Course 2

Day One – Wednesday, 4 November 2009

Capital Budgeting
• Long-term investments
• Elements of discounting
• Simple rates of return
• Incremental and differential cash flows
• Relevant cash flows
• Sunk and opportunity costs
• Depreciation and tax rates
• Net cash flow vs. net income
• Discount rates (WACC)
• Cash flow appraisal techniques
• Discounted cash flow
• Net present values and present-value index
• Internal rate of return
• Adjusted present value
• Accounting rate of return
• Cash flow return on investment
• Payback and discounted payback periods
• Independence and mutual exclusivity
• Adjusting for unequal lives and investment size
• Capital budgeting complications
• Accelerated depreciation cash impacts
• Risk and uncertainty
• Inflation
• Lease vs. purchase decision

Case Study

Working Capital Management
• Cash operating and working-capital cycles
• Cash-to-cash cycle
• Miller-Orr and Baumol models
• Sweeping
  - Types of cash sweep
  - Zero balance and notional pooling
  - Why sweep?
• Liquidity management and investments
• Short-term and long-term cash investments
• Inventory management
  - Inventory days/inventory turnover
  - Economic order quantity – stock control
  - Inventory balancing
  - Just-In-Time (JIT) philosophies
• Accounts receivable management
  - Cash vs. credit options
  - Short-term financing
  - Bills of exchange
  - Bill acceptance facilities
  - Invoice discounting vs. debt factoring
  - To discount or not?
  - Discounting calculations
  - Receivable days/receivable turnover
  - Payable days/payable turnover
  - Credit policy variables and standards
  - Collection policy and credit periods

Day Two – Thursday, 5 November 2009

Cost Of Capital And Performance Based Valuation
• Weighted average cost of capital
• Cost of new and internal equity
• Cost of debt
• Market vs. book values
• Capital asset pricing model
• Risk free rates
• Market risk premiums
• Betas
• Project risk classification grids

Managing Cash Finance
• Strategic financial structures
• Managing capital structure to maximise cash
• Cash implications of debt vs. equity
• Theories of gearing
• Traditional theories
• Net income and net operating income approaches
• Financial and operating leverage

Free Cash Flow Appraisal In Valuing A Company
• Managing value
• Competitive advantage period
• Cash flow appraisal techniques
• Estimating cash operating value
• Profit vs. cash flow: adjustments
• Free-cash-flow
• Continuing values
• Price-earning and market-to-book ratios
• Annuity-based continuing values
• Seven value-drivers of cash flow
• Sales growth rates
• Cash from operations
• Free cash flow (pre and post capex)
• Capex to sales ratios
• Business, corporate and shareholder values
• Case study

Business Valuations
• A look at valuation approach and methodology
• Why value a company?
• What are the methods used?