Finance 107

Finance 107, typically an intermediate-level finance course, builds upon the foundational concepts learned in introductory finance (Finance 101) and delves deeper into financial analysis, valuation, and investment decisions. It equips students with the analytical tools and frameworks necessary to understand more complex financial scenarios.

One of the key areas covered in Finance 107 is corporate valuation. Students learn various methods to estimate the intrinsic value of a company, including discounted cash flow (DCF) analysis, relative valuation (using multiples like Price-to-Earnings or Enterprise Value-to-EBITDA), and asset-based valuation. DCF analysis, a cornerstone of valuation, involves projecting a company's future free cash flows and discounting them back to their present value using an appropriate discount rate (often the weighted average cost of capital or WACC). Students learn how to build financial models to forecast these cash flows, considering factors like revenue growth, profitability, and capital expenditures. They also analyze the assumptions underlying these projections and conduct sensitivity analysis to understand how different scenarios might impact the valuation.

Another critical topic is capital budgeting. This involves evaluating potential investment projects to determine whether they are financially viable. Students learn about different capital budgeting techniques such as Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period. NPV, which calculates the difference between the present value of expected cash inflows and the initial investment, is often considered the most theoretically sound method. IRR, which represents the discount rate at which the NPV of a project equals zero, is also widely used. Finance 107 teaches students how to apply these techniques, analyze project risks, and make informed investment decisions that maximize shareholder value.

Working capital management is another important area of focus. This involves managing a company's short-term assets and liabilities to ensure sufficient liquidity and efficient operations. Students learn about managing cash, accounts receivable, inventory, and accounts payable. They analyze ratios like the current ratio, quick ratio, and cash conversion cycle to assess a company's liquidity and operational efficiency. Finance 107 also covers techniques for optimizing working capital, such as implementing just-in-time inventory management or streamlining accounts receivable collection processes.

Risk management is also addressed, albeit potentially less comprehensively than in specialized risk management courses. Students learn about different types of financial risk, including market risk, credit risk, and operational risk. They may be introduced to basic hedging strategies using derivatives, like futures and options, to mitigate these risks. Understanding risk management principles is crucial for making sound financial decisions and protecting a company's assets.

Finally, Finance 107 often includes a section on capital structure, which examines the optimal mix of debt and equity financing for a company. Students learn about the trade-offs between debt and equity, considering factors like tax shields, financial distress costs, and agency costs. They analyze how different capital structures impact a company's cost of capital, valuation, and financial risk. The Modigliani-Miller theorem, which provides a theoretical framework for understanding capital structure, is often discussed.