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.
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:
Fundamentals of Financial Management, 10th Edition, South- Western.
Eugene F. Brigham
Joel F. Houston
Principles of Corporate Finance, 7th Edition, Tata McGraw-Hill
Richard A. Brealey
Stewart C. Myers
Valuation: Measuring and Managing the Value of Companies. 3rd Edition, (Mckinsey and Company Inc.) John Wiley and Sons Inc.
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
Agency problems and the theory of the firm, Journal of Political Economy, Vol. 88 No. 2 (1980) pp. 288-307.
Eugene F. Fama
The Arithmetic of Capital Budgeting Decisions, Journal of Business, Vol. 29 No. 2 (1956) pp. 124-129.
Three Problems in Rationing Capital, The Journal of Business, Vol. 28 No. 4 (1955) pp. 229-239.
James H. Lorie
Leonard J. Savage
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
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)
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)
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
Frameworks for Corporate Valuation
Different valuation techniques , Corporate value/performance drivers , fundamental principles of value creation
Analyzing Historical Performance
Advanced issues in financial statement analysis
Ch 11 & 12
Pro- Forma Financial Statements, Growth Analysis and Advanced issues in forecasting, Estimating the Cost of Capital , Estimating Continuing Value
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
Pakistan Economic Survey, Ministry of Finance
Government of Pakistan (2008)
State Bank Annual Report, State Bank of Pakistan, Karachi
Government of Pakistan (2008)
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.