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Financial Analysis and ValuationColumbia Business School Executive Education
Financial Analysis and Valuation for Strategic Decision Making
The main task of any executive is to create value. In order to do this, managers need to have the capability to assess the financial impact of their decisions which requires an understanding of valuation methods and financial analysis techniques. This course teaches you to evaluate the financial consequences of business decisions and how to value projects, businesses and companies.
The course requires attendees to have a basic understanding of the following:
- Financial statements, including the balance sheet, income statement, and cash flow statement.
- Time value of money and present value calculations.
- How accrual accounting differ from cash accounting, including revenue recognition (realization principle), expense recognition (matching principle), and asset and liability measurement (historical cost, selective fair value).
Participants will be able to:
- Reformulate the financial statements to facilitate an informative analysis.
- Analyze the reformulated financial statements.
- See how business decisions and activities are reflected in financial statements.
- Develop cash flow forecasts and pro forma financial statements.
- Estimate the cost of capital.
- Value companies, businesses, and investment projects.
- Assess the value of mergers, acquisitions, and strategic alliances.
- Evaluate and manage business risks.
- Understand how various strategic, operating and financing decisions and activities affect value.
- Conduct scenario and sensitivity analyses.
Who should attend?
This course is suitable for:
- Upper- and senior-level executives and other professionals interested in deepening their knowledge of financial analysis and valuation. This is not an “entry level” program, so participants should have a basic understanding of financial analysis, including financial statements, balance sheets, income statements, cash flow statements, and accounting.
- Executives in non-finance roles or in such departments as strategic planning, marketing, operations, product development, consulting, and sales who need a higher level of proficiency in understanding, evaluating, and making decisions based on the financial standing of their business unit, business, or organization.
- Financial executives, financial analysts and portfolio managers.
Basics of fundamental valuation
- The value of any investment or asset (e.g., project, business, company, stock, bond) is the present value of the net cash flow that the asset is expected to generate or save
- Identifying and forecasting the net cash flow
- Estimating the discount rate
- The dividend discount model as an example
The discounted cash flow (DCF) model for equity valuation
- Deriving the model
- DCF value = present value of free cash flow (FCF) discounted at the weighted average cost of capital (WACC)
- Enterprise value = DCF value + value of non-operating assets (e.g., investments in associates)
- Equity value = enterprise value – value of net debt
- Defining and measuring free cash flow
- A review of financial reporting
- Reformulation of the financial statements to facilitate the measurement of cash flows to the various claim holders (equity holders, debt holders, other stakeholders)
- Forecasting free cash flow
- Drivers of free cash flow: revenue growth, operating profit margin, net operating assets turnover, and their components
- Analysis and forecasting of the drivers of free cash flow, including explicit forecasts, transition/convergence forecasts, and steady-state assumptions
- Estimating WACC
- Sources of financing (equity, debt, hybrid equity/debt, operating credit, leasing and other off-balance sheet financing)
- Capital versus operating credit
- Gross versus net capital
- Current versus long-term or target leverage
- Determinants of the availability and cost of the various financing sources
- Earnings retention and payout policy (dividends, share repurchases)
- Short- versus long-term debt
- Asset-backed financing
- Lines of credit vs. cash and other liquid funds
- The effects of leverage on operations
- Risk management
- Forecasting financing activities and constructing pro forma financial statements
- Terminal value
- Constant growth (Gordon) formula
- Exit multiples
- From DCF value to value per share
- Scenario and sensitivity analyses
Relative valuation models
- Price multiples
- Conditional price multiples
Implementing the framework
- Valuing companies, businesses, and investment projects
- Assessing the value of mergers, acquisitions, and strategic alliances
- Analyzing the value implications of various strategic, operating and financing decisions
See the schedule above or use the request information form to learn the cost of this course.
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