executive MBA subject 13
Corporate Finance
Year 2, term A. 6.5 ECTS, about 162 hours, 8 parts. Part 1 is free.
task, condition, standard
What you will be able to do
Task, condition and standard
Task
Recommend a funding, payout and hedging policy for a firm and value it.
Condition
Given five years of statements, market data and the firm's plans.
Standard
Valuation and ratios are correct, the policy is consistent, and risks are covered.
Who it is for: Senior managers who decide on funding, payouts, valuation and financial risk.
how this subject works
Free entry, voice and your learning style
Part 1 is free to try. Read it, listen to it and answer it before you decide. Join the programme, or this subject on its own, to open the other parts.
- Listen. Every part has a Listen button that reads it aloud.
- Speak or type. Answer each part by talking (press Speak) or by typing. Your answers stay on this device only.
- Learn your way. Every part has a See, Hear, Do and Read-and-write route. Not sure which suits you? Take the eight-question learning-style check.
8 parts
The parts, with worked examples
Part 1 Working capital management 20 hApply: calculate
Working capital is the cash tied up in stock and customer credit minus what suppliers fund. Shorter cycles free cash.
- Cash cycle = stock days + customer days - supplier days
- Each day saved frees one day of sales in cash
- Watch customer relationships when tightening terms
Worked example: Worked-example figures, in your currency. Stock 60 days, customers 45, suppliers 30: cycle 75 days. Cutting customer days to 35 makes it 65. With sales of 3.65m a year (10,000 a day), 10 days free 100,000.
Activity: Calculate the cash cycle for a firm and the cash freed by one change.
Standard: Cycle and cash freed both correct.
Learn your way
- See. Sketch "working capital management" as a picture: boxes, arrows and the key number.
- Hear. Press Listen, or explain the worked example aloud to someone.
- Do. Do the activity with your own work or a practice case.
- Read and write. Write the idea in three lines in your own words below.
Your answer. Calculate the cash cycle for a firm and the cash freed by one change.
Part 2 Capital structure 20 hUnderstand: explain
Capital structure is the mix of debt and equity. Debt is cheaper and saves tax, but too much raises the risk of distress.
- Debt interest reduces tax
- More debt raises the return and risk for shareholders
- Lenders set limits through covenants
Worked example: Worked-example figures, in your currency. Profit before interest 100. All equity: tax at 25% leaves 75. With 400 debt at 5%: interest 20, tax on 80 is 20, leaving 60 for shareholders plus 20 to lenders: 80 to investors in total. The tax saving is 5.
Activity: Show the tax saving from debt for two levels of borrowing.
Standard: Both savings correct.
Learn your way
- See. Sketch "capital structure" as a picture: boxes, arrows and the key number.
- Hear. Press Listen, or explain the worked example aloud to someone.
- Do. Do the activity with your own work or a practice case.
- Read and write. Write the idea in three lines in your own words below.
Your answer. Show the tax saving from debt for two levels of borrowing.
Part 3 Optimal capital structure 20 hEvaluate: choose a mix
The best mix balances tax savings against the costs of financial distress. Stable cash flows can carry more debt.
- Test interest cover and debt to earnings
- Compare with similar firms
- Leave room for bad years
Worked example: Worked-example figures, in your currency. Earnings before interest 120, interest 30: cover 4 times. A covenant needs at least 3. Extra borrowing that adds 15 interest drops cover to 120 / 45 = 2.7: too far.
Activity: Find the most debt a firm can carry while keeping cover at 3 times.
Standard: Maximum interest and debt correct.
Learn your way
- See. Sketch "optimal capital structure" as a picture: boxes, arrows and the key number.
- Hear. Press Listen, or explain the worked example aloud to someone.
- Do. Do the activity with your own work or a practice case.
- Read and write. Write the idea in three lines in your own words below.
Your answer. Find the most debt a firm can carry while keeping cover at 3 times.
Part 4 Dividend and payout policy 20 hEvaluate: decide
Firms return cash through dividends or share buybacks. Policy should be steady and follow from investment needs.
- Fund good projects first
- Keep dividends stable; markets punish cuts
- Buybacks are flexible
Worked example: Worked-example figures, in your currency. Profit 200, good projects need 120. Cash available for payout = 80. A dividend of 50 plus a buyback of 30 keeps the dividend stable if profit dips.
Activity: Set a payout plan for three years with changing profits.
Standard: Projects funded first and the dividend never cut.
Learn your way
- See. Sketch "dividend and payout policy" as a picture: boxes, arrows and the key number.
- Hear. Press Listen, or explain the worked example aloud to someone.
- Do. Do the activity with your own work or a practice case.
- Read and write. Write the idea in three lines in your own words below.
Your answer. Set a payout plan for three years with changing profits.
Part 5 Valuation 20 hApply: value
A firm is worth the present value of its future free cash flow. Multiples from similar firms give a quick check.
- Free cash flow = operating cash - investment
- Terminal value captures years beyond the forecast
- Cross-check with multiples
Worked example: Worked-example figures, in your currency. Free cash flow 50 next year, growing 3%, discount rate 9%. Value = 50 / (0.09 - 0.03) = 833. A peer multiple of 8 times earnings of 100 gives 800: close.
Activity: Value a firm using cash flow and a multiple, and explain any gap.
Standard: Both values correct and the gap explained.
Learn your way
- See. Sketch "valuation" as a picture: boxes, arrows and the key number.
- Hear. Press Listen, or explain the worked example aloud to someone.
- Do. Do the activity with your own work or a practice case.
- Read and write. Write the idea in three lines in your own words below.
Your answer. Value a firm using cash flow and a multiple, and explain any gap.
Part 6 Risk management and hedging 20 hApply: hedge
Hedging reduces the effect of price, rate or currency moves. It costs money, so hedge what would hurt most.
- Find exposures first
- Forwards lock in a price
- Options protect against bad moves and keep good ones, for a fee
Worked example: Worked-example figures, in your currency. You must pay 1m in a foreign currency in 3 months. A forward locks the rate; if the currency rises 8%, the unhedged cost would be 1.08m. The hedge saves 80,000.
Activity: Choose a hedge for two exposures and explain the cost.
Standard: Exposures sized and the hedge choice justified.
Learn your way
- See. Sketch "risk management and hedging" as a picture: boxes, arrows and the key number.
- Hear. Press Listen, or explain the worked example aloud to someone.
- Do. Do the activity with your own work or a practice case.
- Read and write. Write the idea in three lines in your own words below.
Your answer. Choose a hedge for two exposures and explain the cost.
Part 7 International finance 20 hAnalyse: compare
Firms abroad face currency, interest and political risk. Funding in the local currency can match income and costs.
- Match currency of debt to currency of income
- Interest differences tend to show in forward rates
- Political risk can block cash returning home
Worked example: Worked-example figures, in your currency. A unit earns 10m in local currency. Borrowing 30m locally means a 20% currency fall cuts both income and debt in home terms, so the net hit is smaller.
Activity: Plan the funding currency for a foreign unit.
Standard: The currency match is explained with figures.
Learn your way
- See. Sketch "international finance" as a picture: boxes, arrows and the key number.
- Hear. Press Listen, or explain the worked example aloud to someone.
- Do. Do the activity with your own work or a practice case.
- Read and write. Write the idea in three lines in your own words below.
Your answer. Plan the funding currency for a foreign unit.
Part 8 Integrated corporate finance case 20 hCreate: recommend
Bring funding, payout, valuation and hedging together into one board recommendation.
- Answer first
- Figures from earlier chapters
- Name the main risk and the plan for it
Worked example: Worked-example figures, in your currency. "Raise debt to 2.5 times earnings, keep dividend at 50, buy back 30, hedge 70% of foreign costs; value 833 per share basis."
Activity: Write a two-page board recommendation.
Standard: Consistent policy and all figures traceable.
Learn your way
- See. Sketch "integrated corporate finance case" as a picture: boxes, arrows and the key number.
- Hear. Press Listen, or explain the worked example aloud to someone.
- Do. Do the activity with your own work or a practice case.
- Read and write. Write the idea in three lines in your own words below.
Your answer. Write a two-page board recommendation.
ten checks
Check yourself
Say or write your answer first, then read the model answer.
- Q1. Stock 60, customers 45, suppliers 30. Cash cycle?
Model answer: 75 days. (Covered in part 1: Working capital management.) - Q2. Sales 10,000 a day; 10 days freed. Cash freed?
Model answer: 100,000. (Covered in part 1: Working capital management.) - Q3. Why is debt cheaper than equity?
Model answer: Interest reduces tax and lenders take less risk. (Covered in part 2: Capital structure.) - Q4. Earnings 120, interest 30. Cover?
Model answer: 4 times. (Covered in part 3: Optimal capital structure.) - Q5. Why leave room for bad years?
Model answer: To avoid breaking covenants and distress. (Covered in part 3: Optimal capital structure.) - Q6. Why do markets dislike dividend cuts?
Model answer: They signal trouble. (Covered in part 4: Dividend and payout policy.) - Q7. Cash flow 50, rate 9%, growth 3%. Value?
Model answer: About 833. (Covered in part 5: Valuation.) - Q8. What does a forward do?
Model answer: Locks in a future price or rate. (Covered in part 6: Risk management and hedging.) - Q9. 1m payment, currency rises 8%. Unhedged extra cost?
Model answer: 80,000. (Covered in part 6: Risk management and hedging.) - Q10. Why borrow in the currency you earn in?
Model answer: Currency moves hit income and debt together. (Covered in part 7: International finance.)
slides L1 to L7
The seven-level ladder, slide by slide
- Slide 1: L1 Corporate finance. Funding, payouts, value, risk. Speaker note: Say: put "corporate finance" in one sentence and give one example from work. Check: ask one learner to say it back in their own words. Mistake: moving on before the numbers are clear.
- Slide 2: L2 Working capital. Cash cycle. Speaker note: Say: put "working capital" in one sentence and give one example from work. Check: ask one learner to say it back in their own words. Mistake: moving on before the numbers are clear.
- Slide 3: L3 Debt and equity. Tax and risk. Speaker note: Say: put "debt and equity" in one sentence and give one example from work. Check: ask one learner to say it back in their own words. Mistake: moving on before the numbers are clear.
- Slide 4: L4 The right mix. Cover and covenants. Speaker note: Say: put "the right mix" in one sentence and give one example from work. Check: ask one learner to say it back in their own words. Mistake: moving on before the numbers are clear.
- Slide 5: L5 Payouts and value. Dividends, cash flow value. Speaker note: Say: put "payouts and value" in one sentence and give one example from work. Check: ask one learner to say it back in their own words. Mistake: moving on before the numbers are clear.
- Slide 6: L6 Hedging. Forwards and options. Speaker note: Say: put "hedging" in one sentence and give one example from work. Check: ask one learner to say it back in their own words. Mistake: moving on before the numbers are clear.
- Slide 7: L7 Board policy. One consistent recommendation. Speaker note: Say: put "board policy" in one sentence and give one example from work. Check: ask one learner to say it back in their own words. Mistake: moving on before the numbers are clear.
how it is judged
Marking rubric
| Criterion | Not yet | Meets | Exceeds |
|---|---|---|---|
| Accuracy | Several figures or facts are wrong. | Main figures are correct and the working is shown. | Figures are correct and checked a second way. |
| Use of corporate finance tools | Tools are named but not used. | The right tools are used for each step. | Tools are adapted to the case and their limits are stated. |
| Recommendation | No clear answer. | A clear answer backed by the analysis. | A clear answer that also says what would change it. |
| Communication | Hard to follow. | Answer first, clear and short. | Clear, short and persuasive under questions. |
jobs this leads to
Where this takes you
- Finance director. Sets funding and payout policy.
- Corporate development manager. Values firms and deals.
- Treasury and risk manager. Hedges currency and rate risk.
language
Choose your language
This subject is in English first. Choose any language and the page is translated for you by machine, with the English kept as the official text.
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Keep going
Draft for review. Not live. Credit values are aligned with the European credit system for orientation only and are not an accreditation.