Financial Strategy is core to any organisation and involves the management of financial resources to meet organisational goals. This is a complex process involving aspects of financial decision making, investment appraisal, management accounting, law and ethical issues. This module considers these issues in the light of the strategy of the organisation.
This module, continuing on from the third year subject in Corporate Finance, considers the importance of a strategic approach to financial issues and the underpinning nature of finance in the business. It considers the wider issues facing financial managers such as business failure, ethical and social issues and current financial theory.
Financial Strategy
The interface of finance and business strategy; Corporate Governance and Corporate Social Responsibility from a financial perspective; importance of clear financial strategy; ethics, power and responsibility.
Valuation of Business
Weighted Average Cost of Capital; the effects of gearing; capital cost; Rights Issue; Portfolio Theory; Valuation of securities; Cost of Capital and the valuation of businesses.
Portfolio Risk and Return
The Capital Asset Pricing Model; Arbitrage Pricing Theory; Empirical studies of CAPM
Capital Structure and Shareholder Returns
Components on Capital Structure; definition and measurement of financial gearing and operational gearing; relationship between operational profit, earning per share and share value in the context of different levels of gearing; dealing with uncertainty; effects of taxation.
Dividends and Retention Policy
Determinants of dividend policy; theories on the relationship between dividend policy and share price; Modigliani and Miller; legal aspects of dividends and retentions.
Mergers and Take-overs
Analysis of the costs and benefits of take-overs and mergers; tactics, financing and evaluation of cash and share exchange offers; Management buy-outs; leverages buy-outs; taxation, legal and accounting implications of company take-overs and mergers.
Business Failure and Insolvency
Insolvency; bankruptcy; legal issues; reorganization and turnaround strategies; liquidation; assessing the risk of failure; use of scoring models.
Small Business Finance
Small business sector; financing the smaller business; financial management issues for smaller firms.
Current Business Finance
Economic Value Added approach; Market Value Added; empirical research.
Exchange Rates
Exchange rates; effect of exchange rate movements, foreign exchange markets; types of exchange rate risk; strategies to reduce exchange rate risk; theories of exchange rate determination, purchasing power parity, interest rate parity.
Interest Rates
Interest rates; impact of interest rate changes; PV01; Duration; Hedging stragegies; immunization; convexity.
Options
Overview of options and their use in financial management; Put and Call options; Put-Call-Parity; Valuing Options, Binomial Option Pricing Model, Black and Scholes Model, Factors impacting value of options; Hedge ratio.
Indicative Syllabus:
Indicative Syllabus:Financial Strategy The interface of finance and business strategy; Corporate Governance and Corporate Social Responsibility from a financial perspective; importance of clear financial strategy; ethics, power and responsibility.Valuation of BusinessWeighted Average Cost of Capital; the effects of gearing; capital cost; Rights Issue; Portfolio Theory; Valuation of securities; Cost of Capital and the valuation of businesses.Portfolio Risk and ReturnThe Capital Asset Pricing Model; Arbitrage Pricing Theory; Empirical studies of CAPMCapital Structure and Shareholder ReturnsComponents on Capital Structure; definition and measurement of financial gearing and operational gearing; relationship between operational profit, earning per share and share value in the context of different levels of gearing; dealing with uncertainty; effects of taxation.Dividends and Retention Policy Determinants of dividend policy; theories on the relationship between dividend policy and share price; Modigliani and Miller; legal aspects of dividends and retentions.Mergers and Take-oversAnalysis of the costs and benefits of take-overs and mergers; tactics, financing and evaluation of cash and share exchange offers; Management buy-outs; leverages buy-outs; taxation, legal and accounting implications of company take-overs and mergers.Business Failure and InsolvencyInsolvency; bankruptcy; legal issues; reorganization and turnaround strategies; liquidation; assessing the risk of failure; use of scoring models.Small Business Finance Small business sector; financing the smaller business; financial management issues for smaller firms.Current Business FinanceEconomic Value Added approach; Market Value Added; empirical research.Exchange RatesExchange rates; effect of exchange rate movements, foreign exchange markets; types of exchange rate risk; strategies to reduce exchange rate risk; theories of exchange rate determination, purchasing power parity, interest rate parity.Interest RatesInterest rates; impact of interest rate changes; PV01; Duration; Hedging strategies; immunization; convexity.OptionsOverview of options and their use in financial management; Put and Call options; Put-Call-Parity; Valuing Options, Binomial Option Pricing Model, Black and Scholes Model, Factors impacting value of options; Hedge ratio.
The module will incorporate a range of teaching and learning methods including lectures, class discussion and e-learning. The learning environment will be practical and integrative, using the theory to develop solutions to real world problems.
| Module Content & Assessment | |
|---|---|
| Assessment Breakdown | % |
| Formal Examination | 70 |
| Other Assessment(s) | 30 |