Financial Modeling

COURSE SYLLABUS
Course: Financial modeling Fin260
Instructor:
Hesah Aljarboa
Email: [e-mail]
 
Course Description: 
This course presents the theory and practice of financial management, emphasizing computer-based modeling and forecasting. The course uses spreadsheets and other software products to analyze the impacts of financial decisions related to financial statement analysis, cash budgeting, and cost of capital determination, capital budgeting, and capital structure choices. 

COURSE OBJECTIVES: 
This is a hands-on course, with extensive use of computers and spreadsheets. Its general objective is to develop spreadsheet and management skills for creating computer-based models for analyzing a variety of decision problems facing today’s financial managers and professionals. 
You will learn how to create computer-based models to prepare, analyze, and use financial statements; to conduct financial ratio analysis; to calculate financial and operating leverages; to prepare cash budgets; to create sinking funds and evaluate loan and mortgage repayment schedules; to determine the cost of capital; to evaluate net present values, rates of return, and break-even points for various types of capital investments; to analyze investment payoffs and risks; financial statement analysis, project analysis, capital budgeting, portfolio analysis, and securities and options valuation. 
You will learn how to use a variety of spreadsheet tools and techniques, such as a number of financial and statistical command functions, what-if scenarios, one- and two-way input tables, optimization, Monte Carlo simulation, and regression analysis. You will learn how to use logical IF statements, to custom format cells, and to conditionally format cells so as to highlight areas where management attention is needed. You will learn how to link the cells in spreadsheets, how to link separate spreadsheets to one another, and how to paste or embed spreadsheets in Word documents, with or without linkages between the spreadsheet and Word document. 
In addition to teaching how to use spreadsheets to calculate correct answers, the course emphasizes on the preparation of spreadsheets in formats that can be easily understood. It shows how to create various types of charts that communicate results clearly and make convincing management presentations. 

TEXT BOOKS: 

Fundamentals of Corporate Finance, Global Edition, 4/E
ISBN-10: 1292215070 • ISBN-13: 9781292215075 

TOOLS: 
In addition to a confident level of computer and Internet literacy, certain minimum technical requirements must be met to enable a successful learning experience. We primarily use Microsoft Excel, though we will explore Bloomberg as well. Although any type of programming is not a prerequisite for this course it is strongly suggested that you familiarize yourself with Excel before taking the course. Opening, closing, saving spreadsheets, manipulating cells, using the formula wizard, and other basics I assume you already know. You will need regular access to a computer with a broadband Internet connection. Personal computer and internet connection problems do not excuse the requirement to complete all course work in a timely and satisfactory manner. Each student needs to have a backup method to deal with these inevitable problems.

PREREQUISITES: 
This course is primarily focused on modeling as opposed to theory. Students are expected to be well familiar with finance topics before trying to model finance problems. What is meant by the time value of money? What is capital budgeting? When evaluating project payoff, why would we care about the choice of the discount rate used? What is the ‘efficient frontier’ in portfolio analysis? Why are options payoffs non-linear? What do we mean by bond duration analysis? If any of these topics are unfamiliar, please refresh your memory using the reference materials or notes/texts from your previous classes. It will be very difficult to learn finance and investments theory while also learning modeling, though it can be done. 

CLASS PROCEDURES: 
This is not a primary lecture course. Topics are introduced with slides but the bulk of the class time will be spent building models and utilizing Excel, internet resources, and Bloomberg. This course is a hands-on practice seminar. Each class I intend to briefly give background information – the why of the model – and then demonstrate how the model works. Students will be assigned a number of examples/models to complete both in and outside of class. Classes will facilitate your learning experience, though by far the best teacher of modeling is practice, practice, and more practice. 

GRADING: 
Your final course grade will be determined as follows:

Assignments 5% 
Project 15%
Quiz 15%
Midterm Exam 25% 
Final exam 40% 

Tests and case study will be available on blackboard. Each student is expected to submit all the assignments before the indicated due dates. Submission dates are divided throughout the semester as each assignment follows a topic in the course. All late submissions are graded with penalties. 

EXAMS: 
Each student is required to take proctored Midterm and Final examinations. Both will be a mixture of modeling problems and analysis of these models. Both the Midterm and Final examinations will be closed book and closed notes. You must take both exams to receive a passing grade. 

Midterm    Nov. 6th

ATTENDANCE AND PARTICIPATION: 

Do not be afraid to participate. This is an engaged course and we all learn by trying new things. If you have a question, ask. Other people will appreciate that your question resulted in clarification for all. 

COURSE TOPICS:

Analysis of Financial Statements 
Spreadsheet skills: Using basic excel functions.
Financial management skills: Analyzing the year-to-year changes in financial statements and various financial ratios; performing vertical analysis of financial statements; using financial ratios to benchmark a company’s performance against competitors; inserting spreadsheet results into company reports. 

Valuation of Bonds 
Spreadsheet skills: Determining the value of bonds from their fixed future cash flows and an investor’s expected rate of return; performing sensitivity and risk analysis related to the value of bonds; evaluate the effect of call date on a bond’s value.
Financial management skills: Be able to define value, as related to bonds, and explain the methods used to calculate it. 

Valuation of Common Stocks 
Spreadsheet skills: Determining the value of shares of common stocks from their expected future cash flows and an investor’s expected rate of return; performing sensitivity and risk analysis related to the value of stocks.
Financial management skills: Be able to define value, as related to stocks, and explain the methods used to calculate it.

Cost of Capital 
Spreadsheet skills: Calculating the weighted average cost of capital (WACC; evaluating the WACC for different amounts of capital raised and creating charts to display the results. 
Financial management skills: Identify sources and costs of capital and understand how to use them to compute a firm’s WACC; distinguish between WACC based on book value and WACC based on market value; understand what’s meant by flotation costs and how to include them in a firm’s WACC. 

Capital Structure in a Perfect Market
Financial management skills: Illustrate the effect of a change in debt on weighted average cost of capital in perfect capital markets.

Capital Budgeting: The Basics 
Spreadsheet skills: Organizing spreadsheets to move from sales revenues to after-tax cash flows; using Excel’s financial functions to calculate depreciation schedules; calculating financial measures of success, such as net present value and internal rate of return.
Financial management skills: Review taxes and depreciation; understand the inputs and outputs of capital budgeting; understand the various types of depreciation; distinguish between income taxes on regular income and capital gain and how they’re calculated; apply appropriate financial criteria to evaluate investments in capital assets. 

Capital Budgeting and Valuation with Leverage
Financial management skills: Analyze the effects of leverage.

Capital Markets and the Pricing of Risk 
Spreadsheet skills: Using Excel’s Scenario Manager to analyze the effects of various combinations of conditions (e.g., best-on-best, most probable, and worst-on-worst) on future payoffs.
Financial management skills: Using probabilities to define risks. 

Optimal Portfolio Choice and the Capital Asset Pricing Model
Spreadsheet skills: using excels different functions such as variance covariance. 
Financial management skills: Be able to illustrate the optimal portfolio choice through the efficient frontier.

ACADEMIC DISHONESTY: 
It is assumed that everyone behaves ethically. The University System supports and promotes academic honesty and personal integrity. We do not tolerate dishonest efforts by its students. Students who are guilty of academic dishonesty can expect to be penalized. Any student who knowingly assists another student in dishonest behavior is equally responsible. Hence, we demand that students be above reproach with respect to all scholastic activities, including but not limited to spreadsheet assignments and exams. Some of the spreadsheet exercises to be assigned this semester have been used previously at CBA by either myself or by my colleagues. The term “above reproach in all scholastic activities” specifically prohibits any use of spreadsheet templates distributed during prior semesters. Use of any prohibited materials or any violations of the rules for taking examinations will be treated as a serious honor code violation. 

DICLAIMER: 
I reserve the right to change the syllabus as desirable and necessary throughout the semester. The syllabus is a guide. Circumstances and events, such as student progress, may make it necessary for the instructor to modify the syllabus during the semester. Any changes made to the syllabus will be announced in advance.