Financial Management - Basics

JWI 530 Financial Management I Course Summary, 3/22/13

Each week this elegantly designed course exposed me to new and exciting concepts in financial management. The lectures, readings, DQs, web-exes, made up a rich learning experience. This is easily one of the best courses I have ever taken.

I. Mastered concepts
None. "What we know is the size of the fist while what we don't know is the size of the world", said Avvaiyaar, an ancient Indian saint. I believe this is a great introduction, much like opening the door to a whole new world of finance. The elegantly designed course allows me to embrace financial figures and work my way gainfully forward in a business situation.

Basic finance questions to ask:
1.  Does this project earn a positive NPV?
2.  What is the desired hurdle rate?
3.  What is the firm's current ratio and how has is the trend?
4.  What is the firm's debt to equity ratio? 
5.  How robust is the firm's cash flow - can it withstand a stress test ?
5.  If we invest in this project, what do we give up in terms of other opportunities, including repayment of debt to our lenders?
6.  What do our FFS reports show for worst-case, status quo and best-case scenarios in the year ahead?
7.  Will a bond issuance provide us more options than issuing shares at this time?
8.  What is our cash conversion cycle at the moment?
9.  How do we improve our days inventory outstanding?
10. Does it make sense to use debt to finance our next project or use our available cash?
11. Know when to abandon a project based on what the future holds, not on what happened in the past
- how much will carrying out the project cost and how much will it bring in ?
- what is the cost of abandoning it?
- use numerical models to control emotions eg. housing crisis
12. Never be afraid to Ask Why

II. Concepts I understand but want to learn more about
The entire course falls under this category.
(i) Linkage between Financial management and Corporate social responsibility - ethics before profits
(ii) Limitations of rational behavior - free markets are part of a fragile eco-system that can crash and need government intervention
(iii) Cost of Capital, US Treasury notes, Debt/Equity ratios - the foundations of capitalism
(iv) How to read basic financial reports - Balance sheet, Income statement, shareholder's equity, cash flow
(v) Tightly manage cash flow and liquidity - the firm needs to survive today to reach lofty goals in the future
(vi) Ratios - to monitor Liquidity, Turnover, Effectiveness
(vii) How to optimize ROIC - WACC spread
(viii) Tools to manage financial health of firms - capex, FCF, CCC, operating leverage
(ix) Finance tools to evaluate a project's worth - DCF, NPV, IRR, Hurdle Rate
NPV is the main tool
IRR is the discount rate that yields NPV of zero
(x) Capital markets - stock and bond valuations, market cap
(xi) Capital budgeting & structure - FFS and project differentiation methods
(xii) Forecast finances with models
- under promise and over deliver
(xiii) Good financial management must fit into corporate strategy
- adopt a smart, realistic, fast way to secure a business's long term edge over competition
- place right people in right jobs
- relentlessly pursue doing things in a better way
(xiv) Financial manager's job is
- to identify lucrative projects based on rigorous analysis
- finance the project with right mix of stocks, bonds, debt, equity
- allocate excess cash based on competitive positioning, tax benefits, shareholder expectations
(xv) Inventory turn over = cash value of goods & services sold/cash value of inventory

III. Questions about financial management I would like to explore
(i) The differences between DCF and NPV and IRR when applied to real world projects
(ii) The concept of operating leverage and how to utilize it for decision making
(iii) How financial numbers are linked to business strategy on a daily basis in firms

I feel I can confidently begin to make my way around financial reports, texts and materials now.
two thumbs up !
Dr DP