Plymouth State University
College of Business Administration
BU 5120 Financial Analysis
This is the START page for the MBA graduate course in finance, online, with Professor Harding.
Below are the links to the course modules:
1) SYLLABUS: A general orientation to the course
2) CONTENT: An overview of the course content
3) LESSONS: A listing of the weekly lessons for the course
4) EXERCISES: The detailed instructions for student exercises
5) READINGS: A list of the readings for the course
6) ROSTER: Students currently enrolled with email addresses
Registered students must use Moodle 1) to get access to some of the readings, 2) to submit exercises, and 3) to review their grade book. To get to Moodle:
Go to: my.plymouth.edu
Login: PSUusername
Password: ******
Go to: myCourses
Click on: BU5120 Fin Analysis and Decision Making
OVERVIEW OF COURSE CONTENT:
The content of this course is broad in its attempt to at least identify all the major areas of finance. Beyond that, some selected topics are explored in greater depth. There are also discussions of the relationships between financial issues that, to the casual observer, may otherwise appear to be unrelated.
Content Modules:
1. Corporate Finance: The course opens with a brief review of the nature of finance, noting the objective of the firm, followed by a discussion on corporate finance, the functions of the financial manager (concentrating on the sources and uses of funding) and an exercise in the financial analysis of the firm. (See also: capital structure, cash flow mgt, capital budgeting, and dividend policy)
INTRODUCTION to FINANCE
This course opens with a brief introduction to the nature of the discipline of finance in which the connection between the academic discipline of finance and the firm (corporation, enterprise, business) is established. Also, the connection between finance and other disciplines (economics, accounting, psychology, mathematics) is noted below.
NATURE of FINANCE:
The nature of the broad discipline of finance may be regarded from two slightly different perspectives: That is, we might regard finance 1) as an academic study or 2) as a professional activity with a particular set of skills. Further, we should note 3) the relationship between finance and other disciplines, and finally, 4) an old reading that still has startling relevance is provided that begins to address how the practice of finance strengthens (and weakens) our social fabric.
1) Academic Discipline
As a field of academic study, the primary focus of finance is often on the firm and the financial management of the firm because such a large proportion of the total wealth in an economy is created within the context of the firm (i.e. the enterprise, the corporation, the business, the private sector, etc.). For this reason, introductory finance courses are variously known as financial management, corporate finance or managerial finance.
However, a secondary academic perspective is external to the firm and focuses on individuals and institutions that participate in the capitalization of the firm through the purchase of equity securities (stocks) or debt instruments (bonds). As an academic study this second perspective is referred to as investing or portfolio management.
There is yet a third perspective in the academic discipline of finance that regards the activities engaged in by financial professionals who design new contracts (financial engineering), institutions that lend and borrow capital (investment banking), and others who take speculative positions based on the performance of other instruments (institutional finance). And in addition, more specialized courses, for example in international finance, financial modeling, and financial accounting, cover various niches of finance in greater detail.
2) Profession
As a professional activity, the practitioner needs to understand the nature of corporations, the laws (regulations, standards, protocols) governing financial activities, the mathematics of the instruments, the accounting standards adopted by the firm, and the economic theories that are inherent in the actual management of the firm and the management of funds outside the firm.
The particular skill set required to successfully participate in the financial profession include many of those universally found in other professions, for example the ability to work with others, the ability to communicate clearly in writing and discourse, and the ability to develop and practice productive work habits. However, some skill sets are more essential to finance than to some other professions, for example - the quantitative skills of mathematics and quantitative modeling (see also financial models) and the skilled use of information technology. Here is an employment advertisement for an investment analyst.
Investments Analyst–05016700Job Description
Apply Online
Apply Online
Description
The Citigroup Private Bank serves the financial needs of high net worth individuals around the world. Our Private Bankers play a central role in delivering personalized, effective, and insightful financial solutions to meet client needs. Globally, The Citigroup Private Bank has more than 4,000 employees in 90 offices, located in 58 cities (30 countries and territories), and manages more than $100 billion of client business volumes. Principal investment centers include: New York, London, Switzerland, Jersey, Hong Kong, Singapore and Tokyo. Through its product and service offerings, and by functioning as the gateway to the resources of the Citigroup companies, the Private Bank provides clients with comprehensive investment and banking choices. Products and Services include Investment Services, Global Trading Services, Risk Management, Credit and Lending, Alternative Investments, Real Estate Services, Traditional Banking Services, Trust Services, Global Wealth Structuring and Art Advisory.
Specifications / Qualifications
The Investment Management Organization manages assets across all asset classes for Institutional, Private Bank, International Retail and HNW, and U.S. Retail and High Net Worth businesses.
Role:
The Analyst is responsible to participate in research and modeling work on various traditional and alternative asset classes. Will perform evaluation of products for inclusion in asset allocation models. Develops and maintains proprietary optimization and simulation models. Participates in asset allocation related projects with private bank, institutional and retail clients. Provides general support of private bank and consumer bank with respect to risk management, portfolio analytics, attribution analysis, and other general investment topics. Participates in marketing efforts and client meetings
Education and Experience:
MBA in finance/quantitative field, and/or CFA. Five to ten years experience in portfolio management or quantitative analysis (specific work in asset allocation a plus) required. Quantitative background and programming skills (VBA and Matlab at a minimum) required.
Other qualifications:
The ideal candidate will possess:
· Financial expertise: A practical understanding of financial principles and portfolio management concepts; familiarity with, risk and valuation models.
· Statistical understanding: Statistical methods must be understood well enough to judge their efficacy and drawbacks in specific circumstances; must be comfortable dealing with numerical and statistical concepts.
· Computer understanding: Comfortable with statistical analysis and analytic programming; familiarity with commercial analytic packages (e.g., VBA, MATLAB).
Profile
Job Function / Investment Management
Location / North America-US-NY-New York
Employee Status / Full-time
Job Level / Team Leader
Education Level / Master's Degree (Approx 18 years of Educ)
Shift / Day Job
Employee Type / Regular
Exempt Status / Exempt
Travel / Yes, 25 % of the Time
Additional Information
Posting Date / July 19, 2005
Number of Positions / 1
Relocation
Yes
Business Area
Private Bank - Global Wealth Management
Alternate Requisition Number
Replacement
Brief Description of the Organization
The Citigroup Private Bank serves the financial needs of high net worth
individuals around the world. Our Private Bankers play a central role in
delivering personalized, effective, and insightful financial solutions to meet
client needs. Globally, The Citigroup Private Bank has more than 4,000
employees in 90 offices, located in 58 cities (30 countries and territories),
and manages more than $100 billion of client business volumes. Principal
investment centers include: New York, London, Switzerland, Jersey, Hong Kong,
Singapore and Tokyo. Through its product and service offerings, and by
functioning as the gateway to the resources of the Citigroup companies, the
Private Bank provides clients with comprehensive investment and banking
choices. Products and Services include Investment Services, Global Trading
Services, Risk Management, Credit and Lending, Alternative Investments Real
Estate Services, Traditional Banking Services, Trust Services, Global Wealth
Office Location / Address
CGC, NEW YORK
Refer a friend for this job / Apply Online
Apply Online
Return to the job list
3) Other Disciplines
Finance has clear connections with other disciplines (e.g. law, marketing, information technology), but often the distinction between finance and economics, and between finance and accounting gets fuzzy. Finance has sometimes been considered a sub-type, a "grubby off-spring", of economics, owing to finance's pre-occupation with actually making money for the practitioner. Economics, on the other hand, tends to be more of an intellectual pursuit, seeking understanding of the cause and effect relationships among variables.
The relationship between finance and accounting is similar, except that accounting is the more mundane number-crunching activity that compiles the necessary statements for the higher-order financial types. [The allusion to any actual superiority of one discipline over another is purely artistic license used to illustrate a point.]
Psychology has more recently joined forces with finance as both disciplines strive to understand the markets which are an aggregate of individuals making financial choices. Within the last decade, the discipline of behavioral finance has emerged as a combination of these two disciplines. Finally, mathematics, the pure science, provides the tools for financial calculations.
4) Ethics and Finance: In other cultures and in other times, the charging of interest was immoral and illegal. Lending money to a neighbor was considered acceptable, but charging interest on the loan was considered harvesting money from a source into which no labor was provided. Ergo, interest must have come from the Devil. Times and culture have changed to where charging interest is fair play, yet there are still ample opportunities to take unethical advantage of our imperfect economic system. Harry Markowitz has some thoughtful comments on "Markets and Morality".
CORPORATE FINANCE
The focus on the corporation is pursued further with a reading on the objective of the firm, followed by a discussion on the functions of the financial manager, concentrating on the sources and uses of funding, and an exercise in the financial analysis of the firm. (see also: capital structure, capital budgeting and dividend policy)
THE OBJECTIVE OF THE FIRM
The followingis from chapter one in the text, Financial Management and Policy, by James C. Van Horne, Copyright 1974 by Prentice-Hall. It is classic finance.
In this [course], we assume that the objective of the firm is to maximize its value to its shareholders. Value is represented by the market price of the company’s common stock which, in turn, is a reflection of the firm’s investment, financing, and dividend decisions.
Profit Maximization vs. Wealth Maximization
Frequently, maximization of profits is regarded as the proper objective of the firm, but it is not as inclusive a goal as that of maximizing shareholder wealth. For one thing, total profits are not as important as earnings per share. A firm could always raise total profits by issuing stock and using the proceeds to invest in Treasury bills. Even maximization of earnings per share, however, is not a fully appropriate objective, partly because it does not specify the timing or duration of expected returns. Is the investment project that will produce $100,000 return 5 years from now more valuable than the project that will produce annual returns of $15,000 in each of the next 5 years? An answer to this question depends upon the time value of money to the firm and to investors at the margin. Few existing stockholders would think favorably of a project that promised its first return in 100 years. We must take into account the time pattern of returns in our analysis.
Another shortcoming of the objective of maximizing earnings per share is that it does not consider the risk or uncertainty of the prospective earnings stream. Some investment projects are far more risky than others. As a result, the prospective stream of earnings per share would be more uncertain if these projects were undertaken. In addition, a company will be more or less risky depending upon the amount of debt in relation to equity in its capital structure. This risk is known as financial risk; and it, too, contributes to the uncertainty of the prospective stream of earnings per share. Two companies may have the same expected future earnings per share, but if the earnings stream of one is subject to considerably more uncertainty than the earnings stream of the other, the market price per share of its stock may be less.
For the reasons above, an objective of maximizing earnings per share may not be the same as maximizing market price per share. The market price of a firm’s stock represents the focal judgment of all market participants as to what the value is of the particular firm. It takes into account present and prospective future earnings per share, the timing, duration, and risk of these earnings, and any other factors that bear upon the market price of stock. The market price serves as a performance index or report card of the firm’s progress; it indicates how well management is doing in behalf of its stockholders.
Management vs. Stockholders
In certain situations the objectives of management may differ from those of the firm's stockholders. In a large corporation whose stock is widely held, stockholders exert very little control or influence over the operations of the company. When the control of a company is separate from its ownership, management may not always act in the best interests of the stockholders [Agency Theory]. [Managers] sometimes are said to be "satisficers" rather than "maximizers"; they may be content to "play it safe" and seek an acceptable level of growth, being more concerned with perpetuating their own existence than with maximizing the value of the firm to its shareholders. The most important goal to a management [team]of this sort may be its own survival. As a result, it may be unwilling to take reasonable risks for fear of making a mistake, thereby becoming conspicuous to the outside suppliers of capital. In turn, these suppliers may pose a threat to management’s survival.
It is true that in order to survive over the long run, management may have to behave in a manner that is reasonably consistent with maximizing shareholder wealth. Nevertheless, the goals of the two parties do not necessarily have to be the same. Maximization of shareholder wealth, then, is an appropriate guide for how a firm should act. When management does not act in a manner consistent with this objective, we must recognize this as a constraint and determine the opportunity cost. This cost is measurable only if we determine what the outcome would have been had the firm attempted to maximize shareholder wealth.