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Regular version of the site
Bachelor 2017/2018

Economics of the Firm

Type: Compulsory course (Software Engineering)
Area of studies: Software Engineering
Delivered by: School of Finance
When: 2 year, 3, 4 module
Mode of studies: Blended
Language: English
ECTS credits: 4

Course Syllabus

Abstract

Course is designed for bachelor students. This course discusses formation of analytical and practical skills of financial decisions making. The course deals with managing business funds and planning their use to accomplish organizational objectives. It covers the following: techniques of financial analysis and planning such as ratio analysis, pro forma projections and discounted cash flow analysis; the sources and uses of funds; problems of financial capital.
Learning Objectives

Learning Objectives

  • At the end of the course students are expected to: 1. Understand and apply principles of modern economic analysis of the firm; 2. Be able to discuss different stakeholders’ goals as a source of agency conflicts; 3. Understand and apply assets creation techniques when making predictive solutions; 4. Be able to discuss the logic of capital structure decisions and understand how market imperfections influence capital structure decisions; 5. Understand the major goal of risk management and its influence on stakeholders’ behavior.
Expected Learning Outcomes

Expected Learning Outcomes

  • Understand and apply principles of modern economic analysis of the firm;
  • Be able to discuss different stakeholders’ goals as a source of agency conflicts;
  • Understand and apply assets creation techniques when making predictive solutions;
  • Be able to discuss the logic of capital structure decisions and understand how market imperfections influence capital structure decisions;
  • Understand the major goal of risk management and its influence on stakeholders’ behavior.
Course Contents

Course Contents

  • 1. Introduction to the economics of the firm
    The essence of finance. Legal forms of business organization. Organization of the finance function. Goal of the firm. Internal and external financial relationships of the firm. The agency issue. Financial institutions. Financial markets. Company evolution and the organizational life cycle. Overview of the product life cycle. Overview of the organizational life cycle. Stages of the organizational life cycle. The notion of the value of the firm at different stages of the life cycle. The analysis of the classical and alternative models of firm behavior. Comparative analysis of alternative models: maximizing the growth of managerial behavior. The impact of behaviours on the value of the firm.
  • 2. The Financial Capital of the Firm.
    The sources of funding for companies at different stages of the life cycle. The concept of financial leverage. Equity capital of the company: composition, structure. The concept of net assets. Equity capital of the company: composition, structure. The concept of net assets. Features of formation of equity capital in various sectors of the economy. The essence of liabilities. Current and long-term liabilities: goals and ways of their acquisition. Long-term liabilities: notes payable, mortgages payable, bonds payable, and classification of liabilities The influence of liabilities to financial results of a firm.
  • 3. The Fix and Non-Fix Assets.
    Measuring the cost of fixed assets. Amortization and Depreciation. Disposal of assets of the company. Structure of fixes assets. Capital budget. Introduce of the working capital. The concept of inventory. Basics of managing the average inventory balance. Inventory management and the Cash Flow timeline. Reducing the size of the inventory investment. Types of receivables. Internal control over receivables. Identifying and writing off uncollectible accounts. Methods of debt collection: the allowance method, the direct write-off method, notes receivable. The policy of receivables management.
  • 4. Financial Model of Analysis the firm.
    Differences between financial and accounting analysis models of the company. Principles of modern financial analysis of the company. The principle of economic profit. The principle of value added. Using ratios to make decisions. Evaluating the ability to pay current liabilities. Evaluating the ability to sell inventory and collect receivables. Evaluating the ability to pay long-term debt. Evaluating profitability. Evaluating stock investments.
  • 5. Role of Cash Flow in the economics of the firm.
    Operation Cash Flow and Free Cash Flow. Sources and uses of cash. The payment system and financial institution relationship. Value and concept of float. Electronic-based systems. Cash collection system. Types of collection system. Cash concentration. Cash disbursement system.
  • 6. Intellectual and social capital of the Firm.
    Intellectual capital: identifying, measurement the cost, analysis. Intellectual capital as a source of competitive advantage of the firm. The components of intellectual capital. Methods of evaluation of intellectual capital efficiency. Human, customer , innovation capital. The network of stakeholders and harmonious development of the company. Performance indicators of human capital and the ways of its increase in the innovation economy. Social capital and its importance for the firm. Internal and external influence of social capital on firm value. Corporate culture as a form of social capital. The company's reputation as a criterion for evaluating social capital.
  • 7. Risk Management.
    Types of business and finance risks. The analysis of the business risks associated with the quality of management of the company. Financial risks in the operating activities of the company. Price risks and ways of their neutralization. Analysis of investment risk factors at different stages of the life cycle of the company.
  • 8. Performance Measurement.
    Operating costs and expenses of the period. The essence of the concept of "cost", the role of data on costs in the management of modern business. Production, full, truncated value. The cost of goods manufactured and cost of goods sold. The classification of expenses by the possibility of referring to the certain object of calculation. The behavior of the cost, depending on changes in the volume of activity. The conventionality of the classifications of costs. Controlled and uncontrolled costs. The importance of performance measurement in management. The major goals of performance measurement. The levels of performance measurement. Types of performance measures: output and outcome measures. The balanced scorecard. Measuring the financial performance of cost, revenue, and profit center. Measuring the financial performance of investment centers. Use of performance measurement in budgeting. Use of performance measurement as a tool for productivity improvement.
  • 9. Financial Planning.
    The nature and purpose of financial planning. Types of planning on the timing and degree of detail of the plan elaboration. Prospective, current financial and operational plans. Calendar of payments, balance of income and expenses as a form of financial plans. Budgeting, goals and objectives. The role of budgeting in the management of the modern firm . The definition of the budget, the frequency and the principles of its development. The main functions of the budget. The budgeted balance sheet. The purpose and sequence of its preparation. Operating and financial budgets. The main problems of determining the volume of sales in market conditions. The purpose and principles of cash flow budget. The cash flow budget as a tool of financial management of the firm. Practical problems of gathering information for its development.
Assessment Elements

Assessment Elements

  • non-blocking Assigned Case
  • non-blocking Exam
Interim Assessment

Interim Assessment

  • Interim assessment (4 module)
    0.5 * Assigned Case + 0.5 * Exam
Bibliography

Bibliography

Recommended Core Bibliography

  • Gitman, L. J., & Zutter, C. J. (2015). Principles of Managerial Finance: Brief, Global Edition (Vol. Seventh edition, global edition). Harlow, Essex, England: Pearson. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=1419534
  • Kaplan, R. S., & Norton, D. P. (2008). MASTERING the Management System. Harvard Business Review, 86(1), 62–77. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=bsu&AN=27999664

Recommended Additional Bibliography

  • Aldo Sesia, & Richard S. Ruback. (2000). Dell’s Working Capital. [N.p.]: Harvard Business Publishing Education. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=2308320
  • Bremmer, I. (2005). Managing Risk in an Unstable World. Harvard Business Review, 83(6), 51–60. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=bsu&AN=17276634
  • David E. Bell, Mary Shelman, & Phillip Andrews. (2011). Domino’s Pizza. [N.p.]: Harvard Business Publishing Education. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=2301564
  • Davis, J. A., Hampton, M. M., Lansberg, I., Kelin E., G., & Gersick, K. E. (1997). Generation to Generation : Life Cycles of the Family Business. Boston: Harvard Business Review Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=1798382
  • F. Asis Martinez-Jerez, & Lisa Brem. (2011). Cash Flow Productivity at PepsiCo: Communicating Value to Retailers. [N.p.]: Harvard Business Publishing Education. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=2300418
  • Zoltners, A. A., Sinha, P., & Lorimer, S. E. (2006). Match Your Sales Force Structure to Your Business Life Cycle. (cover story). Harvard Business Review, 84(7/8), 81–89. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=bsu&AN=21124751