Finance of the Firm

obligatory courses

Classroom

The goal of the course is to present in-depth traditional and modern concepts of financial management from the perspective of a manager and a capital market analyst. The task of the course is to provide advanced theory and tools used in practical decisions made in economic organizations and in business consulting. The strongly emphasized practical aspect will relate to issues such as risk identification within the updated formula of capital market efficiency, or the assessment of investment decisions. As part of the discussed content, the results of the latest empirical research in the field of finance and the resulting postulates and areas for further research will be presented. This could be undertaken and verified in research diploma works.

Lecture:

1. Principles, objectives, and functions of financial management:

• Positioning of corporate finance within the science of finance

• Basic importance and definitions related to corporate finance

• Objectives and functions of financial management

• The relationship between finance and other business areas

2. Information contained in basic financial documents

• Fundamental analysis

• Ratio analysis

3. Corporate finance from the perspective of different stakeholders analyzing their financial situation

4. Sources of capital

• Sources of equity capital

• Sources of debt capital

5. Short-term management of corporate finance

6. Investment decisions and their assessment in the short and long term

7. Risk and return

8. The relationship between investment and financial decisions

9. The use of real options in corporate finance

10. Financial management in international markets

Exercises:

1. Introduction to corporate finance

2. The time value of money:

• Future value and present value

• Effective interest rate

• Annuity payments in advance and arrears

3. Specifics of stocks and bonds

• Differences between equity and debt capital

• Rights arising from stocks and bonds

• Types of bonds and stocks

4. Valuation of stocks using the Gordon model (including with growing dividends). Valuation of bonds with a fixed coupon rate

5. Risk and return. Analysis of dependencies - Capital Asset Pricing Model (CAPM)

6. The cost of capital in a company: equity, debt, and weighted average cost of capital (WACC).

7. Systematic and unsystematic risk:

• Beta coefficients

• Hamada’s model

• Economic value added

8. Assessment of investment decisions made under certainty:

• Net present value (NPV)

• Internal rate of return (IRR)

• Modified internal rate of return (MIRR)

• Payback period (BP)

• Discounted payback period (DBP)

9. Financial statement overview - agency problems, auditor's opinion, components of the financial statement

10. Financial statement components:

• Balance sheet

• Income statement

• Cash flow statement

• Statement of changes in equity

• Notes to the financial statements

11. Analysis of financial statements. Ratio analysis - assessment of:

• Liquidity

• Efficiency

• Indebtedness and ability to service debt

• Profitability

• Capital market

12. Analysis of the break-even point. Operational, financial, and combined leverage

13. Assessment of operational and financial risk using the concepts of break-even point and leverage

14. Working capital management. Inventory management model

15. Mergers and acquisitions. Motives for mergers. Assessment of effectiveness. Share buybacks

Basic Literature:

Cieślik R., Postuła M. (eds.) Financial Management of a Company – Theory and Practice, WN WZ UW, Warsaw 2020.

Postuła M. (ed.) Corporate Finance in Managerial Decisions, WN WZ UW, Warsaw 2016.

Supplementary Literature:

Rutkowski A. Financial Management, PWE, Warsaw 2016.

Ehrhardt M.C., Brigham E.F. Corporate Finance: A Focused Approach, 6th edition, South-Western, 2016.

Selected articles from “McKinsey on Finance”, “The Economist”.

Educational publications of the Polish Financial Supervision Authority (KNF).

Upon completion of the course, the student:

• Knows and understands the terminology and basic principles and concepts related to corporate management (K_W01).

• Knows and understands, at an advanced level, the principles, procedures, and practices concerning the assessment of financial statements in a corporation (K_W02).

• Knows and understands, at an advanced level, the principles and procedures of creating strategies for corporate financial management (K_W02).

• Knows and understands the basic principles of using various sources of corporate financing (K_W06).

In terms of skills:

• Is able to utilize relationships related to corporate financial management to recognize, diagnose, and solve problems related to the functioning of organizations in the market (K_U01).

• Can correctly interpret technological, social, political, legal, economic, ecological processes, and their impact on the functioning of organizations (K_U02).

• Is able to independently and collaboratively prepare analyses, diagnoses, and reports concerning the functioning of organizations and the sector, and to present them communicatively, using information and communication tools (K_U03).

• Can plan and organize personal and team work (K_U05).

• Has the ability for self-education and to improve acquired qualifications (K_U06).

In terms of attitudes:

• Is ready to assess and critically approach situations and phenomena related to the functioning of organizations in the market, the sector, and the entire economy (K_K01).

• Is ready to think and act entrepreneurially (K_K02).

• Is ready to adhere to ethical standards related to marketing activities (K_K03).

The exam is in the form of a multiple-choice test conducted on the E-learning platform in a lecture hall. In the assessment of the exam, negative and half points are not applied. Only individuals who have passed the exercises are allowed to take the exam. A very good grade from the exercises and attendance at lectures entitle the student to be exempted from the exam.