This document outlines the learning objectives for an exam in corporate finance. It covers key topics like defining corporate finance, comparing business structures, financial statements, ratio analysis, valuation, and discounted cash flow analysis. The objectives are broken down into 6 main sections: 1) introduction to corporate finance, 2) financial statements, taxes, and cash flow, 3) working with financial statements, 4) long-term financial planning and growth, 5) introduction to valuation, and 6) discounted cash flow valuation. Students are expected to understand concepts, perform calculations, interpret results, and apply analytical tools to evaluate corporate financial performance and value.
This document outlines the learning objectives for an exam in corporate finance. It covers key topics like defining corporate finance, comparing business structures, financial statements, ratio analysis, valuation, and discounted cash flow analysis. The objectives are broken down into 6 main sections: 1) introduction to corporate finance, 2) financial statements, taxes, and cash flow, 3) working with financial statements, 4) long-term financial planning and growth, 5) introduction to valuation, and 6) discounted cash flow valuation. Students are expected to understand concepts, perform calculations, interpret results, and apply analytical tools to evaluate corporate financial performance and value.
This document outlines the learning objectives for an exam in corporate finance. It covers key topics like defining corporate finance, comparing business structures, financial statements, ratio analysis, valuation, and discounted cash flow analysis. The objectives are broken down into 6 main sections: 1) introduction to corporate finance, 2) financial statements, taxes, and cash flow, 3) working with financial statements, 4) long-term financial planning and growth, 5) introduction to valuation, and 6) discounted cash flow valuation. Students are expected to understand concepts, perform calculations, interpret results, and apply analytical tools to evaluate corporate financial performance and value.
This document outlines the learning objectives for an exam in corporate finance. It covers key topics like defining corporate finance, comparing business structures, financial statements, ratio analysis, valuation, and discounted cash flow analysis. The objectives are broken down into 6 main sections: 1) introduction to corporate finance, 2) financial statements, taxes, and cash flow, 3) working with financial statements, 4) long-term financial planning and growth, 5) introduction to valuation, and 6) discounted cash flow valuation. Students are expected to understand concepts, perform calculations, interpret results, and apply analytical tools to evaluate corporate financial performance and value.
1.1. Define Corporate Finance a. Define Finance as making capital budgeting, capital structure and net working capital decisions b. Describe the reporting structure of the typical finance function 1.2. Compare and contrast the 3 main forms of business organization (sole proprietorship, partnership, corporation) plus limited partnerships and LLCs, in terms of: a. Ease of creation b. Access to capital c. Pass-through vs. double taxation d. Limited vs. unlimited liability for owners e. Limited vs. unlimited life of the business f. Liquidity of ownership 1.3. Define the goal of financial management; that is, the goal of the corporation a. Understand that “the goal of the corporation is to maximize the current value per share of the existing stock” b. Generalize the goal to “maximize the value of existing owners’ equity” to apply to all forms of business c. Explain the necessary constraints to maximizing shareholder wealth 1.4. Define the agency relationship in a corporation a. Identify agency problems and how they create agency costs b. Identify mechanisms employed to control agency costs c. Differentiate between stockholders and stakeholders d. Explain key provisions of Sarbanes-Oxley and why it exists 1.5. Understand the basic workings of the stock market a. Explain the difference in cash flows between primary and secondary market transactions b. Differentiate between brokers and dealers c. Differentiate between auction and dealer (OTC) markets d. Describe the New York Stock Exchange and the NASDAQ e. Look up an online stock quotation and identify its key elements 2. Financial Statements, Taxes, and Cash Flow 2.1. Given a data set, define the major balance sheet accounts and prepare a balance sheet a. Define the accounting identity (also called the balance sheet identity) b. Identify and explain the logic in organization of the balance sheet (eg., order of liquidity, order of claims) c. Define liquidity d. Define and calculate net working capital e. Differentiate between current and long-term assets, tangible and intangible assets f. Differentiate between current and long-term liabilities g. Differentiate between assets and claims on assets h. Understand the difference between debt and equity i. Define financial leverage j. Understand how depreciation impacts the balance sheet k. Differentiate between market (economic) values and book (accounting) values
2.2. Given a data set, prepare an income statement a. Differentiate between the operating and non-operating sections of the income statement b. Contrast accrual accounting and cash accounting; recognize how cash benefits and costs differ from revenues and expenses c. Define the matching principle of GAAP d. Compute straight-line depreciation e. Understand how depreciation impacts the income statement and cash flows f. Record the interest portion of debt payments on the income statement g. Differentiate between variable and fixed costs h. Define and compute profit: gross, operating (EBIT), EBITDA, net 2.3. Given a partial income statement and tax table, calculate income tax expense a. Calculate and differentiate among marginal, average and flat taxes b. Explain the impact of the TCJA of 2017 on tax rates c. Calculate income tax expense for firms and owners, given various forms of business organization d. Explain the concept of double taxation e. Explain why/when marginal tax rates are used in decision-making 2.4. Define the cash flow identity: cash flow from the firm’s assets (aka “free” cash flow) must equal cash flows to creditors and investors a. Distinguish between net income and cash flow b. Calculate and explain the components of cash flow from assets: operating cash flow, net capital spending, and net change in net working capital 3. Working with Financial Statements 3.1. Interpret a statement of cash flows a. Identify sources and uses of cash b. Explain cash flows from operating activities, investing activities, and financing activities 3.2. Interpret accounting information using common-size statements a. Convert an income statement to a common-size income statement b. Convert a balance sheet to a common-size balance sheet c. Calculate the percent change for each financial statement line item d. Explain why common-size statements are useful 3.3. Interpret accounting information using ratio analysis: for each of the following ratios, calculate the ratio, explain what it measures and why an analyst would be interested, use the appropriate unit of measure (%, days, times, etc.), explain what high or low values might mean, explain whether an increase/decrease is favorable or unfavorable, and explain how the result could be improved a. Current ratio b. Quick (acid test) ratio c. Total debt ratio, Debt-to-equity ratio and Equity multiplier d. Times interest earned (TIE) ratio e. Inventory turnover and Days of sales in inventory (DSI) f. Days of sales in receivables outstanding (DSO), aka Average Collection Period (ACP) g. Days of payables outstanding (DPO), aka Average payables period
i. Gross, operating, EBITDA and net profit margins j. Return on assets (ROA) and Return on equity (ROE) k. Earnings per share (EPS) and PE ratio l. PEG ratio m. Market-to-book ratio n. Enterprise value o. Market capitalization p. EBITDA ratio, aka Enterprise value multiple 3.4. Define the DuPont identity a. Explain the difference between ROA and ROE b. Explain how ROE is affected by operating effectiveness (measured by net profit margin) c. Explain how ROE is affected by asset efficiency (measured by total asset turnover) d. Explain how ROE is impacted by financial leverage (measured by equity multiplier, etal) e. Explain the relationships among total debt ratio, debt-equity ratio and equity multiplier 3.5. Explain how financial statements are employed a. Describe internal and external uses of financial information b. Determine how to select a benchmark for trend and peer-group analysis c. Identify several issues that may arise when conducting financial statement analysis 4. Long-Term Financial Planning and Growth 4.1. Understand why growth is costly 4.2. Explain how a firm’s financial policies (net working capital, capital budgeting, capital structure, and dividend payout policies) will impact its financial planning 4.3. Create a financial model a. Begin with a sales forecast b. Use the percentage of sales approach to forecast operating expenses c. Prepare a pro forma income statement d. Calculate and explain the dividend payout ratio and retention/plowback ratio; use the results to calculate the change in retained earnings e. Use the percentage of sales approach to forecast assets f. Calculate and explain the capital intensity ratio g. Calculate external financing needed (EFN) h. Prepare a pro forma balance sheet 4.4. Explain the relationship between growth and EFN a. Calculate and explain internal growth rate b. Calculate and explain sustainable growth rate c. Identify the four factors on which a firm’s ability to sustain growth depends 5. Introduction to Valuation: The Time Value of Money 5.1. Calculate and understand the future value of a lump sum a. Define and calculate both simple interest and compound interest b. Understand the impact of changes in the rate and number of periods on the future value 5.2. Calculate and understand the present value of a lump sum a. Distinguish between compounding and discounting b. Define DCF valuation
c. Understand the impact of changes in the rate and number of periods on the present value 5.3. Calculate and understand any element (N, I, PV, PMT, FV) of a lump sum cash flow 6. Discounted Cash Flow Valuation 6.1. Calculate the future and present values of a stream of uneven lump sums 6.2. Evaluate annuities and perpetuities a. Define an annuity b. Calculate and understand any element (N, I, PV, PMT, FV) of an ordinary annuity c. Contrast ordinary annuity and annuity due d. Calculate and understand any element (N, I, PV, PMT, FV) of an annuity due e. Calculate and understand the present value of a delayed (imbedded) annuity, and correctly incorporate it into a larger problem f. Define a perpetuity g. Calculate the present value of a level (zero-growth) perpetuity h. Calculate and understand the present value of a growing annuity i. Calculate the present value of a growing perpetuity j. Calculate and understand the present value of a delayed (imbedded) perpetuity, and correctly incorporate it into a larger problem 6.3. Understand how rates are quoted a. Understand the impact on PV and FV of having multiple periods per year b. Define and contrast annual percentage rate (APR), periodic rate, and effective annual rate (EAR) c. Calculate and explain EAR 6.4. Compare and contrast types of loans a. Define and name an example of a pure discount loan, an interest-only loan, and an amortized loan b. Prepare a loan amortization schedule i. Compare the monthly and total cash flows related to 15- and 30-year fixed rate and adjustable rate mortgage loans ii. Calculate the early payoff amount for a fixed rate loan iii. Understand the refinancing process and when it may be beneficial iv. Define down payments, closing costs, origination fees, and discount points
