Financial Management

Universidad Adolfo Ibáñez

Course Description

  • Course Name

    Financial Management

  • Host University

    Universidad Adolfo Ibáñez

  • Location

    Valparaíso and Viña del Mar, Chile

  • Area of Study

    Financial Management

  • Language Level

    Taught In English

    Hours & Credits

  • Contact Hours

    45
  • Recommended U.S. Semester Credits
    3
  • Recommended U.S. Quarter Units
    4
  • Overview

    Description of the Course
    The creation of value through the financial management of companies, is an imperative need, not only to grant viability to companies through time, but also to ensure the optimal development of the value creation process for shareholders, bondholders, customers, employees, suppliers, etc. This is why the course seeks to analyze business valuation topics, definition of investment policies and financing. Capital market topics will be studied, oriented to financing via shares, trade effects and bonds. Additionally, some techniques of analysis, planning and financial control, administration of working capital and risk coverage among others will be analyzed. The course exposes the student to financial decisions that influence the process of creating value, both in the field of business finance, as well as in the focus of investment management. Likewise, the student's vision of the practical understanding of modern finance is broadened, since the course addresses the problem of a finance manager from the point of view of the valuation of assets and from the finance corporate, and from the view of an investor or administrator of investments. The main objective of the course is for the student to understand and apply concepts and techniques of financial planning and administration analysis, as well as to formulate and evaluate investment decisions, financing and distribution. For this, the following specific objectives are defined:

    • Acquire the basic principles of finance, related to the impacts of financial decisions on the performance and value of the firm.
    • Apply tools linked to financial accounting to analyze the performance of a company and use it for financial decisions.
    • Understand the structure and characteristics of different instruments traded in the capital and monetary market.
    • Apply valuation methodologies and asset allocation in equity and fixed income instruments.

    Contents of the Course
    I. Basic principles of finance.

    • Financial decisions
    • Financial relationships and financial theory
    • Main actor in financial market.
    • Financial policies and financial analysis.

    II. Corporate Finance Topics

    • Financing mixes.
    • Weighted average cost of capital.
    • Company goals
    • Management risks.

    III. Topics of Valuation of debt instruments

    • Markets of debt.
    • Fixed income instruments
    • Risk Analysis
    • Portfolios

    IV. Topics of Valuation of Variable Income Instruments

    • Risk - Return and Efficient Markets
    • Asset Valuation Models: CAPM, 3 Factors.
    • Portfolio theory and assignment of assets

    Methodology
    The course consists of two types of classes: the chair class taught by the professor, where an assistant clarifies, reinforces or complements material reviewed in the chair class. Both types of necessary and essential chairs are considered to achieve the skills and learning explained in the objectives.

    To achieve the objectives of the course, classes and assistantships can be composed of various activities which will change depending on the objective. These actions in classes include the teacher's presentation of some content or concept, up to the application or exposure of a concept or content to be developed by the student through an exercise, case or specific activity. The objective is to have a methodology focused on learning and requiring the student to participate actively in all classes.

    Evaluations
    The course has the following evaluations:

    1. Two mandatory and individual tests, which are taken outside of class time and aim to evaluate the skills obtained and the learning of the student.
    2. An exam that is also mandatory and individual, which is given after classes and aims to control if the student has the skills and the basis learning of the contents.
    3. Controls and Works: This corresponds to possible reading controls, tasks and exercises that aims to reinforce the learning seen in classes and assistantships. These can be group and with the exception of the tasks, the teacher has the right to inform the evaluation date.

    The weighting of each evaluation instrument is the following:
    Exam : 25%
    Test one : 25%
    Test two : 25%
    Controls and works : 25%

    Learning resources
    The main resource of learning corresponds to the material delivered during the course, such as notes, readings, exercise guides, Excel sheets, among others. These materials are indispensable to learn the contents of the course and they can be delivered during the class, the assistantship and / or through the web site of the course.

    In order to reinforce and deepen the contents of the class is recommended the following bibliographic material:

    • Berk. DeMarzo, Harford, Fundamentals of Corporate Finance (2nd Edition)
    • Brealey R., Myers R. & Allen F. (2010). Principle of Corporate Finance (2010), Editorial Mc. Graw Hill
    • Bodie, Z., Kane, A., & Marcus, AJ (2014). Investments, 10e. McGraw-Hill Education.
    • Grinblatt M & Titman S. (2011), Financial Markets and Corporate Strategy, 2nd Edition, Mc. Graw Hill.
    • Hillier, DJ, Ross, SA, Westerfield, R. W., Jaffe, J., & Jordan, BD (2010). Corporate finance McGraw Hill.
    • Horngren, CT, Foster, G., & Datar, SM (2007). Cost accounting: a managerial approach. Pearson education.

    Calculator:
    The teacher has the option of using a financial calculator model HP12C or similar, which is found in an app for free. The student cannot use this app during evaluations.

    Software management:
    The course will require the constant use of excel, both to develop tasks and possible activities determined by the teacher.

    Bloomberg Terminals:
    Bloomberg is a platform that allows access to up-to-date information on financial instruments and markets, among other things. This tool may be required throughout the course for the collection or analysis of data. For this, the university has Bloomberg terminals in the library.

    Rules of course organization
    For purposes of final approval of the course, the following conditions will be necessary:
    1. Obtain a 4.0 as a minimum grade, considering all the instruments of evaluation and their respective weights; and
    2. Have obtained a simple average grade of at least 4.0, considering the grades obtained in each of the three official tests

    Observations:
    Tests 1 and 2, as well as the exam, can be of a cumulative. In case a student does not comply with letter 2, the subject will be graded with the simple average of the three tests

    In case of non-attendance to any of the tests (1 or 2), the teacher can opt for any of the two options: (i) take a recuperative test (ii) replace evaluation with the test score. There is no possibility of exemption from the examination.

    Course agenda
    This agenda is tentative and is subject to change until the end of the evaluation date

    Basic Principles of Finance 

    • Specify decisions that address finances, as well as financial administration.
    • Explain who and which are the main agents, institutions, markets and assets what form the financial system.
    • Introduce problems produced in imperfect markets (information asymmetries, agency cost)
    • Work and analysis of an application, case or introductory text and motivation to the topics to try

    Financial Analysis

    • Understand, calculate and interpret the main measures of productivity and profitability to know the performance of a company, using the balance sheets and EERR of a company.
    • See measures of liquidity, indebtedness, coverage among others. See reasons used to measure the perception of the value of the company in the market.
    • Understand what measures the degree of operational and financial leverage of a company. 
    • Apply the measures learned in a company and interpret results

    Introduction to debt instruments

    • Explain the different types of bonds and their characteristics
    • Differentiate placement bonds and secondary market.
    • Calculate the price of a bond and its performance

    Debt instruments

    • Develop different types of bonuses
    • Explain the risks associated with this instrument
    • Calculate and know how to use the duration and convexity of a bond to measure price sensitivity against changes in rates

    Applications on debt instruments

    • Extend concepts of price and sensitivity to the portfolio of bonuses
    • Illustrate applications about portfolios such as immunization or matching
    • Analyze and calculate bond placements in real cases
    • Show examples of earnings and returns on purchase and sales of bonuses

    Introduction to equity instruments

    • Analyze and measure profitability and risk of different instruments.
    • Extend previous to a portfolio of assets.
    • Introduce concept of correlation or dependence between assets.
    • Show how to get efficient return-volatility portfolios and the effect diversification

    Portfolio theory

    • Obtain efficient borders of risky assets with free assets risk.
    • Explain sales concept short.
    • Derive the capital market line and interpret it. 
    • Show examples of cases or research related to assignment of assets

    CAPM

    • Derive and interpret the formula of CAPM
    • Explain the SML
    • Differentiate systematic risk and not systematic
    • Obtain beta estimates by regression and see differences between industries
    • See Fama-French and APT models and analyze differences with CAPM
    • Analyze factors, show strategies from these

    Cost and Capital Structure

    • Propositions Modigliani-Miller I and II, with and without taxes
    • Derivation of the capital cost
    • Explain how parameter costs are empirically obtained from capital cost.
    • Determine the optimal level of indebtedness

    Valorization of a company

    • Introduce a model based on the projection of cash flow to value the heritage of a company.
    • Understand the relevant assumptions of the model and interpret the results when applying it to a private or transacted company

    Cases or applications

    • Develop one or two real cases in financial administration where the application of some concepts seen along the course.
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