Financial Management Honours

Dept of Accounting
B.COM (HONS) &
MASTER’S IN FINANCIAL MANAGEMENT
(PART-TIME)
COURSE-WORK PROGRAMME 2008/2009
1. AIMS AND OBJECTIVES
The broad aim of the programme is the preparation of participants for executive positions in
financial management. The approach is interdisciplinary with the emphasis on the
development of conceptual knowledge and problem solving ability in issues regarding
Financial Management within the context of strategic management planning.
The objectives of the programme are as follows:
• focus on the underlying concepts in corporate finance within the context of strategic
management, through the study of appropriate case studies and journal material;
• create the structure which affords the participants an opportunity to develop a decision
focused approach to financial management
• provide opportunities for participants to explore and to discuss corporate finance and
management and control issues in depth;
• develop the ability, given a particular financial situation within a business environment
to:
• identify key issues,
• focus on relevant information,
• rank issues in order of importance,
• process required computations and undertake financial modelling,
• suggest and debate alternative courses of action,
• select the most appropriate course of action,
• develop the ability to present a motivated solution to a complex financial issue,
given the possibility of alternative solutions, to small and large groups of
participants,
• develop the participant's oral and written communication skills.
2. COURSE DURATION
The programme extends over four semesters (three semesters for the Honours programme).
Semester 1 and 2, in the 2008 academic year comprises weekly class meetings, which are held
on Tuesday evenings from 17h45 to about 20h15 in 6.14, Leslie Commerce Building as well as
Saturdays, 09.00 – 11.30 in the same venue. In Semester 3 and 4, in the 2009 academic
year, participants engage either in the preparation of a half-thesis (ACC5002) or undertake
the structured 2 nd year programme (ACC5021W) which consists of three modules and a
research paper in order to complete the MCom degree. Alternatively, in order to complete the
Honours degree, students will complete a Technical Report in the 3 rd semester. Saturday
mornings are used for additional lectures and tests and examinations.
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The proposed programme is as follows, but may be subject to change:
• Semester 1 and 2: (2008 Academic Year)
• Semester 3 & 4: (2009 Academic Year)
Students are required to reregister at the beginning of the 3rd semester. Class, or individual
sessions may be held to consider proposals for and/or discussions on Research Proposals.
Staff will be available during this semester for assistance with Research Proposals. Students
undertaking the 2 nd year structured programme (ACC5021W) will undertake three modules
on Capital Markets, Advanced Corporate Finance and Strategic Cost Management - until the
middle of September and will then be required to complete the research paper component of
the programme.
2008
2009
BCOM(HONS) ACC4009W ACC4009Z
ACC5021W
MCOM
ACC5002W
ACC5003W
Students who register for the BCom (Hons) programme and achieve the required grade will
be able to upgrade to the Masters programme in the second year.
Attendance at all sessions is an essential requirement for continued permission to remain on
the course and for registration. We do understand that your work commitments are
important. However, attendance on Tuesday and Saturday is a priority. If you are going to
miss a class, please email me with an explanation and go the extra mile for your group. Nonattendance
will not be accepted without a detailed reason for such absence.
3. COURSE CONTENT
The programme has a decision making focus within a strategic context. Value creation and
the principles of valuations are stressed throughout the programme.
The content is organised in key areas:
3.1 Financial Markets and Instruments
The role of local and global financial markets and the array of financial instruments are
analysed and evaluated in the context of the firm’s investment and financing decisions.
3.2 Accounting Information, Financial Analysis and Financial Modelling
Accounting data reflects the firm’s relationship between capital markets and investment
opportunities, and the results of operations. The course focuses on interpreting this
information for decision making. Forecasting financial statements and funding requirements
are also covered as well as financial analysis and credit ratings.
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3.3 Time Value of Money, Risk and Return, the Cost of Capital and EVA
These are key underlying concepts in the creation of value. It is not enough for firms to earn a
profit, in order to add value the profit must exceed the firm’s cost of capital. The use of
Economic Value Added as a measure of performance is evaluated.
3.4 Capital Budgeting
The analysis of long-term investments is crucial in maximising value, especially in situations
of capital rationing and inflation. The evaluation of capital projects emphasises the tax
implications, real options and the estimation of project cash flows.
3.5 Working Capital Management
Firms invest substantial funds in working capital. Optimal working capital policies and
current asset management can have a dramatic impact on the value of the firm.
3.6 Source of Finance and Capital Structure
Excessive use of debt can expose a firm to unacceptable levels of risk. Conversely,
conservative debt policies may limit the opportunity for the leverage effect to increase wealth.
How do firms select their debt/equity ratios Which sources of finance should firms use
3.7 Valuation of Companies and Fixed Income securities
The valuation techniques required to value equity and fixed income securities are
fundamental to decision making in corporate finance and portfolio management. Topics
include Yield to Maturity, Free Cash Flow, EVA, Growth models, net asset values and price
earnings multipliers. The global environment, industry factors, macro-economic variables
such as interest rates, as well as firm specific factors impact on the value of securities.
3.8 Theory and Asset Pricing Models
The efficiency (or lack thereof) of capital markets and the Modern Portfolio Theory has
implications for the asset management. The Capital Asset Pricing Model and Arbitrage
Pricing Theory are important to portfolio management. The Value versus Growth issue will
be examined in the context of portfolio theory.
3.9 Derivative Instruments, risk management and International Finance
Options, futures, forward contracts, swaps and hybrid instruments are useful for hedging and
have created challenges in management of risk and firm exposures. International finance is
studied in relation to the investment and financing decisions of a firm operating in a global
economy.
3.10 Strategic Managerial Accounting
Management accounting information is used for decision-making, planning and control
activities. It supports the operational and strategic needs of a firm by providing measures of a
firm’s economic condition, such as the cost and profitability of a firm’s products, services and
customers. Insightful cost analysis enables the firm to learn about its strategic focus and the
long-term sustainability of its products, divisions and other activities. The focus is on activity
based management, supply chain management, the balanced scorecard, benchmarking and
cost estimation.
4. KEY ELEMENTS
The course provides an integrated package built around a number of key elements, each of
these supports and is supported by the other elements. No part of the programme stands
alone and students are expected to participate fully in each.
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4.1 Participants
The course is designed to assist participants in achieving the course objectives previously
stated, while allowing sufficient scope for individuals to achieve personal objectives. Those
invited to join the programme will be selected because it is believed that they have something
to offer to, as well as gain from the course. A candidate who does not provide the expected
input is a drain on the whole programme.
4.2 Working Groups
The class will be divided into groups of between 3 and 5 students. The objective of the
working group is to simulate organisational behaviour. Various people in an organisation will
observe clues to problems and will propose action: in the working group the participant
should develop reasoning and persuasive abilities and also the ability to draw on the
knowledge, experience and perceptions of others in the group. Groups prepare material for
each session of the full class and will also be allocated group assignments. Working groups
normally meet once a week at a time convenient to the group members. Many corporate
finance assignments in practice revolve around teams. The course reflects the new corporate
reality.
4.3 Case Studies
The Programme follows the Harvard Business School approach of making extensive use of
case studies. The objective of a case study is to simulate real financial management
situations. Good case studies will therefore have a certain level of "noise", which is irrelevant,
distracting or misleading information, and also clues to various problems. These relevant
problems then compete for priority. The task of the group is:
• to eliminate the "noise",
• identify the relevant problems,
• rank them in order of priority,
• research the finance theory and literature relevant to these problems,
• identify alternative courses of action,
• propose and motivate the preferred alternative.
Case study work forms the core of the programme. The typical procedure for case study
preparation will be as follows: the individuals in the group will analyse the case and research
material where appropriate. They will then formulate a written solution. They will then meet
in the working groups to exchange, propose and debate their views. A group member will
document its conclusions and supporting arguments. This document is typed, including a
bibliography and is submitted by about noon on the day prior to the class meeting where the
case is to be discussed. Included in the document will be an executive summary (maximum
one page), which may be distributed to the full class at the appropriate time. Each Group can
email me their submission but please set out the worksheets in such a way that it is easy to
print. Always identify your Group in file names.
In addition, a spokesperson will be appointed by the working group to present their views on
the case at the full class meeting. It is mandatory that the functions of spokesperson be
rotated through the working group. However, I will retain the right to call on anyone to open
a case. No other mandatory rules apply to working groups. It is essential that all students
prepare for and participate in each case study. Abdication in favour of the spokesperson will
devalue the quality of solutions and defeat the function of the case. It is critical that all
members are fully prepared as I will call on any student within a group to answer a question.
At the full class meeting a group will be selected and the spokesperson for that group will
present their views. Other groups will also be given an opportunity to present their case.
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General discussion and questions will proceed. Circumstances may however require this
procedure to be altered on occasions.
4.4 Class Meetings
Besides the presentation of assignments and discussion papers, weekly class meetings serve
to create learning experiences for the class as a whole. They are conducted in various modes
of which the following are the most frequent.
• Case Study. The session is used for presentation of case study findings and discussion
of the issues which arise.
• Unstructured Seminar. This results from students being given a topic to research. On
arrival at the class meeting, a chairperson is appointed, a framework for discussion is
agreed and the topic is discussed, drawing on the reading and research of the whole
group.
• Structured Seminar. This combines the features of a lecture conducted by a staff
member with specific preparation based on prescribed readings.
• Guest Speakers. On occasions, visiting speakers with specialist expertise are invited to
address the class.
4.5 Assignments:
The objective of assignments is to develop the participant's ability to:
• perform limited research on a specific issue;
• to present varied opinions thus obtained into a succinct summary; and,
• to select and justify conclusions.
The group assignments have the added objective (as with case studies) of developing the
participant's reasoning and human relations skills.
An individual discussion paper and/or research proposal is required and a group valuation
research project is also required to be undertaken during the programme. We make extensive
use of Adobe and your submissions should be in PDF format. All references should be
properly acknowledged and a full bibliography should be provided. Assignments are spread
throughout Semester 1 and 2. In general, marks will be awarded for content (adequacy of
coverage, analysis and research) and structure (clarity, logic, strength of conclusions). Marks
may be lost for poor presentation (typographical errors, defective bibliography, poor layout).
4.6 Tests and examinations
A series of examinations will be held during the year and usually after each section.
Participants will only be permitted to bring limited reference material into examinations. In
some modules, students will not be able to bring in any materials. The examinations will
primarily take the form of short case studies or problems and may include questions on cases
covered in the programme. The scheduled dates for the tests and examinations are set out in
the programme.
4.8 Reference Material
The reference material is drawn mainly from three sources. Firstly, prescribed texts, which
provide a basic reference document on selected issues. Secondly, the libraries with vast
resources of books and journals (access is available to the Jagger Linear Library and UCT’s
electronic database resources). Thirdly, it is expected of students to remain current with
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eporting in the local financial press. It is included in the objective of the course that
participants should develop the ability to find relevant reference material from the library and
other sources.
The prescribed texts which should preferably be purchased are:
• Brigham, Eugene F, & Davies Phillip R, Intermediate Financial Management, Seventh
or Eighth Edition. Otherwise, order any Intermediate Financial Management or
Corporate Finance Textbook. Damodaran’s Corporate Finance – Theory & Practice is
recommended.
• Correia, Flynn, Uliana & Wormald, Financial Management, 6 th ed., Juta & Co.
• Bruner, Robert F, Case Studies in Finance - Managing for Corporate Value Creation,
Irwin McGraw-Hill, 5 th Edition
• Van Zyl, C. Botha, Z. & Skerrit, P. Understanding South African financial markets,
2006, 2 nd ed., Van Schaik Publishers
5. COURSE ASSESSMENT FOR HONOURS & MASTERS
The coursework component, which includes case study submissions, examinations and tests,
and assignments, will count 50% of the total grade over the two years and the half-thesis
(ACC5003W) or the 2 nd year structured programme (ACC5021W) will count 50%. The
assessment will be structured as follows for the Honours and Masters students;
2008 Honours Masters Masters
ACC4009/5002 ACC4009W/Z ACC5003 ACC5021
Examinations 36.0% 27.0% 18.0% 18.0%
Valuation research project 34.0% 25.5% 17.0% 17.0%
Group Casework submissions 30.0% 22.5% 15.0% 15.0%
100.0% 75.0% 50.0% 50.0%
Technical report 25.0%
Half-thesis 50.0%
Module 1 10.0%
Module 2 10.0%
Module 3 10.0%
Research paper 20.0%
100.0% 100.0% 100.0% 100.0%
The following criteria must be met in order to be awarded the degree:
• In each category of assessment a sub-minimum of 45% must be achieved.
• An aggregate of 50% overall must be achieved.
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6. UPGRADING FROM THE HONOUR’S TO MASTER’S DEGREE
All candidates, who do not have Honours equivalent degrees, will be required to register for
the B Com (Hons) degree initially. All candidates will then pursue the abovementioned
course-work in the first and second semesters (that is, in the first year of their studies). At the
end of the course-work component, the Department will select candidates who will be offered
the option of upgrading to the Master’s degree; those candidates who are not offered this
option, or those who may be offered this option but who elect not to accept the offer, will then
proceed with their Technical Reports for the completion of the B Com (Hons) degree. Those
who accept the upgrade option will proceed with the preparation and writing of their Master’s
thesis in 2009 under supervision or will proceed to undertake the 2 nd structured programme
(ACC5021W). In order to upgrade to the Master’s degree, a student will be required to achieve
a weighted average mark of 60% for the examinations component of the first year’s
programme.
7. PROGRAMME DIRECTORS
The programme director will be Professor Carlos Correia; all enquiries should be directed to
him on (021) 650 3144 or 650 2265. The fax number is (021) 689 7582. The e-mail address
is arete@telkomsa.net 0r Carlos.Correia@uct.ac.za. Dr Glen Holman is director of the second
year of the programme and his email address is Glen.Holman@uct.ac.za. All enquiries in
respect to the supervision of your thesis and research methodology should be directed to Dr
Richard Chivaka at 650-4391 or Richard.Chivaka@uct.ac.za.
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Programme Outline
DAY DATE PRESENTATION
Tuesday
19-Feb
Registration and welcome – Introduction to the course / Admin /Overview of Case Studies /
Introduction to Investing
MODULE 1: Financial Analysis
Course leaders: Prof. Carlos Correia and Prof. Mark Graham
CC
Tuesday 26-Feb Business Strategy Analysis, Accounting Analysis & Financial Analysis CC
Tuesday 04-Mar Value Creation - Case: 1 Warren Buffet - 1995 & 2005 CC
Tuesday 11-Mar Investment Analysis by Roddy Sparks - ex-CEO of Old Mutual CC
Tuesday 18-Mar Case: The Home Depot CC
Tuesday 25-Mar Case 7: The Body Shop International PLC2001: An Introduction to Financial Modelling CC
Tuesday 01-Apr Case: Harnischfeger (PH) CC
Tuesday 08-Apr Case 5: The Battle for Value: Federal Express vs. United Parcel Service- 2004 CC
Tuesday 15-Apr Financial Statement Analysis & International Financial Reporting Standards (IFRS) MG
Saturday 19-Apr Financial Statement Analysis & International Financial Reporting Standards (IFRS) MG
Tuesday 22-Apr Financial Statement Analysis & International Financial Reporting Standards (IFRS) MG
Saturday 26-Apr Financial Statement Analysis & International Financial Reporting Standards (IFRS) MG
MODULE 2: Capital Budgeting
Tuesday 29-Apr
Advanced Capital Budgeting [Brigham & Daves Ch11&12, Correia, Flynn, Wormald & Uliana Ch8,9
&10]
CC
Saturday 03-May
Lecture: Capital Budgeting - Risk Analysis & Monte Carlo Simulation [Case: Mozal Smelter - BHP
Billiton]
CC
Tuesday 06-May Case 22 Genzyme /Geltex Pharmaceuticals CC
Saturday 10-May Exam 1 (Modules 1 and 2)
MODULE 3: Capital Structure and Cost of Capital
Tuesday 13-May
Miller Modigliani and Introduction to Capital Structure
Case: Introduction to Debt Policy and Value
PC
Tuesday 20-May Case 31: Polaroid Corporation, 1996 PC
Saturday
24-May
Case 12: Best Practices in Estimating the Cost of Capital: Survey and Synthesis. Readings and research
on the Cost of Capital in South Africa.
Tuesday 27-May Case 14: Coke vs. Pepsi, 2001 PC
Tuesday 03-Jun Case 15: Teletech Corporation 2005 MW
MODULE 4: Valuations
Saturday 07-Jun Introduction to Valuations [Theory, Price multiples, Dividend growth and EVA] CC
Tuesday 10-Jun Free Cash Flow Valuation Techniques -1 CC
Thursday 12-Jun Free Cash Flow Valuation Techniques- 2 CC
Tuesday 17-Jun Case: Calaveras Vineyards (see webpage) CC
Tuesday 24-Jun Case 44: Palamon Partners/ Teamsystem S.P.A CC
VACATION
PC
CC Prof. Carlos Correia CS Colin Smith MG Prof. Mark Graham
GH Dr. Glen Holman PC Peter Cramer EU Prof. Enrico Uliana
RC Prof. Richard Chivaka MW Prof. Mike Wormald
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Five Day program on Corporate Finance, Accounting, Valuation & Corporate Finance
Wednesday 16-Jul The Accounting Model vs the Economic model of the Firm Joel Stern
Thursday 17-Jul Three Basic Valuation Models Joel Stern
Tuesday 22-Jul Three Basic Valuation Models (continued) Joel Stern
Wednesday 23-Jul Corporate Governance Joel Stern
Thursday 24-Jul The Capital Structure Decision Joel Stern
MODULE 5: Capital Markets & Financial Instruments
Tuesday 29-Jul Interest Rates, Inflation and the Role of the Central Bank GH
Saturday 02-Aug Fixed Income I, Duration, DV01, and Convexity GH
Tuesday 05-Aug Fixed Income II, Bond Pricing, FRA’s, Bond Investing GH
Tuesday 12-Aug Currencies, Spot markets, Purchasing Power Parity GH
Saturday 16-Aug Currency Forwards GH
Tuesday 19-Aug Currency Futures, RMA, Emerging Market Currencies, Contagion GH
Saturday 23-Aug Derivatives I, Other Futures, Forwards GH
Tuesday 26-Aug Derivatives II, Options—valuations and strategies GH
Saturday 30-Aug Derivatives III, Swaps, CFD’s, Financing, BEE Case Study GH
Tuesday 02-Sep Asset Management I, CAPM, Efficient Frontier GH
Saturday 06-Sep Asset Management II, Hedge funds, Immunization GH
Tuesday 09-Sep World Bank, IMF, SAA Case Study GH
Saturday 13-Sep Barings and MGS Case Study /Soc Gen. and Final Exam Preparation GH
Saturday 20-Sep Exam 2 (Module 5)
MODULE 6: Special Topics in Finance
Tuesday 16-Sep Dividend Policy – Textbook plus readings CS
Tuesday 23-Sep Case24: Eastboro Machine Tools Corporation CS
Tuesday 30-Sep Case 26: JetBlue Airways, IPO Valuation. CS
Saturday 04-Oct Securitisation & Share Buy-backs CC
Tuesday 07-Oct Private Equity in South Africa: A Venfin perspective by Jannie Durand
Tuesday 14-Oct BEE Financing Structures RG
Saturday 25-Oct Exam 3 (Modules 3, 4 and 6)
Tuesday 28-Oct Presentations - Valuation Projects CC
Saturday 01-Nov Presentations - Valuation Projects CC
Tuesday 04-Nov Research Methodology RC
Saturday 08-Nov Research Methodology RC
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