Strategic Financial Management> Programme Focus

Home » What We Do » Executive Development Programmes

» Strategic Financial Management: Programme Focus

Overview	Outcomes	Programme Focus	Attendance	Fees	Faculty	About the School

Performance Measurement, Evaluation and Compensation

Aligning manager self-interest with those of the organisation's owners is one of the most effective ways of encouraging managers to actively identify and implement value-increasing projects. This session bridges the gap between the theory of valuing such projects and the practice of actually finding and objectively assessing them in the real world, where seemingly positive net present values (NPV) can result from mismeasurement or biased estimates rather than from truly value-increasing potential.

Project choice and identification of sources of economic value

Capital budgeting process and it's alignment with shareholder wealth maximisation

Relation between corporate and financial strategy

Rewards and penalties for creating and destroying wealth

Performance evaluation metrics to align manager and owner incentives: return on investment (ROI); economic value added (EVA); economic profit (EP)

Case applications involving economic value added, and performance evaluation

Valuation of Companies, Divisions and Business Units

The key to successful investing is to understand that every asset has a value and a price, and that valuation itself consists of two components: cost of capital and cash flow. This session explains how to compute economic value of financial assets.

Estimate the cost of capital: risk-free rate, risk premium, cost of equity, cost of debt, weighted average cost of capital

Cash flow: earnings, estimate cash flows, future growth and terminal values

Estimating value using dividend discount models

Alternative valuation approaches: earnings multiple, book-value multiple, sales multiples

Valuation of start-ups and firms with negative earnings

Case applications in mergers and acquisitions

Evaluation of Strategic Investment Decisions

Traditional discounted cash flow techniques are applicable only to 'now-or-never' or 'take-it-or-leave-it' project situations. Wherever any flexibility is involved, traditional methods such as discounted cash flow method using NPV or the decision-tree approaches will lead to inaccurate valuations. Managers need to be aware that their investment decisions not only give rise to future cash flows but also to the creation and destruction of flexibility (also called strategic investment decisions). This session will address the nature of flexibility, how it should be valued, and its importance in risky environments. We will learn about identifying, creating and valuing these types of strategic options.

Limitations of traditional investment decision rules for those involving the creation and destruction of flexibility

Types of flexibility: strategic option to switch, option to expand, option to contract, research and development, option on an option, flexible plants, option to customise, option to delay, option to abandon

Study of call and put options using the Black-Scholes option pricing model to value flexibility

Applications of calls and puts in risk management