The best and most innovative ideas will never see the light of day unless they can obtain funding. How can you, as a manager or entrepreneur, make the most convincing case to advance your projects and make them attractive to senior decision makers or outside investors? And how do successful companies and investors pick the best products and manage R&D investments? Effective product innovation relies on clearly defined financial models and analysis. This course will explore the tools of financial valuation and their role in investment decisions faced by managers, entrepreneurs, and investors. You will learn the difference between earnings and cash flow, the importance of net working capital, and the determinants of a firm's cost of capital. You will explore the sources and drivers of value and how to maximize created value. Finally, you will apply financial valuation tools to understand how firms are valued by investors, considering both publicly traded and venture-backed firms.
Learn How To
Analyze and optimize the sources and drivers of firm value
Learn how to use a financial model to better understand your investment opportunity and optimize its value. Learn how to increase the value of an opportunity by timing or staging an investment. Learn about identifying sources and drivers of value, the pitfalls of return-based measures of value, and real options and the staging of investment.
Build a financial model to assess the value proposition for a product or investment
Learn the determinants of an investment’s cost of capital – the expected return required by investors in order to invest. Learn about the dynamics of interest rates and the yield curve (and how it can be used to forecast the economy), as well as the main principles of stock market investing. Learn about risk versus return, measuring market risk and building a DCF/WACC model.
Identify the determinants of earnings, cash flows, and shareholder value
Learn the basics of financial statements, and see how to assess the impact of an investment decision on the firm’s earnings and cash flows. Learn how to assess the value created, or NPV, of a risk-free investment. Learn about capital budgeting, financial decision making, and developing an earnings forecast. Learn the difference between cash flows versus earnings and why it matters.
Value projects, firms and new ventures
Learn how the techniques used to evaluate a project can also be used to value an entire company. Explore the main methods used to value firms in practice, and understand their strengths and weaknesses. Learn to develop a basic template that can be used to estimate a firm’s share price. Learn about the use and misuse of comparables, dividends, repurchases, and fundamental value, P/E multiples and growth, and estimating share prices using the DCF/WACC model.
Peter DeMarzo, Professor of Finance, Graduate School of Business, Stanford University