OBJECTIVES

  • Learn the meaning, uses and implementation of core concepts and criteria in economics, finance, and the evaluation of investment projects.
  • Master calculations relating to growth, annuities, discounting, interest compounding and loan repayments.
  • Gain a solid knowledge of ratio analysis.

DESCRIPTION

  • OverviewThis course begins by covering the core concepts, criteria and calculations that are required in general economic modelling, financial forecasting, investment evaluation, and general decision support. These include growth calculations, interest types and compounding, discounting, annuities, the internal-rate-of-return, net present values, loan repayments, as well as the use of ratio analysis to measure profitability, operating performance, and financial positioning.
  • Practical work, exercises and quizzesStudents are expected to build simple examples for themselves as they follow the text, and in order to take the quizzes.

KEY TOPICS

  • Growth formulae and present values. Measuring growth. Classical and logarithmic measures. Growth calculations. Inflating and discounting. Time-period conversions.
  • Interest rates and calculations. Time-value of money. Bond yield. Yield curve. Risk premia. Interest compounding methods and formulas. Links between interest compounding and model time periods. Accruals. Bootstrapping. Yield curves.
  • Annuities and discounting. Discounted cash flow. Annuity formulas. Terminal value calculations. Capitalization rates.
  • Economic evaluation. Breakeven, time to breakeven, cumulative breakeven, discounted breakeven. Calculation of returns. Internal rate of return (IRR). Uses and limitations. Discounted cash flow, net present value (NPV). Comparison of IRR with NPV.
  • Loans and mortgages. Payback amounts and periods. Capital versus interest. Implied interest rates.
  • Depreciation and amortization. Methods and calculation approaches. Physical and financial assets.
  • Cost of capital, risk and return. Risk and return. Portfolio effects. Correlation and diversification. Markowitz theory. Capital Asset Pricing Model. Cost of equity.
  • Ratio analysis. Key ratios: Measuring profitability, operating performance and financial position. Definitions and variations. Dupont analysis. Variance analysis.

QUIZZES

  • Quizzes to build simple models and calculations relating to economic and financial concepts, and to run sensitivity analysis on these.

Take the course

II.1 Economics and Financial Evaluation

Core concepts and calculations in economics and finance: growth, interest compounding, discounting, annuities, IRR, NPV, loans, and ratio analysis.

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