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FINANCIAL MODELING (FIN683)

COURSE OUTLINE

Course Description and Objective

This course takes a variety of finance topics and implements them using practical spreadsheet models. Students are presumed to have a working knowledge of Windows and Excel, as well as a good understanding the material taught in the core finance classes.

 

We are going to start with a review on financial statements and time value of money. The underpinning theory of this course will be delivered in weeks 1 and 2. We are going to start working on a real financial model in week 3.

 

Topics include Time Value of Money, Capital Budgeting, Pro-Forma Financial Statements, Bond Analysis, and Portfolio Construction.

 

I will pre-record short videos with key concepts when applicable to allow more time in class for practical application.  Nevertheless, some concepts will be explained in more depth during class. Students will be asked to review key concepts at home and apply what we have learnt to short exercises in excel, bringing the outcome to the next class. Students should expect to work with excel at least from weeks 2 to 6. It is extremely important that students are prepared for class each meeting day.

 

course learning outcomes

 

§ Understanding financial statements and being able to find key company data

§ Time value of money

§ Capital Budgeting

§ Bond Analysis

§ Portfolio Construction and Optimization.

 

Essential readings

 

▪ I will upload readings from different books during the course.

 

Office hours

 

 

 

Structure

 

This course is taught over 7 weeks. Each week we will have 4h of lectures including one short break in between hours.

 

I have prepared one deck of slides per week for weeks 1 to 6. The final exam is in week 7.

 

The lecture material (PowerPoint slides, excel spreadsheets and potential news will be available before each session. Ideally, you should review the reading material (if any) and slides before each session.


Method of Assessment

 

· All quizzes and the final exam will take place IN CLASS during the last hour of the assigned week. For example, Quiz 2 will be on Wednesday 20th of October at 11:30am.

 

 

Sessions Outline

 

week 1:

 

Topics

 

§ Review of key concepts: Financial Statements and the Time Value of Money

§ Understanding and finding data in financial statements

§ The finance function

§ The valuation principle

§ The time value of money

§ Valuing a stream of cash flows

§ Let’s practice (TMV)

§ An introduction to FCFF

 

required readings:

 

o Slides

o Pre-course reading on the TVM (Aswath Damodaran)

o Have a look at Apple financial statements. Locate key metrics.


week 2:

 

Topics


§ Free cash flows of the firm versus free cash flows of equity:

– Definition

– How to calculate them

§ The DCF model: Initial thoughts

§ The Terminal Value

§ The 2-stage DCF model

§ The cost of capital (Weighted average cost of capital or WACC)

§ Lets’ practice!

§ QUIZ 1: TVM – The Time Value of Money (10% of final mark)

 

required readings:

 

o Slides

o Week 1 exercises

o Pre-course document on TVM (Aswath Damodaran)

 

week 3:

 

TOPICS

 

§ An introduction to modeling Part 1 (The Income Statement)

§ Get familiar with excel

§ Looking for the data

§ Example: The Home Depot

ü Assumptions

ü Calculations

ü The income statement

ü The balance sheet

ü The cash flow statement 

 

required readings:

 

o Work sheet preparation slides

o Locate metrics in the three financial statements in the annual report


week 4:

 

TOPICS

 

§ An introduction to modeling Part 2 (The balance sheet and the cash flow statement)

§ Get familiar with excel

§ Looking for the data

§ Example: The Home Depot

ü Assumptions

ü Calculations

ü The income statement

ü The balance sheet

ü The cash flow statement

§ QUIZ 2: Cost of capital and free cash flows (20% of final mark)

 

required readings:

 

o Work sheet preparation slides

o Locate metrics in the three financial statements in the annual report


week 5:

TOPICS

 

§ Application: How to forecast cash flows for Coca Cola Co

§ Capital budgeting

 

required readings:

 

o Slides

o Assigned readings

 

Week 6:

TOPICS

o Bond pricing

o Portfolio Construction

o Quiz 3: Capital Budgeting

 

required readings:


o Slides

o Assigned readings

 


Week 7: Discounted Cash Flows (DCF)

TOPICS

o Portfolio Construction

o Final exam (2h in class)

 

required readings:

o Slides

o Assigned readings