Financial Management II - course wrap up

JWI 531 Financial Management II, week10 summary, 6/15/13

What a great ride ! The final lectures left me with a sense of awe and wonder. I always wanted to learn about corporate governance and finally it is demystified for me now. I get it.

I. What have you mastered about Financial Management?
None. I feel I have been introduced to a great new world of beauty.

Finance is like the lifeblood of organizations. With the principles, tools and techniques I have picked up from this course, I know I can navigate my way forward - with right financial decisions for my firm - intelligently.

Here are the concepts I am very comfortable with and have internalized completely:
1. Economic Moat = Competitive Advantage.
2. Actively strengthen 4 key Moat metrics using Seller's model:
Economies of scale - develop ability to exert low cost pressure
High switching costs - customer stickiness
Intangible assets -  patents & IP
Network economics - gain a wide user base
3. Constantly watch for disruptive innovations (Clayton Christensen) - they could eat your firm's lunch This is the principle I will use more at work going forward.
4. Reading 10K, 10Q, SEC reports has become second nature to me now. I learned a great deal about several companies this way.
5. Understanding different types of leases and becoming aware of off-balance-sheet financing practices (W5, L1), I can now - for the first time - begin to see through the Enrons of the world.
6. Understanding Corporate life cycle, pros & cons of IPOs, M&A, Private equity investment, Chapter11/7 bankruptcy gives me a solid foundation on organization development.
7. Growth opportunity is shifting to Global Players - examine emerging market opportunities, adjust to risk. This is a key insight that will guide my career decision.
8. Emerging markets vs Advanced markets - we did a great SWOT-like discussion in the DQ. As I have spent half my life in India and half in US, I can see clearly from both sides of the wall.
9. US is facing a tectonic shift - something that occurs once in 100 years. Jobs in US are at high risk. Innovation key to survive and thrive.
Maket growth power is now moving to BRIC countries. International investment offers great opportunity. With great potential comes great challenge. Five factors to watch for pitfalls & evaluate attractiveness of investment:
(i) Respect for rule of law - strong rights of appeal, low levels of corruption
(ii) Political stability and a government makes up a small percentage of local economy
(iii) Stable currency
(iv) Invest-ability
(v) Culture
10.  Corporate Governance Definition
- Responsiveness of a company to its owners, the shareholders
- does the company protect shareholder interests?
- structure of BoD
- independence of BoD
- board's oversight of executive compensatio
- ability of shareholders to call special meetings
- include local communities, employees, environment
- values: integrity, honesty, transparency
11. Board of Directors
- Shareholders own the company and have the right to elect a Board of Directors (but in reality this is an undemocratic process - 99% individuals nominated by the company's exec team run unopposed)
- Finding a shareholder friendly board is important
- Board has a huge amount of power over the company and its shareholders.
- Responsibility of the board is to keep the executive team in check.
- Board determines who runs the company, how much they are paid and overall strategy.
- Board sets pay of top executives
- BoD supposed to act on behalf of shareholders and ensure management is running the business properly
- To test a Board's fitness & suitability, examine the makeup, rules, processes for nominating and electing new board members
12. CEO Responsibilities:
(1) Empower: the right people to run day-to-day operations of the business
(2) Capital allocation: Make the best possible capital-allocation decisions
(3) Culture: Foster and implement long-term strategic and cultural change
13. Good governance means CEOs need to take more responsibility and fewer risks in short term
Help company generate substantial long-term shareholder value
14. Keep incentives in line with what you want the CEO to be doing.
Key Metrics & Questions to align performance with incentives & create effective executive-compensation structure
Long Term Bias - Does it minimize short-term thinking ?
Shareholder interest - Does it match up CEO and shareholder interests?
Fraud-Proof - Does it reduce opportunities for fraud?
Wholesome Decison Making - Does it generally encourage good decision making ?

II. What do you now understand but may want to learn more about?
15. Stock valuation techniques using Earnings, revenue, cashflow, equity - intriguing concepts; would like to learn more
16. Bond valuation for fixed income and risk assessment
17. Business profitability assessment with breakeven analysis and payback period analysis
18. Risk management tools  - to hedge responsibly against negative events - through derivatives and options is a technique I would like to learn more about. The lectures were fantastic as they explained in simple terms what the world of derivatives and options looks like and gave us the insights needed to make our way quickly forward with risk take downs.
19. It is not enough to just make good products to sell. For success, it is important to watch and react to currency fluctuation, foreign exchange and global macroeconomic events. Companies that increasingly sell products abroad have to deal with macroeconomic risks associated with international trade.
20. There is a ton of material in the annual reports that I wish to dig into to further understand financial situation of firms.
21. I like how this class linked finance with strategy. I would like to learn more about the linkage and also about car wrecks they they were disconnected.

III. What questions can you now articulate about Financial Management based on what you have learned in this course?
22. I would like to learn more about the software tools firms use for real time analysis of financials,

Outstanding class. The best complement a student can give a teacher - that he helped see far and kindled curiosity for a lifetime of learning.
Dr DP