Course Category

WEEK 1- CREDIT RISK ANALYSIS

• Overview of Credit
• - Interaction of the market, the client and credit
• - Understanding market, credit and operational risks
• - The 5Ps and 5Cs of Credit
• - Shareholder Value Added
• - Risk/Reward and capital allocation
• - Purpose and Payback

Credit analysis fundamentals

• Corporate versus Financial Intermediaries
• Specialized Industries
• Specialized Products
• Sources of information

Business and Industry Analysis

• Industry Analysis including SWOT, critical success factors and Porter framework
• Operation/Business analysis
• Business risk versus financial risk
• The asset conversion cycle
• Environmental and Regulatory risk analysis
• Management Analysis
• Early Warning Signs
• Credit red flags

Day Two

• Ratios and Credit Statistics
• - Advantages and Limitations of ratios
• - Types of Ratios including: profitability, asset quality and efficiency, leverage and coverage
• - Peer comparisons/Industry benchmarks
• - Specialized industry ratios
• - Seasonality
• - Overall performance ratios: DuPont formula

Day Three

• Cash flow analysis
• - Structure of the cash flow statement
• - Sources and Uses
• - Reconciliations including PP&E, Intangibles, Investments, Deferred Taxes, Long term debt, Minority Interest and Equity

Historical Financial Analysis

• The Audit
• Review of historical patterns and industry performance
• Income Statement analysis
• Balance Sheet analysis
• Cash Flow analysis

Day Four

• Off Balance Sheet Items
• - Contingent liabilities
• - Operating leases
• - Debt of joint ventures and unconsolidated subsidiaries
• - Guarantees
• - Take-or-pay contracts and obligations under throughput and deficiency agreements
• - Receivables that have been factored, transferred or securitized
• - Contingent liabilities e.g. potential legal judgments or lawsuit settlements

Additional Risks to consider

• Financial guarantees
• Performance guarantees
• Ratings triggers
• Covenants
• Revenue recognition
• Unusual gains and losses
• Asset write-offs
• Swap exposures
• FX exposure
• Pension deficits
• Securitization
• Structural subordination
• Partnerships/SPVs
• Leases
• Environmental
• Product liability

Forecasting

• Building a forecast-framework and methodology
• Qualitative and quantitative factors
• Base, management, and downside cases
• Critical value drivers
• Analyzing results - assessing Debt capacity, Recommending financing alternatives, Public versus private, quantifying results and drawing conclusions

Day Five

• Structuring and Documentation
• - Investment grade versus non-investment grade
• - Holding company analysis
• - Guarantees, Keepwells, LOMIs
• - Collateral Secured versus unsecured
• - Liquidation analysis
• - Borrowing Base
• - Covenants
• - Subordination

Comparing Credit Ratings

• Internal risk ratings
• Rating agencies
• External sources

Presentations

• Participants will present the complete credit analysis for the selected company
• A Financial calculator is required for this module comparable to Texas Instruments BAII Plus Professional

WEEK 2- CORPORATE FINANCE & VALUATION FUNDAMENTALS

• Time Value of Money
• - present and future values
• - compounding (annual, periodic, continuous)
• - annuities and perpetuities
• - complex problems
• Project analysis
• - payback and discounted payback
• - internal rate of return (IRR) and modified IRR
• - net present value (NPV)
• - EVA
• - Pros and cons of each

Day Two: Discounted Cash Flow Valuation

• Brief Review of Financial Statements
• Overview of DCF and intrinsic valuation
• Determining Cash Flows
• - real versus nominal returns
• Terminal Value
• - asset values
• - comparables
• - perpetuities and growing perpetuities
• Enterprise Value versus Equity Value

Day Three: Cost of Capital

• Risk and return overview
• Cost of Debt
• - straight
• - convertible
• Cost of Equity
• - Capital Asset Pricing Model
• - - alpha
• - - beta
• - - equity risk premium
• Other methods
• Weighted Average Cost of Capital (WACC)

Day Four

• Capital Structure
• - In theory
• - - MM
• - In practice
• - - costs of financial distress
• - - optimal capital structure
• Adjusted Present Value
• Differences to WACC valuation process
• - Pros and cons
• - Peer Group Valuation
• - Selecting the peer group
• - Key ratios
• - P/Es, EV/EBITDA, etc
• Introduction to Option Pricing for Corporate Finance
• Reviewing a

Day Five

• Financing the Corporation and transactions
• - Bank lending
• - - Term loans and lines of credit
• - - Bilateral and syndicated loans
• - Debt
• - - Investment grade
• - - High yield
• - - Convertibles
• Preferreds
• Equity
• Private Equity
• - Venture Capital
• Private Equity
• - Public Equity
• - IPOs
• - Secondary (US)/Rights Offerings (Europe)
• Mergers & Acquisitions
• - Rationale
• - Payment, Leveraged and Management Buyouts
• Wrap-up case study

WEEK 3 - FINANCIAL MODELING

• Introduction / Tips & tricks that will help you speed up your spread sheeting
• Multiple sheet models
• Multiple file models
• Drilling down
• Logical tests: Building warnings into your models
• Protecting your data
• Database activities
• Dfunctions
• Grouping downloaded data by account headings
• Vertical and horizontal lookup tables
• The Choose function: Using Choose to calculate stocks & debtors on 3 different bases
• Interactive formulas to extract data
• Using
• String functions
• Data tables
• Outlining
• Graphs
• Indirect addressing
• Consolidation
• Macros

Day Two

• Introduction and Overview
• Basic Valuation Techniques
• Pro-Forma Modeling
• Exercise 1. Projecting simple financial statements, determining the value of equity

Day Three

• Review and Discussion
• Mergers and Acquisitions
• Case Study Exercises Brown-Forman Distillers Acquisition of Southern Comfort
• Nestlé Acquisition of Ralston Purina
• Case Study Exercises
• Cost of Capital and CAPM
• Exercise 1: Return on Equity
• Exercise 2: Seven steps using CAPM to determine the cost of capital
• Exercise 3: Implied risk premium in the current P/E multiple
• Exercise 4: Four steps using the Gordon Model to determine the cost of capital
• Exercise 5: Four steps using the P/E multiple to determine the cost of capital
• Financial Valuation of Goodyear
• Case Study Exercises

Day Four

• Review and Discussion
• Accrual Accounting Valuation
• Exercise 1: Accrual accounting valuation of Wal-Mart Stores
• Exercise 2: Accrual accounting for GE
• Exercise 3: Accrual accounting for Hewlett Packard
• Exercise 4: Accrual accounting of Peets Coffee
• Valuation Using Multiples
• Transaction Multiples
• Exercise 5: Valuation of Eli Lilly using multiples
• Discussion
• Special Valuation Issues
• Exercise 6: Implied Profit Margin
• Exercise 7: Three stage valuation model
• Goodyear: Applying the Market Approach and Accrual Accounting
• Exercise 8: Develop an accrual accounting valuation model for Wal-Mart

Day Five

• Review and Discussion
• Warrants and Executive Stock Options
• Exercise 1: Warrant valuation
• Exercise 2: Value Wal-Mart Stores outstanding warrants
• Debt Valuation
• Exercise 3: Rating adjusted yield-to-maturity
• Exercise 4: Expected debt return
• Exercise 5: Expected cash flow and return on debt
• Share repurchases
• Exercise 6: Using share repurchases to calculate growth in distributions
• Exercise 7: Sustainable growth rate
• Exercise 8: Share repurchases for comparable companies
• Presentation of Goodyear Valuation and Conclusion