Financial Analysis and Decision Making

Introduction
Financial Analysis and Decision Making provides a financial framework to underpin
the life cycle approach of managing complex projects over a long time-scale. The
module provides a foundation from which a participant will be able to achieve a
financial perspective over the life of a project. The module considers the
fundamental accounting structures necessary to provide sound information on
which decisions to make based on accounting criteria, or, to support decisionmaking processes where accounting information underpins other decision-making
priorities.
Objectives

Explain the structure, function and significance of the key accounting

statements, and their relationship to one another, and critically evaluate the
information obtained therein.

Be critically aware of, and be able to evaluate, key metrics, including

appropriate boundaries for relevant applications and future developments in
this area.

Apply and examine critically decision-making techniques aligned to

investment appraisal. Evaluate suitable funding mechanisms, including
alternative sources of funding, shared funding, and risk and project
development.

Create business cases to justify expenditure.

Evaluate alternative management accounting methodologies and their

application as relevant.

Content

Control of Business Resources: (Principle financial statements: Balance

Sheets, Income Statements, Cash Flow Statements, structure, content,
assessment and reporting of profits, accounting concepts and paradigms,)

Financial Performance Measurement: (methods of reporting financial results,

both internal and external metrics, business plans, budgetary control systems
and techniques)

Management Accounting Techniques: (Cost Behaviour and techniques to

ascertain, recover and control costs, Absorption Costing, Marginal Costing,
Life Cycle Costing, Activity Based Costing and Activity Based Cost
Management)

Investment Appraisal Techniques: (Different methods of Investment appraisal,

and surrounding issues as appropriate, including for example inflation, and
post audit completion)

Sources of Finance: (Alternative funding mechanisms, long and short term

sources of funds, shared sourcing etc.)

Financial Reporting: (Regulatory environment, Standards, Stock Exchange

requirements, Corporate Governance, International and global issues as
relevant,)

Robust Decision Making

INTRODUCTION
This module aims to enable participants to understand how organisations make
sound, evidence based decisions to support a businesss policy and strategy, and to
satisfy and increase value for its customers and other stakeholders. In particular, it
examines methods to ensure that any decisions made are as sound as they can be,
often known as robust decisions. To this ends it introduces students to a number of
quantitative decision making methods, explores the role of judgement in decision
making and examines a number of decision support tools.
OBJECTIVES
On completion, participants will:

Understand the decision making process and how it contributes to excellence.

Understand and be able to identify factors that influence the quality of a

decision and understand how to use these factors to make a better decision.

Have knowledge, & understanding, of common decision making pitfalls and

traps and understand how to avoid or mitigate them

Understand the main phases of a number of quantitative decision-making

process and their computerized support

Be able to apply different approaches to particular decision problems and

identify the assumptions, advantages and disadvantages of each approach;

CONTENTS

What is a decision?

Decisions in companies

Bias and problems in decision making

Decision Heuristics

Decision Strategies

Way to improve decisions making

Decision making tools

Group Decision making

Overview of Decision Support Software Tools

Financial Decision Making for Entrepreneurs and Managers:

Understanding and using business decision models in

strategic planning
Dr. Tom McKaskill
Breakthrough Publications, August 2011 (1.0 MB)

This book explains a number of business decision models which assist in the
examination of strategic decisions facing the emerging company. While financial
statements deal with historical performance information and budgets and cash flow
projections assist to manage performance in the near to medium term, financial
decision making tools and techniques assist to resolve what if business decisions in
the medium to long term.
Many strategic decisions are influenced by internal cost structures and revenue
decisions. An understanding of cost structures, patterns and trends can greatly help
with the examination of pricing decisions, investment alternatives and growth
strategies. Pricing decisions impact profitability and growth.
Underpinning most future business strategies are considerations of the time value of
money. Interest rates, rates of return, net present values, loan and lease payment and
investment decisions are all impacted by this factor. Business valuation is not only
impacted by the time value of money but also by the decisions the business owners
make about how they manage risk.
Lastly, the most powerful of all financial decision making techniques is the business
plan. An intimate knowledge of business plan preparation is an essential capability of
the entrepreneur and emerging company management.
The book has 7 chapters:
Chapter 1: Using financial decision models

Chapter 2: Manipulating cost structures

Chapter 3: Revenue management
Chapter 4: Product and activity costing
Chapter 5: Time value of money
Chapter 6: Increasing business valuation
Chapter 7: Preparing the business plan
Conclusion: Managing the future

Course module - Financial Decision Making

Code : BMAN10522
Credit rating: 10
Semester : 2
Links in this page :
Aims | Objectives | Assessment | Information
| Course Content |
Course Materials | Tutors | Timetable | Teaching Methods | Keywords

Aims
The aim of the course is to introduce students to finance, giving a foundation for subsequent
finance courses in the second and third years. The approach is conceptual, emphasizing
general principles, which students should be able to apply to specific problems and issues.
The course introduces some of the basic techniques of finance: calculating the time value of
money; valuing bonds and shares, techniques for appraising capital investments;
characterising share price behaviour and the role of risk in security valuation. The main
focus of classes is on problem-solving in particular finance contexts, with some
consideration of discursive material.

Objectives (Learning Outcomes)

By the end of the course students should:
have a basic knowledge and understanding of the theoretical framework of finance;
know some of the basic techniques used in finance;
have a basic understanding of the role of research in finance;
can solve problems in a variety of contexts in finance;
understand
- the time value of money
- how companies raise capital
- how to value bonds and shares
- the firms capital budgeting decision
- the concept of informational efficiency and associated share price behaviour
- the relation between security risk and return.

Assessment
2 hour unseen examination (100%).
Methods of Feedback to Students
Informal advice and discussion during a lecture, seminar, workshop or lab.

 Responses to student emails and questions from a member of staff including feedback
provided to a group via an online discussion forum.
Generic feedback posted on Blackboard regarding overall examination performance.

Information
Length of course: 12 weeks
Programme Restrictions: Available to students studying on the following programmes - BA
(Econ) Accounting, BA (Econ) Finance, BA (Econ) Accounting & Finance, BA (Econ)
Accounting & Economics, BA (Econ) Finance & Economics, BA (Econ) Business Studies
specialists, BSc Maths with Finance, BEcon Sci.
Pre-requisites: None
Co-requisites: None
Dependent course units:
BMAN23000(A) or (B) Foundations of Finance.
BMAN20072 if taken alongside BMAN23000(A) or (B) Foundation of Finance.
BMAN21011 Financial Markets & Institutions.
BMAN20081 Financial Statement Analysis (as long as BMAN10501 Financial Reporting is also
taken as a pre-requisite).
BMAN10522 is available to visiting and exchange students admitted through the Study
Abroad Unit at the University of Manchester.

Course Content
1.
2.
3.
4.
5.
6.

Introduction to finance
The time value of money
Capital raising and evaluation of securities
The firms capital budgeting decision
Share price behaviour and informational efficiency
Security risk and return

Course Materials
Course Materials and Handouts (current students only)
Blackboard

Tutor(s)
Khurshed, Arif

Timetable
https://ughandbook.portals.mbs.ac.uk/Myprogramme/Teachingtimetables.aspx

Teaching Methods

Lectures: 15 one hour lectures (2 hours each week)

Workshops: 6 one hour workshops.
Total study hours: 100 hours split between lectures, classes, reading, self-study and
preparation for classes, coursework and examinations.

Preliminary reading
Brealey, Myers, and Marcus (2012). Fundamentals of Corporate Finance, McGraw-Hill.
Ross, Westerfield, and Jordan (2012), Fundamentals of Corporate Finance, McGraw-Hill.
Date of last revision of course unit specification: 6 February 2013
The above information is for the academic year 2013/14

Keywords
finance
List all modules

HE PROGRAMME CONTENT

DAY ONE
Accounting: An introduction

What is accounting?
What forms can accounting take
Definition and importance of profit
Decision scenarios explored
Funding business operations
Who is interested in profit?
Cash vs. Accrual accounting
Cash flow forecasting and improvement
Accounting policies chosen by companies
Accounting standards

DAY TWO
Financial Statements, Accounting Policies, and Reporting Standards
Income statement basic components

 Revenues & the questions

Direct/variable/product costs
Indirect/fixed/period costs
Mixed costs
Non-cash deductions: the what, the why & the how
o Depreciation: various methods explored
o Amortization: impairment test
o Depletion: when & how
The difference between profit and cash
A closer look at costs and expenses
Profit calculations
Summarizing profit statements and extracting the key figures
Balance sheet

Assets current & long term

Liabilities current & long term
Equity components
Capital employed - options
Managing the working capital cycle
Cash flow statement

Operating sources/uses
Investing sources/uses
Financing sources/uses

DAY THREE
Making and Communicating Decisions using Budgets

The master budget

The budgeting as a planning tool, a control mechanism, a communications device & value creation
Budgeting Sales to drive the correct budget
Operating budget components
Financial budget
Pro Forma Financial Statements
Cash Budgets
Capital budget
Interrelationship of Financial Projections
Dynamics and Growth of the Business System a model review
Flexible vs. traditional budgets the pros & cons
Variance analysis as a tool for improvement & communications
Price and volume effects within variance analysis: state of the art

DAY FOUR
Financial vs. Management accounting: differences and similarities

 Objectives of Managerial Accounting

Managerial Versus Financial Accounting:
Role of the Managerial Accountant
Financial accounting: what we show to the public
Objectives of financial accounting
Role of financial accountant
Cost terminology: variable, fixed, controllable, non-controllable, incremental, sunk, opportunity, and relevant
Cost behaviors in Cost-Volume-Profit scenarios: contribution margin and fixed costs
Breakeven and targeted net income scenarios
Cost/Benefit analysis

DAY FIVE
Ultimatum Goal of Planning Valuation, Business Performance & Decision Making

Definitions of Value
Responsibility centers: cost, profit, and investment
Measuring responsibility center performance
Segment reporting internally and externally
Business Valuation from multiple perspectives
Managing for Shareholder Value
Shareholder Value Creation in Perspective
Evolution of Value-Based Methodologies in planning and budgeting
Creating Value in Restructuring and Combinations beyond planning and reporting- the case for real change!
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