II.c Corporate Finance, Business Analysis, and Valuation

Develop and understanding of financial statements and how they are impacted by business operations and transactions.
Learn the principles required to build integrated financial statement models, including the need for dynamic balancing.
Understand how to analyse business performance using ratio analysis.
Learn common approaches used to value assets and corporations, including comparables and cash-flow methods.

Overview. This course covers the core topics in corporate finance, business analysis and valuation. It discusses the main underlying concepts and theory as well as the practical aspects of building the associated models. It starts with the principles of financial statements, and explains a step-by-step methodology to build an integrated financial statement models, including key options and issues to consider at each stage, the use of dynamic adjustments and balancing, and error-checking and correction tools. It covers the essential tools and methods to analyse business performance, including using ratio analysis to measure profitability, operating performance, and financial positioning, as well as the associated topics of Dupont analysis, and variance analysis. The final part covers the essential aspects of valuing corporations and equity using comparables and cash flow methods, also introducing the topics elements of discounting, annuities and terminal values.
Practical work and exercises. Students are required to conduct numerous hands-on modelling exercises and can also follow along by replicating other examples that are shown in the text
Assessment tests. There are several tests which cover both the key concepts and require one to do practical exercises in Excel.

Introduction to financial statements. Meaning and interpretation. Core transactions and their effects on each statement.
The modelling of integrated financial statements. Objectives. Differences with historical analysis. Issues to consider. Step-by-step methodology. Generalising the models to include specific features. Tips and tricks. Balancing the balance sheet. Circular references. Consistency checking. Error elimination.
Ratio analysis. Key ratios for measuring profitability, operating performance, efficiency, financing and gearing, and solvency. Definitions and variations. Creating consistent measures.
Dupont analysis and variance analysis. Decomposition into two or more factors. Normal and logarithmic scales. Two-factor variance analysis. Symmetric and non-symmetric approaches.
Business valuation. Valuation principles and approaches in corporate finance. Valuation of corporations and equity. Using comparables, multiples, and asset-based approaches. Cash flow valuation. Advantages and disadvantages of each approach. Capital structure. Enterprise and equity valuations and conversions. Annuities and value-driver formulas. Explicit forecast periods and best practices. Linking long- and short-term forecasts Fade periods. Multi-stage terminal value periods and annuities.