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Fundamentals of Financial Decision Making

Understanding the financial criteria for making investments and new business ventures

Rick Adams

In order to grow and prosper or indeed even to survive, businesses need to invest in new ideas and innovations that will help to improve the company and/or the products and services it sells in some way. Part of this challenge lies in the creative processes of coming up with new ideas to support the strategic and tactical needs of the business. However, another important issue for businesses is how to evaluate these ideas using consistent criteria that enable the company to compare very different business proposals to determine which ones to invest in and which ones to reject.

This course provides a basic foundation on how businesses use discounted cash flows to assess business proposals from a financial perspective to decide whether or not they wish to proceed with investing in it. Whilst there is some basic theory that needs to be absorbed, students will find the course to be very hands-on with plenty of exercises that walk them through the process of evaluating a business proposal using standard, best practice financial criteria, just as if they were making a real financial assessment. Students will come away with a basic understanding of how to use discounted cash flows to determine likely financial value and risk from a business proposal.

What you'll learn-and how you can apply it

By the end of this live, hands-on, online course, you’ll understand:

  • The need for business investment proposals and the concept of the business case and the financial case
  • The fundamental differences and similarities between business criteria and financial criteria within a business investment proposal
  • How financial criteria enables objective comparative analysis between all types of proposals
  • The difference between simple cash flows and discounted cash flows and why discounted cash flows provide a useful way to evaluate a business proposal
  • The process used to create a discounted cash flow and to calculate potential financial value for a business proposal

And you’ll be able to:

  • Understand the terms “simple cash flow” and “discounted cash flow”, and explain their similarities, differences and uses to someone else
  • Apply a discount rate to calculate net present values for financial values that are projected into the future
  • Use a spreadsheet tool such as Microsoft Excel™ to create both simple and discounted cash flows
  • Calculate values for time to value (TtV), return on investment (RoI) and others, and explain their relevance to financial decision making
  • Use the three criteria of total amount returned, break even, and time to value to help determine both value and risk within a business proposal
  • Evaluate a discounted cash flow to ascertain whether it meets your company’s predetermined investment criteria
  • Present a financial case for investment in a business proposal to an investment committee for approval

This training course is for you because...

  • You are responsible for creating internal business cases that must contain financial justification components that will be assessed before they can be approved
  • You are responsible for presenting internal business cases to investment committees
  • You are a sales executive who needs to create sales proposals that contain a financial justification component
  • You are a sales executive who wishes to help your customers’ stakeholders to create their own business cases for your sales proposals that they can present to their internal investment committee for approval
  • You are responsible for evaluating business cases and/or sales proposals on behalf of your company

Prerequisites

  • A fundamental understanding of how businesses work
  • Familiarity with what a business case or sales proposal is and what it generally contains
  • Basic numeracy skills
  • Basic familiarity with and access to a spreadsheet tool such as Microsoft Excel™ (as we will be using this tool to complete the exercises)

Recommended preparation:

  • Have Microsoft Excel™ installed to complete the in course exercises
  • Read: Developing a Business Case (recommended if you need to brush up on business case development)

Recommended follow-up:

About your instructor

  • Rick Adams is a consultant, trainer, and writer. Growing up in the '70s and '80s, when IT was in its infancy, Rick studied to be a systems engineer and eventually became a technical director for a startup that helped blue-chip companies with their business challenges, such as workforce productivity, understanding customer needs, reducing time to market, and efficiency savings. However, he soon realized that understanding people was more fascinating than the technology itself. This began a career-long passion for helping people in both their personal lives and careers, leading him to form a personal health and well-being software-as-a-service company. The company developed and sold an online stress management tool called the Wellbeing Portal, which offered personalized assistance to employees as well as management information for HR and Health and Safety professionals. Customers included the UK and international charities, local government, higher and further education establishments, and private enterprises from a number of different industry sectors. Rick helped C-level executive decision makers, middle management, and other key stakeholders understand their organizations' needs and developed, presented, and sold stress management solutions including assessment, training, and consultancy. He sold his company in 2012 to focus on writing, training and consulting. His first book, Practical Customer Success Management: A Best Practice Framework for Managers and Professionals, is now available. More information is available at http://practicalcsm.com/book.

Schedule

The timeframes are only estimates and may vary according to how the class is progressing

What is Meant by the Term “Value”? (20 minutes)

  • Discussion: What does the term “Value” mean to you?
  • Discussion: Does value change in different situations and/or over time and if so how?
  • Discussion: What is “Risk” and how is risk related to value?
  • Presentation: Deciding how much value is required and how much risk is acceptable within a business context
  • Group Exercise: Evaluating risk and value

The Role of a Financial Justification Within a Business Case or Sales Proposal (20 minutes)

  • Discussion: How are financial decisions made by businesses?
  • Poll
  • Poll
  • Presentation: The role of the investment or funding committee in financial decision making for business proposals
  • Group Exercise: Comparing two identical business cases that have different financial justifications

Introduction to the Concepts of a Discounted Cash Flow (20 minutes)

  • Presentation: Overview of what a discounted cash flow is and demonstration of how it is used to present financial information within a business proposal, using a pre-prepared example cash flow
  • Q&A: Ability for students to ask questions to ensure they are comfortable with the basic concepts presented to them
  • BREAK (5 minutes)

Creating a Discounted Cash Flow Part 1: Simple Cash Flow (30 minutes)

  • Presentation: Creating a simple cash flow
  • Practical Exercise: Creating a simple cash flow

Creating a Discounted Cash Flow Part 2: Net Present Values and Discount Rates (35 minutes)

  • Presentation: Net Present Values and Discount Rates
  • Practical Exercise: Creating a discounted cash flow
  • Q&A
  • BREAK (5 minutes)

Creating a Discounted Cash Flow Part 3: Calculating Value and Risk (30 minutes)

  • Presentation: Calculating value and risk
  • Practical Exercise: Calculating and showing value and risk
  • Q&A (15 minutes)