This course provides a brief introduction to the fundamentals of finance, emphasizing their application to a wide variety of real-world situations spanning personal finance, corporate decision-making, and financial intermediation.
Corporate Finance Essentials will enable you to understand key financial issues related to companies, investors, and the interaction between them in the capital markets. By the end of this course you should be able to understand most of what you read in the financial press and use the essential financial vocabulary of companies and finance professionals.
This course explores several key issues related to companies, investors, and the interaction between them in the capital markets. As an illustration of the questions we will raise (and hopefully answer) during the course, consider the following:
- What are mean returns, volatility, and beta? These essential concepts, widely used in the financial press, are the very first step in your journey into the financial world. We will discuss them in our first session, Risk and Return.
- What is a correlation? How is correlation related to diversification? Why is diversification at the heart of portfolio construction? This is a critical issue for investors and portfolio managers, and you simply cannot build a proper portfolio if you ignore them. We will discuss these and related issues in our second session, Correlation and Diversification.
- How does a company estimate the required return on its debt? And the required return on its equity? And, ultimately, its cost of capital? What is the usefulness of these concepts? We will discuss these and related issues in our third session, The CAPM and the Cost of Capital.
- Understanding the cost of capital and its components is essential, but can you put theory into practice? Can you estimate the cost of capital for a specific company? You can and we will discuss how in our fourth session, Estimating the Cost of Capital – An Application.
- How do companies separate the projects on which they should invest from those on which they should not? What are the essential tools for this task? We will discuss them, and apply them to a specific project, in our fifth session, Project Evaluation.
- How does a company assess whether it is creating or destroying shareholder value? What is the relationship between tools to measure value creation and managerial compensation? We will discuss these and related issues in our sixth and last session, Corporate Value Creation.