Foundations of Finance

Objective
The Foundations of Finance training course lays a solid foundation of financial insight and understanding for every professional whose work is related to finance but who lacks the necessary finance background.

Throughout this intensive 2.5 week program, participants will be exposed to the main principles underlying corporate finance. Real world application will be learnt through extensive use of case studies and spreadsheet exercises. The program includes an optional two-day preparatory session for those who do not already have a basic understanding of financial calculations and statistics.

Key benefits
By attending Foundations of Finance you will:

• Enhance your understanding of the accounting information contained in company annual reports
• Deepen your ability to analyze how financial statement information captures and reflects the critical factors of risk and success in the competitive environment and strategy of firms
• Improve your understanding of current financial trends and international financial markets
• Develop a broad set of skills to succeed in equity investments and in acquisitions
• Deepen your knowledge of risk management and learn how corporates hedge financial and non-financial risks
   

Content
Subjects covered include:

• Financial Analysis
• Financial Markets
• Valuation
• Capital Structure
• Equity Financing
• Risk Management

Optional Preparatory Session  (two days)
BASIC FINANCIAL CALCULATIONS AND ELEMENTARY STATISTICS - Piet Eichholtz

Thursday
Financial Calculations and Valuation

• The basics of valuation: compounding, discounting and present value

Friday
Basics of Investment

• Elementary statistics for finance: asset returns, expected return
• Introduction to risk: the normal distribution, standard deviation
• Introduction to portfolio issues: covariance, correlation

Week 1 (six days)

FINANCIAL DIAGNOSIS AND MANAGEMENT – Claude Viallet
As an introduction to Foundations of Finance, we review the most challenging issues and questions raised by modern corporate finance.  The corporate finance perspective is largely that of investors, so we will define who they are and their interests.  We will also consider the role and importance of capital markets.

Although financial accounting looks to the past as it attempts to document a company’s performance, it is an invaluable source of information for decision makers.  Thus we will explore financial statements – mostly balance sheets and income statements – and their role in corporate finance.
 

We will then show how financial structure and operational efficiency affect a firm’s financial performance.  We will identify the key factors that affect a firm’s liquidity, its ability to generate cash flows and create value from managing its current operations.

Monday
Corporate Finance and Financial Accounting System

• The issues addressed in modern corporate finance
• Understanding accounting statements and their role in corporate finance
• Using accounting statements for financial diagnosis

Tuesday
Financial Diagnosis and Managerial Efficiency

• Improving a firm’s liquidity
• Generating cash flows
• Creating value 

VALUATION PRINCIPLES – Matti Suominen
Here we deal with the important issue of capital budgeting. How do companies evaluate investment opportunities and allocate capital? We discuss the industry best practices and complete several exercises related to these topics. After completing this part of the program you can more actively participate in the discussions related to capital budgeting in your corporation.

Wednesday
Valuation Principles

• Discounting and compounding
• Project appraisal methods
• Capital budgeting

FINANCIAL MARKETS: RISK AND RETURN – Matti Suominen
In this part, we provide an introduction to financial markets. We discuss the fundamental tradeoff between risk and return in financial markets and learn about the theories that practitioners apply today when estimating the cost of capital. We conclude this day with a discussion about market efficiency. This part serves as a fundamental building block for what follows later in the program.
 

Thursday
Financial Markets: Risk and Return

• Different capital budgeting rules
• Introduction to financial markets: risk and return
• Portfolio theory and the Capital Asset Pricing Model (CAPM)
• Market efficiency

VALUATION AND FINANCING – Paolo Fulghieri
This part of the program focuses on asset valuation in the context of capital budgeting decisions and M&A activity. We will first examine the advantages and disadvantages of the “valuation by multiples” method and on the correct use of “comparables” and “precedents.”

This will be followed by a detailed analysis of the Discounted Cash Flow (DCF) approach to valuation, with an in-depth discussion of its applications to capital budgeting and M&A transactions. Time will be spent on the estimation of future “free cash flows”, the assessment of terminal (or residual) values, and the derivation of the cost of capital, WACC. Particular emphasis will be given to pitfalls in the DCF analysis that can affect valuations. This part of the course is concluded with a broad overview of corporate financial policies, and on how various corporate financial strategies may affect firm value.
Friday
Valuation of Companies

• Forecasting free cash-flows
• Estimating residual value
• Calculating the Weighted Average Cost of Capital (WACC)

Saturday
Optimal Capital Structure

• Taxes and capital structure
• Impact of agency costs of debt and equity
• Impact of asymmetric information 
   

Week 2  (five days)

EQUITY FINANCING – Paolo Fulghieri
Here we focus on the capital raising process in the equity market. We will discuss different equity raising techniques, such as right-offerings, general cash offers, and private placements, with emphasis on market timing, the effect of dilution, and the market reaction to equity offers.

The last day of this segment will focus on the financing strategies of younger and early-stage firms. Time will be spent on private equity and venture capital financing, with a discussion of the structure of venture capital deals, and the activity of venture capital funds and other venture capital providers. We conclude with an in-depth discussion of Initial Public Offers (IPOs). We will discuss the various steps of going public, the role of underwriters and the structure of underwriting contracts, the different IPO mechanisms (such as the “Book-building”), and we will conclude with an assessment of the post-IPO short and long-term performance.

Monday
Equity Financing

• Market timing
• General public offerings and rights issues
• The market reaction to new issues
   

Tuesday
Equity Financing and Underwriting

• Private equity and venture capital
• Public equity offers / IPOs and the role of underwriters
• Best efforts versus firm commitment contracts

RISK MANAGEMENT – Pierre Hillion
Foundations of Finance concludes with 3 days on risk management. In addition to business risk discussed earlier in the program, companies are also exposed to "side risks," including currency risk, interest rate risk, and commodity price risk. We will look at these side risks and how they can be hedged.

Companies typically enter derivative contracts with financial institutions to hedge these risks. Time will be spent on discussing what derivatives are, notably the differences between forward, futures, swap and option contracts, their usefulness and their valuation. The issues are illustrated with cases that illustrate the pros and cons of derivatives. The lectures on derivatives allow us to re-visit the financing decisions faced by companies. The last day of the program will focus on credit risk issues, and the different types of debt that companies can issue, such as convertible debt.  Foundations of Finance concludes with a case that illustrates the usefulness of derivatives in corporate finance.

Wednesday
Swaps, and Forwards & Futures Contracts

• Usefulness
• Contract characteristics
• Cash flows and profits/losses
• Valuation
• Hedging issues

Thursday
Option Contracts

• Usefulness
• Contract characteristics
• Cash flows and profits/losses
• Valuation
• Hedging issues

Friday
Corporate Bonds

• Default risk
• Credit risk
• Valuation issues

Hybrids and Convertibles

• Usefulness
• Pros and cons
• Valuation issues 

Typical participants in the Foundations of Finance training course are ambitious professionals in banking, investment or corporate finance environments who require a solid foundation on which to build a career. Professionals in other fields, with an interest or need to understand the principles of finance will also benefit from this program. Foundations of Finance can be used as a stepping stone to more advanced AIF courses.

Previous participants have come from banks, consultancies, law firms, public sector organizations and private sector companies.

Prerequisite
An academic background or sufficient professional experience is necessary to participate in the program. Participants are required to have experience in Excel as this will be used during the program in casework and in the application of financial principles (advanced techniques, where necessary, will be explained during the program).
 

Amsterdam Institute of Finance is registered with CFA Institute as an Approved Provider of continuing education programs. This program is eligible for 40 CE credit hours as granted by CFA Institute. If you are a CFA Institute member, CE credit for your attendance at this event will be automatically recorded in your CE Diary.

"Good opportunity for professional growth and development."
Manager, Finance and Accounts
Pakistan Poverty Alleviation Fund (PPAF)
Pakistan

"Solid financial theory and practical examples to carry with you, either professionally or individually."
First Vice President, Strategic Decision Support
ABN AMRO Bank
The Netherlands

"It really gives the fundamentals of finance, and with excellent teachers."
Partner
Implementum
The Netherlands

"The course provides useful tools and a basic understanding of a wide array of finance disciplines."
Compliance Analyst
Wholesale Banking
ING Bank
The Netherlands