Finance and Control D, 20 points/30 ECTS Syllabus : Finance and Control D Course code : FEKD38 Responsibility : Umeå School of Business Subject : Business Administration Level : D (Specialized) Course credit : 30 ECTS / 20 points Field of education: Social Sciences This is a course at the D-level in a Msc-degree at Umeå University. The course can also be included in study programmes in Business Administration and Economics at Umeå School of Business. 1. Resolution to offer the course The course was established by the Faculty of Social Sciences at Umeå University in December 2002. The syllabus was revised by the Board of Umeå School of Business on May 29, 2006. The syllabus is valid from August 28, 2006 2. Objective and contents The Finance and Control course is intended for students who want to specialize in accounting and finance or finance functions in firms operating in varied and changing environments. Courses are designed to provide cutting-edge knowledge for the controller and finance functions in an integrated manner. The course also provides the basis for a student’s future professional career in the global market. The course is grounded in the principle of value-based management, in which the finance and controller functions as well as the accounting functions of firms are expected to contribute to an enhanced shareholder value. The course offers career opportunities in accounting, controlling, and finance. Module 1. Corporate finance (5 points/7,5 ECTS) a. Contents Our primary intent, in offering this subject, is to provide an integrated overview of the most important concepts in corporate finance from the point of view of the manager of a non-financial corporation. The subject extends the student’s experience in applying standard techniques in corporate finance. It also serves as the foundation for the package of subjects that the student will select within the Accounting and Finance programme. Topics to be covered in this module include methods of valuing assets and opportunities as well as the rationale for using particular techniques. Financial management issues such as capital budgeting, capital structure and the choice between long and short term financing are also discussed. Derivatives and their role in the reduction of corporate risk are introduced. Additionally, corporate policy issues and theoretical perspectives for resolving them are presented. b. Expected learning outcomes Upon completion of this subject students should have sufficient knowledge to do all the following: • Describe the inter-relationship between financing, investment and distribution decisions. • Select and defend the use of appropriate models for valuing assets and opportunities. • Explain how theoretical concepts, such as market efficiency, affect financial decisions and strategies. • Outline the main components of current issues, such as corporate control and governance, which confront corporations today. c. Required knowledge General: • Courses in Business Administration (90 ECTS) • A minimum of 40 points/60 ECTS from A-level and B-level courses (Management, Accounting, Financial Investments, Cost Accounting, Marketing) • At the advanced, C level, a minimum of 20 points/30 ECTS, including a Bachelor’s thesis or equivalent • Furthermore, 10 points/15 ECTS Statistics or similar and a C-level course in Accounting (10 points/15 ECTS) are recommended Module specific: It is expected that the student is able to provide evidence of knowledge equivalent to a basic course in general finance as well as one in corporate finance. It is also expected that they have a minimum proficiency in basic statistics. d. Focus of instruction This subject will be presented using large group lectures as well as smaller group discussions, tutorials and workshops. e. Examination modes Students will be required to undertake a communication project attending and compulsory participation in a student presentation on issues that have divided theoreticians in the discipline. This is worth 30% of their assessment. Students will be required to undertake a final examination in the module. The final examination will be comprised of both calculations and discussion questions but no multiple choice. The examination will be worth 70% of their assessment. f. Course literature See below 7. Module 2. Advanced financial statement analysis and valuation (5 points/7,5 ECTS) a. Contents This course should be of interest to students who are contemplating careers in accounting, auditing, corporate finance, investment banking, security analysis, equity research, and financial consulting. It should also be of great interest and benefit to anyone considering the purchase or sale of a business. It deals with the analysis of financial statement information and the use of this information in making performance evaluations and investment decisions. It integrates accounting, finance, economic theory, and empirical research into a financial statement analysis and valuation framework. The primary purpose of the course is to provide the student with knowledge about equity (stock) valuation, with some attention given to credit analysis and the valuation of debt. The course is intended to provide practical valuation tools for valuing a company and its securities. The course will also provide students with advanced skills in financial modeling. Excel will be utilized as a tool for understanding and practicing financial statement analysis and valuation, including the creation of forecasted income statements and balance sheets (proformas) as a basis for valuation. A brief summary of topics includes: models of shareholder value and a comparison of accounting approaches and discounted cash flow approaches to valuation; the analysis of the firm’s profitability, growth, and value generation as a means of testing the quality of financial reports; the forecasting of earnings and cash flows; the construction of proforma analyses for strategy, planning, and valuation; analysis of risk; and the determination of price/earnings and market-to-book ratios. b. Expected learning outcomes After completing this course, the student should be able to: Subject-specific skills • Estimate "intrinsic value" with various valuation models. • Apply financial statements in the process of determining intrinsic values. • Understand the role of "bottom line" earnings (net income), book value, cash flows and dividends in valuation. • Understand the relevance of cash flow information and accruals in performance evaluation and equity valuation. • Deal with the different accounting methods used in financial statements? • Evaluate accounting quality • Determine the relevant firm attributes that determine firm value. • Apply traditional ratio analysis to evaluate firm performance and value. • Analyze factors that determines a firm's P/E ratio and market-to-book (P/B) ratio? • Evaluate risk, for equity and for debt. Core-academic skills • Develop and apply valuation approaches. • Mathematically derive various valuation models Personal and key skills • Demonstrate problem solving and analytical skills. • Demonstrate skills of critical review, discussion and evaluation. • Demonstrate the skills to locate, select, obtain and utilize information from library resources, computer databases and the internet. • Demonstrate oral, written and presentation skills. c. Required knowledge • Courses in Business Administration (90 ECTS) • A minimum of 40 points/60 ECTS from A-level and B-level courses (Management, Accounting, Financial Investments, Cost Accounting, Marketing) • At the advanced, C level, a minimum of 20 points/30 ECTS, including a Bachelor’s thesis or equivalent • Furthermore, 10 points/15 ECTS Statistics or similar and a C-level course in Accounting (10 points/15 ECTS) are recommended d. Focus of instruction The course is taught from the perspective of an equity analyst, but much of the course material will be relevant to the internal corporate financial analyst for evaluating acquisitions, restructurings, and other investments, and for calculating the value generated by strategy scenarios. It takes the form of lectures, discussions, exercises, tutorials, cases, and sometimes guest lectures by invited professionals. Students must be prepared to do a significant amount of work outside the classroom in order to fulfill course requirements. Students are expected to prepare for tutorials (for which assignments might involve reviewing selected articles and solving numerical problems) and be prepared to enter into tutorial discussion. All material is potentially examinable, irrespective of the mode of tuition. Students are expected to keep themselves apprised of information upon the module via the course web page. e. Examination modes Assignments There will be one piece of course-work (case assignment). It is not compulsory but will count for 15% of the grade. The case assignment must be finished during the course. Assessment Four hours of written examination, 85% of the final grade and one piece of course-work (15%). See the case instructions for further information about the assignment. Late submission is not accepted except when late submission permission is obtained from the module coordinator due to exceptional circumstances. f. Course literature See below 7. Module 3. Investments (5 points/7,5 ECTS) a. Contents This course provides specialization at an advanced level in investment analysis. The aim is to bring the student thorough knowledge of the relevant theories and models in the field as well as directions for their application to stock and bond portfolio management. In order to enhance the students’ understanding there are several group assignments in which the students are presented to realistic investment problems that will be analyzed and solved by using computers and appropriate software. The course attempts to provide a lasting conceptual framework in which to view the investment process and to analyze future ideas and changes in the investment environment. The first part of the course covers modern portfolio theory and introduces fundamental concepts such as expected return, risk, risk aversion and expected utility. These concepts are then used in the development of mean-variance analysis, efficient diversification, and the notion of optimal portfolios. The equilibrium pricing implications of portfolio theory are embodied in the capital asset pricing model (CAPM). The theoretical foundations of CAPM and its variations are studied and analyzed in the light of the model’s performance in recent empirical tests. The course introduces the principles of no-arbitrage and the resulting arbitrage pricing theory (APT). Implementations of CAPM and APT in the form of single-index and multifactor models of returns are discussed. A treatment of the efficient market hypothesis and its implications for e.g. active and passive portfolio management, concludes this part of the course. In the part on fixed income securities, valuation and bond pricing are discussed as well as term structure relationships and bond portfolio management, including duration analysis and immunization. The course’s treatment of derivative securities covers options, futures, swaps and convertible securities. The Black-Scholes model is studied along with the relevant parity-relationships for futures and forwards. Certain emphasis is placed on the creation of synthetic securities and the construction and maintenance of various hedging strategies for both portfolios and individual securities using different derivatives. The last part concerns performance measurement and international diversification. The former topic deals with the evaluation of managed portfolios in terms of risk and return. Performance attribution and style analysis are also included. The latter topic covers international investments and its risks and opportunities. b. Learning outcomes On successful completion of this module, students should be able to • use portfolio optimization (program) to identify optimal portfolios for different levels of risk aversion • analyze the CAPM and some of its variants • explain the typical steps of empirical tests of the CAPM along with the results of some such tests • apply the no-arbitrage principle and the APT • apply single and multiple factor model implementations of CAPM and APT • analyze the implications of the efficient market hypothesis for active and passive portfolio management • analyze fixed income securities and term structure relations • apply bond portfolio management methods, e.g., duration analysis and immunization • analyze derivative securities, mainly options and futures • apply derivatives to hedging, portfolio management and the creation of synthethic securities • evaluate portfolio performance using risk-adjusted metrics, performance attribution, and other methods • explain the opportunities and risks of international investments. c. Required knowledge • Courses in Business Administration (90 ECTS) • A minimum of 40 points/60 ECTS from A-level and B-level courses (Management, Accounting, Financial Investments, Cost Accounting, Marketing) • At the advanced, C level, a minimum of 20 points/30 ECTS, including a Bachelor’s thesis or equivalent • Furthermore, 10 points/15 ECTS Statistics or similar and a C-level course in Accounting (10 points/15 ECTS) are recommended d. Focus of instruction The core topics of this course will be covered by lectures, although seminars, cases and computer exercises utilizing Excel may also be used. Students are expected to take active part in every aspect of the course e. Examination modes Examination will be based on a written comprehensive examination (tentamen), and on successful completion of group or individual coursework as assigned. f. Course literature See below 7. Module 4. Value-based management accounting (5 points/7,5 ECTS) a. Contents What is management accounting? According to the Institute of Management Accountants, management accounting is performed inside organizations. It is the internal business-building role of accounting and finance professionals, who design, implement, manage, and report on internal accounting systems that support effective decision support, planning, and control over the organization’s value-creating operations. Management accounting and finance professionals directly support an organization’s strategic goals. Management accounting is about creating value, not just measuring it. What does a management accountant do? Management accountants are strategic financial management professionals who integrate accounting expertise with advanced management skills to drive business performance inside organizations. They serve as trusted partners to executives in all areas of an organization, offering the expertise and analysis necessary for sound business decisions, planning, and support. Management accountants monitor, interpret, and communicate operating results, evaluate performance, control operations, and make decisions about the strategic direction of the organization. They understand the business formula for delivering value to the customer, arriving at strategies for identifying, developing, marketing, and evaluating a product or service throughout its entire life cycle. This advanced management accounting course module is intended to integrate the previous modules from a value-based management perspective. The focus of contemporary management accounting is on the enhancement of shareholder value through customer-driven value creation. The course wants to enhance students’ knowledge, insights, and analytical skills related to the way corporate managers design, and utilize planning and management control systems to implement strategies. Techniques of the management control process are studied and behavioral considerations involved in the use of these techniques are discussed. The student should also become aware of the varied and changing roles of the controller function and the management accountant. b. Expected learning outcomes By the end of the module students should have: Knowledge and understanding to • Describe the roles management accounting systems have in organizations; • Describe the consequences of management accounting system changes; • Have an ability to work with the theoretical and research based knowledge in the area of management accounting; • Make the best use of their knowledge of primary contemporary management accounting techniques • Be well prepared for the varied and changing roles of the controller function. Professional Skills to • Make use of contemporary management accounting techniques; • Describe the role of information relating to the controller function in an organisation; • Communicate, negotiate and report financial and non-financial information within a management team; • Be able to act as a catalyst, facilitator and management accounting change agent in organisations. • Produce detailed and coherent reports (both written and spoken) in matters related to management accounting • Take responsibility for own work in a professional and ethical way. c. Required knowledge • Courses in Business Administration (90 ECTS) • A minimum of 40 points/60 ECTS from A-level and B-level courses (Management, Accounting, Financial Investments, Cost Accounting, Marketing) • At the advanced, C level, a minimum of 20 points/30 ECTS, including a Bachelor’s thesis or equivalent • Furthermore, 10 points/15 ECTS Statistics or similar and a C-level course in Accounting (10 points/15 ECTS) are recommended d. Focus of instruction The developments of the management accounting subject, techniques and concepts are presented during lectures. Students will become familiar with quantitative issues through numerical examples, exercises and cases. They are expected to take an active part in discussions on the development of the field, literature and article seminars and reporting about case studies. They will be given a number of assignments, leading to continuous assessment. Course work will be done individually and in small group, and must reach an advanced level of knowledge and understanding of the subject. Readings Requiring reading for the course includes cases, chapters, and articles contained in the assigned textbooks and supplementary materials. The lectures in the course will consider both conceptual and computational aspects of management accounting measurement topics. Class sessions will be organized around cases and team activities–debates and panel discussions. Written work will take the form of homework assignment and written case analyses. Class participation This class depends on students own participation. At this point of the Master curriculum, a substantial part of your learning comes from other students. It is important and essential for this course that you bring in your own experience and expertise. In addition to attending class (which is required), you should be prepared to comment on the case or article and discuss the analysis presented in class. Part of the excitement and the benefit of this course are the diversity of experience of the participants of this class. e. Examination modes Grading is based on a final exam, written cases and other assignments f. Course literature See below 7. 3. Prerequisites Courses in Business Administration (90 ECTS) A minimum of 40 points/60 ECTS from A-level and B-level courses (Management, Accounting, Financial Investments, Cost Accounting, Marketing) At the advanced, C level, a minimum of 20 points/30 ECTS, including a Bachelor’s thesis or equivalent Furthermore, 10 points/15 ECTS Statistics or similar and a C-level course in Accounting (10 points/15 ECTS) are recommended 4. Teaching methods Described for each module above 5. Examination Examination of Modules 1-4 will be based upon the student’s active participation in seminars, a written comprehensive examination (tentamen), and successful completion of group or individual coursework as assigned. The following grading system will be used: Pass with distinction (Väl godkänd, Vg, 75% or more), Pass (Godkänd, G, 50% or more) and Fail (Underkänd, U, less than 50%). To receive the grade Pass with distinction (Väl godkänd) in the course, the student must have achieved that grade in three of the four modules. Students who do not pass at the time of the normal written examination will be offered an opportunity to sit a further examination within 2-3 weeks. Beyond that, additional examination opportunities normally arise every academic year, one week prior to the start of the autumn term. When a student has failed an examination on two occasions, he or she has a right to have another examiner. A written request should be handed to the director of studies no later than two weeks before the next examination opportunity. Grades on the course are awarded when students have passed all examinations and compulsory course elements. 6. Utilisation et cetera Where there are students taking this course as part of an exchange or other external program, the course will be taught in English. Where all students taking the course are Swedish, parts of the course may be taught in either Swedish or English. Information on the teaching language can be obtained from the Student Counsellor. Other Regulations Acknowledgment/Plagiarism: Plagiarism is not acceptable and may result in the imposition of severe penalties. The University provides clear guidelines on its attitude towards plagiarism and how to avoid unintentional plagiarism. Students are advised to read these carefully. If any doubts remain as to what constitutes plagiarism, students should discuss the matter with the lecturer(s). Acceptable Calculators in Examinations: Students may use scientific or financial calculators. They may not use programmable calculators identified by their alphanumeric keyboard. Study Time: Students are expected to prepare a significant amount of material outside of the classroom in order to fulfil course requirements. Previous indications suggest that students should treat this subject as full time work and invest a minimum of forty hours in preparation and attendance. 7. Readings and other materials Module 1. Corporate finance (5 points/7,5 ECTS) Ross S.A., R.W. Westerfield and J. Jaffe, 2005, Corporate Finance, 7th Edition, McGraw-Hill, New York Two cases provided in bulk pack from McGraw Hill will be used in tutorials. These are changed annually. Web site The Accounting and Finance web site www.usbe.umu.se/master/accounting, provides students with up to date information on the subject as well as any changes to the curriculum. Students are expected to access this site regularly to stay in touch with subject requirements. The web site provides students with access to the queries of their peers as well as lecturer responses to those queries, eliminating the chance of miss-understandings that come from “he-said” “she-said” repetitions. The site also contains copies of overheads used in lectures. Additional web based resources are available through the publisher, including www.mhhe.com/rwj which provide students with an opportunity to test their own progress during the course through interactive exercises and self-grading quizzes. Supplementary Readings Brealey, R.A. and S.C. Myers, 2006, Principles of Corporate Finance, 7th edition, Mc-Graw Hill, New York Ogden, JP, F.C. Jen and P.F. O’Connor, 2003, Advanced Corporate Finance: Policies and Strategies, Prentice Hall, New Jersey Module 2. Advanced financial statement analysis and valuation (5 points/7,5 ECTS) Required (assigned) text: Penman Stephen., Financial Statement Analysis and Security Valuation, Irwin/McGraw-Hill. E/2. 08/2003. In addition a number of research papers will be included. Supplementary readings: Copeland T, Koller T, Murrin J, Valuation: Measuring and Managing the Value of Companies, Wiley, 2000, 3rd Edition (a good introduction to valuation, written in English). Stickney P, Financial Reporting and Statement Analysis: A Strategic Perspective, Dryden Press, 4th Edition, 1999. (a good book about financial statement analysis). White G, Sondhi A and Fried D, The Analysis and Use of Financial Statements, Wiley, 2nd Edition, 1998 (a good book about financial accounting and financial statement analysis) Module 3. Investments (5 points/7,5 ECTS) Required (assigned) text: Bodie, Kane & Marcus. Investments. 6/E. Mc Graw-Hill 04/2004. List of articles and other material provided by the lecturer. Module 4. Value-based management accounting (5 points/7,5 ECTS) Required (assigned) text: Blocher E, Chen K and Lin T., Cost Management - A Strategic Emphasis, 3rd edition, McGraw-Hill. (http://highered.mcgraw-hill.com/sites/0072818360/information_center_view0/) Additional study material List or articles and cases provided by lecturer. --------------- Umeå University, Umeå School of Business, SE-901 87 Umeå, Sweden.