Finance 211 typically builds upon introductory finance principles, diving deeper into specific areas and providing a more analytical understanding of financial decision-making. While the exact curriculum varies by institution, common topics covered in a Finance 211 course often include:
Valuation: This is a core component, focusing on the techniques used to determine the intrinsic value of assets. This often involves discounted cash flow (DCF) analysis, a method that projects future cash flows and discounts them back to their present value using an appropriate discount rate. Students learn how to estimate future growth rates, determine appropriate discount rates based on risk, and analyze the sensitivity of valuation models to different assumptions. This extends beyond basic DCF to include relative valuation methods, such as using price-to-earnings (P/E) ratios, price-to-book (P/B) ratios, and other multiples to compare a company’s valuation to its peers.
Capital Budgeting: Building on introductory concepts, Finance 211 explores more complex capital budgeting techniques. This involves evaluating investment opportunities using metrics like Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period. The course emphasizes the importance of considering the time value of money and the risks associated with different projects. Students learn to analyze mutually exclusive projects, projects with unequal lives, and projects with constraints on capital availability. They also delve into real options analysis, which incorporates the value of flexibility and future decision points in capital budgeting.
Risk and Return: This section delves deeper into portfolio theory and the relationship between risk and return. Students learn about different types of risk (systematic and unsystematic), how to measure risk using metrics like beta and standard deviation, and how to construct diversified portfolios to minimize risk for a given level of return. The Capital Asset Pricing Model (CAPM) is often examined in detail, allowing students to understand how to determine the required rate of return for an investment based on its risk relative to the market.
Cost of Capital: Understanding how to calculate a company’s cost of capital is crucial for making investment decisions. Finance 211 covers the various components of the cost of capital, including the cost of debt, cost of equity, and cost of preferred stock. Students learn how to calculate the weighted average cost of capital (WACC) and how to use it as a discount rate in capital budgeting decisions. The course also explores the impact of different financing decisions on the cost of capital.
Financial Statement Analysis: While often covered in introductory courses, Finance 211 reinforces and expands upon financial statement analysis skills. Students learn to interpret financial statements (balance sheet, income statement, and cash flow statement) to assess a company’s financial health, profitability, and liquidity. They analyze key financial ratios and use them to compare a company’s performance to its competitors and to industry benchmarks.
Finance 211 typically utilizes case studies and real-world examples to illustrate the concepts learned in class. Students are often required to complete projects that involve applying these concepts to actual financial data, providing them with valuable practical experience. The course is a critical stepping stone for students pursuing careers in finance, investment banking, corporate finance, and other related fields.