire the skills necessary to analyze typical business situations from a financial perspective
  • Understand finance as part of the overall strategy of the firm
  • Understand the foundations of valuation, its basic concepts and terminologies
  • Ability to value real projects and financial instruments like bonds and stocks.
  • Undertake full scale discounted cash flow valuation of companies which includes analyzing historical financial statements, forecasting and constructing pro forma financial statements, calculating cost of capital and testing, interpreting and presenting the results of complete valuation process
  • Ability to assess drivers of corporate performance
  • Knowledge and understanding of shareholders value creation

PREREQUISITE(S): Any student admitted in the MBA or MS program is eligible to take the course.

RECOMMENDED TEXT BOOKS AND ARTICLES:

S.No. Title Author(s) Assigned Code
1 Fundamentals of Financial Management, 10th Edition, South- Western.

 

Eugene F. Brigham

Joel F. Houston

 

Book 1
2 Principles of Corporate Finance, 7th Edition, Tata McGraw-Hill Richard A. Brealey

Stewart C. Myers

Book 2

 

3 Valuation: Measuring and Managing the Value of Companies. 3rd Edition, (Mckinsey and Company Inc.)  John Wiley and Sons Inc.

 

Tom Copeland

Tim Koller

Jack Murrin

 

Book 3
1 Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, Journal of financial economics, 3 (1976) 305-360. Michael C. Jensen

William H. Meckling

Article 1
2 Agency problems and the theory of the firm, Journal of Political Economy, Vol. 88 No. 2 (1980) pp. 288-307. Eugene F. Fama Article 2
3 The Arithmetic of Capital Budgeting Decisions, Journal of Business, Vol. 29 No. 2 (1956) pp. 124-129. Erza Solomon Article 3
4 Three Problems in Rationing Capital, The Journal of Business, Vol. 28 No. 4 (1955) pp. 229-239. James H. Lorie

Leonard J. Savage

Article 4
5 The Rate of Interest , Fisher’s Rate of Return over Costs and Keynes Internal Rate of Return ,  American Economic Review, Vol. 45 No. 5 (1955) pp. 938-943 Armen A. Alchian Article 5

CONTENTS

Chapter No. TOPIC/CHAPTER TITLE TOPICS COVERED
 

Ch 6 (Book 1)

 

Time Value of Money

Interest rate and its determinants , Introduction  to valuation , Simple/compound interest, Present and future values,  Annuities and uneven cash flow streams, Semiannual and other compounding periods, Comparison of different types of interest rates, Amortized loans ,Time value of money applications, Exercise questions

 

 

Ch 7 (Book 1)

 

Bonds and their Valuation

Characteristics of bonds, Bond types , Bond yields, Bond valuation, Assessing the riskiness of bonds,  Exercise questions

 

 

Ch 8 (Book1)

 

Stocks and Their Valuation

Types and markets for common stock,  Common stock valuation, Expected rate of return on common stock, Zero growth and constant growth stocks , Supernormal growth stocks , Exercise questions
Ch 10 (Book 1)

Ch 5

(Book 2)

 

Articles 1-5

Basics of capital budgeting Project classifications and capital budgeting methods, Payback period and discounted payback period , Net present value, Internal rate of return and modified internal rate of return , Profitability index, Exercise questions

 

 

Ch 29 (Book1)

Ch 10

(Book 3)

The Cost of Capital

 

The Logic of the Weighted Average Cost of Capital, Cost of Debt, Cost of Equity, Adjusting the Cost of Capital for Risk, Exercise Questions

 

Ch 9 (Book2) Capital Budgeting and Risk Company and the project cost of capital, Capital structure and the company cost of capital, Discount rates for international projects, Sensitivity Analysis

 

Ch 8

(Book 3)

Frameworks for Corporate Valuation Different valuation techniques , Corporate value/performance drivers , fundamental principles of value creation
Ch 9

(Book 3)

Analyzing Historical Performance Advanced issues in financial statement analysis

 

Ch 11 & 12

(Book 3)

Forecasting Performance Pro- Forma Financial Statements, Growth Analysis and Advanced issues in forecasting, Estimating the Cost of Capital , Estimating Continuing Value

 

Ch 13

(Book 3)

Calculating and Interpreting the Results

 

Value creation and performance management, Summarizing and evaluating the valuation

Please note: This is a proposed schedule only and may be varied at the discretion of the instructor to give a greater or lesser degree of emphasis to a particular topic.

RECOMMENDED PRACTICAL MATERIAL

1 Pakistan Economic Survey, Ministry of Finance Government of Pakistan (2008)
2 State Bank Annual Report, State Bank of Pakistan, Karachi Government of Pakistan (2008)
3 There are several web sites that have interesting economic/business information and analysis. These are some useful international and Pakistani web sites/links for your interest and research in the course.

www.finance.gov.pk (Finance Division)

www.sbp.org.pk (State Bank of Pakistan)

www.kse.com.pk (Karachi Stock Exchange)

www.pacra.com (Pakistan Credit Rating Agency Ltd)

www.brecorder.com (Business Recorder)

www.ft.com (Financial Times)

www.bloomberg.com (Bloomberg)

www.businessweek.com (Business Week)

www.reuters.com (Reuters)

 

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