Lahore University of Management Sciences

FINN 100 – Principles of Finance

Spring Semester 2022

Instructor Ferhana Ahmad, DPhil (Oxon)

Room No. 3-14 SDSB Building
Office Hours TBA
Email ferhana.ahmad@lums.edu.pk, ferhanaahmad@gmail.com
Telephone 042 3 560 8044 Ext: 8044
Secretary Sharha Mumtaz (sharha.mumtaz@lums.edu.pk

TA Office Hours TBA

Course URL (if any) suraj.lums.edu.pk

Course Teaching Methodology (Please mention following details in plain text)

• Teaching Methodology: In person teaching
•

COURSE BASICS
Credit Hours 3
Lecture(s) Nbr of Lec(s) Per Week 2 Duration 75 Minutes
Recitation/Lab (per week) Nbr of Lec(s) Per Week Duration
Tutorial (per week) Nbr of Lec(s) Per Week Duration

COURSE DISTRIBUTION
Core Yes
Elective
Open for Student Category All
Close for Student Category Who have not done ACCT 100

COURSE DESCRIPTION

Firms invest in real assets such as plant and equipment (the Investment decision) and raise money via personal funds, stocks,
bonds or bank loans (the Financing decision). Broadly speaking, Financial Management is about how this Investment and
Financing decisions should be made. This course explores the first part of Financial Management and introduces the framework,
tools and techniques for making Investment decisions. Specifically, we will cover Valuation, Capital Budgeting, Modern Portfolio
Theory and Equilibrium Risk-Return Relationship.
This is an introductory course in Finance and the first in a series of required Finance core courses for the B.Sc. Accounting &
Finance degree. This course together with the next course, Intermediate Finance, completes an introduction to modern theory
of Corporate Finance. The final required course in the sequence, Applied Corporate Finance, introduces advanced topics and
explores certain topics in depth.

COURSE PREREQUISITE(S)
ACCT 100.
MS Excel

COURSE LEARNING OUTCOMES (CLO)

 Lahore University of Management Sciences
Upon successful completion of the course, students should be able to:
1. Demonstrate understanding of the concept of Time Value of Money(TVM) and its applications
2. Demonstrate understanding of the concept of Risk and Return
3. Demonstrate knowledge of the basics of Capital Budgeting and techniques of evaluation
4. Demonstrate knowledge of the Cost of capital and Capital structure.
5. Present their analysis effectively, both in oral and written forms, while working in teams as well as
independently. (General Learning Goal)
UNDERGRADUATE PROGRAM LEARNING GOALS & OBJECTIVES
General Learning Goals & Objectives
Goal 1 –Effective Written and Oral Communication
Objective: Students will demonstrate effective writing and oral communication skills
Goal 2 –Ethical Understanding and Reasoning
Objective: Students will demonstrate that they are able to identify and address ethical issues in an
organizational context.
Goal 3 – Analytical Thinking and Problem Solving Skills
Objective: Students will demonstrate that they are able to identify key problems and generate viable solutions.
Goal 4 – Application of Information Technology
Objective: Students will demonstrate that they are able to use current technologies in business and
management context.
Goal 5 – Teamwork in Diverse and Multicultural Environments
Objective: Students will demonstrate that they are able to work effectively in diverse environments.
Goal 6 – Understanding Organizational Ecosystems
Objective: Students will demonstrate that they have an understanding of Economic, Political, Regulatory, Legal,
Technological, and Social environment of organizations.

Major Specific Learning Goals & Objectives

Goal 7 (a) – Program Specific Knowledge and Understanding
Objective: Students will demonstrate knowledge of key business disciplines and how they interact including
application to real world situations.
Goal 7 (b) – Understanding the “science” behind the decision-making process (for MGS Majors)
Objective: Students will demonstrate ability to analyze a business problem, design and apply appropriate
decision-support tools, interpret results and make meaningful recommendations to support the decision-maker

Indicate below how the course learning objectives specifically relate to any program learning goals and objectives.

Program Learning Goals and
Objectives
Goal 1 –Effective Written and Oral
Communication
Goal 2 –Ethical Understanding and
Reasoning
Goal 3 – Analytical Thinking and Problem
Solving Skills
Goal 4 – Application of Information
Technology
Goal 5 – Teamwork in Diverse and
Multicultural Environments
Goal 6 – Understanding Organizational
Ecosystems
Course Learning Objectives Course Assessment Item
Students will be given a number CP, Project write up & presentation,
opportunities to demonstrate their ability Exams
to communicate effectively (CLO #5)
Ethical perspectives in financing decision Group project
Analytical Thinking and Problem Solving CP, Quizzes and exams
Skills are an essential component of the
course (CLO 1-5)
Application of information technology in Project write up & presentation
for assignments, projects
Students work in groups for group Group project
projects
Develop student’s understanding of the CP, Project write up & presentation,
interaction of micro (firm specific) Exams, quizzes
 Lahore University of Management Sciences
variables with the macro (securities
markets, industry, and the economy)
variables
Goal 7 (a) – Program Specific Knowledge Introduction to the topics in Managerial CP, quizzes and exams
and Understanding Finance (CLO 1-5)
Goal 7 (b) – Understanding the “science”
behind the decision-making process
GRADING BREAKUP AND POLICY

CLASSROOM POLICY
Attendance and Class Participation: 10% (5%+5%).
• Students are allowed a maximum of three (3) absences in the course. These absences are meant to be used only in case
of contingencies (e.g., sickness) and include all the petitioned absences. I do not accept medical certificates from doctors.
Use your absences carefully. I have observed a lot of students suffer for not carefully planning their absences in past. For
each absence over the allowed 3 absences, one percentage point will be deducted from the attendance grade.
• I expect everyone to be in class by the time class starts, as entering class after it starts creates a lot of distraction not only
for students who were in time but also for the instructor. Late arrivals will be given only half presence in class, and the
half absence will add to the total absences. Same policy applies for early leavers.
• An overall absence of 10 minutes or more, in a session shall be deemed as an absence for the full session.
• Students are noted for late coming and early leaving or unnecessarily leaving the class during the class hours.
• All the students are expected to participate in the class discussions. To ensure a positive learning climate, only intelligent
and contributory observation and discussions shall be rewarded.
• All ethical norms shall be observed in the class and examinations.
• Any attempt to disturb a classmate, engage in talking or whispering during the class or to vitiate the overall class
atmosphere may result in negative marks in class participation.
• Turn Off your Cell phones or put them on Silent mode. Use of Smartphone, internet, online chatting or use of technology
related gadgetry of any kind is not allowed.

POLICY REGARDING EXAMINAIONS QUIZZES AND OTHER GRADING INSTRUMENTS.

There is a zero-tolerance policy (ZTP) for any undesirable behavior or undeserving attempt to improve your grades during the
quizzes, examinations or afterwards. Such action can result in cancelling your examination paper. It may also result in
disciplinary actions by Disciplinary Committee.
Please carefully weigh in your action’s costs and benefits and always show an ethical and moral deportment and behavior.

Quiz(s) 20%
There shall be total of 5 Announced and 1 unannounced Quizzes (Q1 at the conclusion of TVM; Q2 at the conclusion of Bonds; Q3
at the conclusion of Stocks valuation; Q4 at the conclusion of Risk-Return; Q5 at the conclusion of Capital budgeting; and Q6 at
the conclusion of Cost of Capital).
One quiz will be dropped while calculating the final quiz score. There shall be no makeup quizzes or average marks for any (and
petitioned) absences. No sharing of calculators, or any help sheet will be allowed, whatsoever.

FINAL GROUP PROJECT 15%

(A group project from a group size of 4 students).

The project involves a comprehensive valuation of a company listed on the Pakistan Stock Exchange (PSX). Each group must select
a company from KSE 100. The names of students in the group and the company to be valued shall be communicated to the
instructor latest by the beginning of 5th session. You are encouraged to talk to your class fellows while choosing a company, so a
single company is not selected by two groups. In case that happens then the group that submits proposal earlier gets precedence
and the other group will be asked to choose another company. Details of the project are provided at the end of this document.
 Lahore University of Management Sciences
Midterm Examination: 25%
The examination could be mix of MCQ, short exercises and short explanations.

FINAL EXAMINATION: 30%.

Final exam will consist of the entire syllabus learnt during the semester. The examination could be mix of MCQ short exercise and
short explanations. Students may also expect a question or two from the assigned report or a case or a situation analysis.

Financial Calculator: You are required to buy financial calculator. Though many genres are available, but I would recommend TI
BA II Plus.

There is a zero tolerance for any undesirable behavior to undeserving attempt to improve your grades during the quizzes and
examinations.

EXAMINATION DETAIL

YES
Midterm
Duration: 2 hours
Exam
Preferred Date:
Exam Specifications:.

YES
Duration: 2 hours
Final Exam Preferred Date:
Exam Specifications:

COURSE OVERVIEW/SCHEDULE
Lecture/ Module Topics
Week 1, Session 1.
Recommended Objectives/
Readings Application
1.1- Finance and Business: Readings: Chapter 1 of LG 1.- Session 1
Introduction to the course; Role and Environments of Introduction to the course
What is Finance; Why Study Managerial Finance. Structure
Managerial Finance. (Invitation to form groups for
1.2- Goals of the Firm: projects.)
Maximizing Profit or wealth?
Corporate governance and
business ethics
1.3- Managerial Finance
functions: organization of
Managerial Finance function;
relationships to economics
and accounting.

Week 1, Session 2 3.1- Stockholder’s Report: Readings: Review of basic accounting

Four key Financial Chapter 3. concept. Revisit Ratio analysis
Statements and notes of Reading Financial Statement and discuss its relevance to
financial reports. analysis project.
Finalization of groups Forming,
 Lahore University of Management Sciences
3.2- Using Financial Ratios:
user of financial ratios; Types
of Ratio comparison;
Cautions about using
Financial Ratios Analysis.
Such as Liquidity; Activity;
Debt; Profitability and-
Market ratios
Week 2, Session 3 3.8- A Complete Ratio Readings: Review of basic accounting
Analysis: Chapter 3. concept. Revisit Ratio analysis
Summarizing all ratio Financial Statement analysis and discuss its relevance to
analysis; DuPont System of project.
Analysis. exercises
Week 2, Session 4 4.1- Analyzing the Firm’s Readings: Revisit the Preparation of Cash
cash Flow:- Chapter 4. Flow
4.2- Financial Planning Cash Flow and Financial From a finance managers
process:- Planning perspective
4.3- Cash planning and Cash
Budgets:-
4.4- Profit Planning
Week 3, Session 5 Pro forma Statements: - Warm up Exercises Revisit the Preparation of Cash
4.5- Pro forma Income Integrative case 1 Track Flow
statements:- software Inc. From a finance managers
4.6- Pro forma Balance perspective
sheet:-
4.7- Evaluation of Pro forma
Statements:-
Week 3, Session 6 2.1- Financial Institutions and Readings: Importance of Spreadsheet and
Markets: Financial Chapter 2 Role and financial modeling on Excel to
Institutions; Money & capital Environments of Managerial be emphasized.
Markets. Finance.
Scope and Areas of finance Role and Environments of
and how it is related to other Managerial Finance
areas of business. Class notes
2.4-Business Taxes: Ordinary Focus on Practice
Income and Capital gain
taxes.
Week 4, Session 7 5.1:-The role of the TVM in Chapter, 5. Discussing the roll of Time Value
Finance Time Value of Money in Finance, The use of
5.2- Single Amount & Review computational tools, and the
questions basic patterns of cash flow.
Week 4, Session 8v 5.3- Annuities & Perpetuities.
5.4- Mixed Stream
 Lahore University of Management Sciences
Week 5, Session 9 5.5-Compounding Interest
More Frequently Than
annually
5.6- Special Applications of
Time Value
Week 5, Session 10 8.1:- Risk and return
Fundamentals
8.2:- risk of Single assets
Week 6, Session 11 8.3:- Risk of a Portfolio:-
8.4:- Risk and Return: The
Capital assets Pricing Model
(CAPM):
Week 6, Session 12 6.1:- Interest rates and
required Return:
6.2:- Corporate Bonds:
Week 7, Session 13 6.3:- Valuation
fundamentals:
6.4:- Bond Valuation.:
Week 7, Session 14 7.1:- Difference between
debt and Equity capital:
7.2:- Common and Preferred
Stock
Week 8, Session 15 7.3:- Common Stock
Valuation:
7.4:-Decision Making and
Common Stock
MID TERM
Week 9, Session 17 10.1:- Overview of Capital
budgeting:
11.1:- Relevant cash Flow:
11.2:- Finding the Initial
Investments
Week 9, Session 18 11.3:- Finding the Operating
Cash Flow:
11.4:- Finding the Terminal
Cash Flow:
11.5:- Summarizing the
relevant Cash Flow
Week 10, Session 19 10.1:- Overview of Capital
Budgeting:
10.2:- Payback Period:
10.3:- Net Present Value
Week 10, Session 20 10.4:- Internal rate of
Return:
10.5:- Comparing NPV and
IRR Techniques
Chapter 8. Understanding the meaning and
Risk and Return fundamentals of risk, return,
and risk preferences.
Discussing the measurement of
return and standard deviation
for a portfolio.
Chapter 6. Describe interest rate
Interest rates and Bond fundamentals, the term
Valuation structure of interest rules and
risk premiums.
Understanding the key inputs
and basic model used in the
valuation process.
Chapter 7. To Differentiate between debt
Stock Valuation and equity capital.
Discuss the rights,
characteristics, and features of
both common and preferred
stocks.
Chapter 10 & 11. Understanding the key motives
Capital Budgeting Cash Flows for capital expenditure and the
Focus on Ethics steps in the capital budgeting
Non Financial consideration in process.
Project Define basic capital budgeting
terminologies
Chapter 10. Understanding the rule of
Capital Budgeting Techniques capital budgeting techniques in
the capital budgeting process.
Use net present value profiles to
compare NPV and IRR in
techniques

Week 11, Session 21
Week 11, Session 22
Lahore University of Management Sciences
9.1:- Overview of Cost of Chapter 9. The cost of Capital To understand the key
capital Focus on Ethics assumptions, the basic concept,
9.2:- Cost of Long Term Debt Non-Financial consideration in and the specific sources of
9.3:-Cost of Preferred stock Project Selection capital associated with the cost
of capital.
9.4:- Cost of Common Stock
9.5:- Weighted average cost
of Capital

Week 12, Session 23 13.1:- Breakeven Analysis, Chapter 13 To understand operating,

Week 12, Session 24
Week 13, Session 25
Week 13, Session 26
Week 14, Session 27
Operating Leverage,
Financial Leverage and Total
Leverage.
13.2: Firms Capital Structure
13.3:-EBIT EPS Approach
Working Capital
Management
15.1 Net Working Capital
Management
15.2 Cash Conversion Cycle
15.3 Inventory Management
15.4 Account Receivables
Management
16.1 Spontaneous Liabilities
16.2 unsecured sources of
short-term loans
16.3 Secured sources of
short-term loan
Group presentation and Viva
Leverage and Capital
Structure
Chapter 15: Working capital
and current asset
management
Chapter 15: Working capital
and current asset
management
Chapter 16: Current liability
management
financial, and total leverage and
the relationships among them.
To discuss the EBIT-EPS
approach to capital structure.
To introduce net working capital
management, and the related
trade-off; To understand the
cash conversion cycle, its
funding requirements, and the
key strategies for managing it
To introduce Inventory
Management and the
management of receipt and
disbursements
To understand the effects of
stretching accounts payable on
their cost and the use of
accruals; and to discuss interest
rates and the
basic types of unsecured and
unsecured sources of short-term
loans

Week 14, Session 28 Group presentation and Viva

TEXTBOOK(S)/SUPPLEMENTARY READINGS
th
Required Text: Principles of Managerial Finance By Lawrence J Gitman 13 edition
To stay abreast with the market a regular reading of financial press is essential to understanding and appreciation of the body of
knowledge and the subject matter of the course. Reading of other introductory textbooks on the subject is encouraged to find out
the other writer’s point of view about the pedagogy.
Supplementary Text:
Richard A. Brealey, Stewart C. Myers, Franklin Allen-Principles of Corporate Finance-10th edition (2011)
Supplementary Readings:
 Lahore University of Management Sciences
• Students are encouraged to read financial publications such as The Wall Street Journal, Financial Times; Business Recorder to stay
abreast of developments related to this course.
 Lahore University of Management Sciences

FINN – 100 (Principles of Finance)

Project Guidelines
Instructor: Ferhana Ahmad

Objective: The objective of the project is to present a detailed financial analysis of your chosen company
selected from the KSE-100 Index.

The project is divided into three deliverables as follows:

1- Note on the company (Submission Deadline: xx, Word Limit: 1000 words)

Each group is required to submit a proposal for the company they have chosen. The primary purpose of
this deliverable is to brief on the selected organization, industry analysis and an investing decision to
buy or sell the stock of the chosen organization that the group is willing to make. The deliverable must
include:

• Introduction of the company:

This shall involve the history of the organization and the market in which it is operating. The
target market of the business along with its major product offering, vision and mission should be
categorically stated.

• Industry Analysis (Competitors, Market Capitalization etc.):

The sector in which the company operates should be analyzed along with the major players. The
state of competition should be defined together with the Market Capitalization of the firm and its
current standing in the Industry.

• Growth Prospects:
The outlook of the firm and its current investment policy should be stated. This analysis should
be number-driven based on the ongoing economic forecast and industry specific numbers.

• Preliminary Investment Decision:

Lastly, a decision statement is required from the group. It should be explicitly stated whether a
Buy or Sell decision is to be made for the given organization.

2- Forecasting – Excel Model (Submission Deadline: xx)

 Lahore University of Management Sciences
This shall serve as the basis of evaluation of your project and all qualitative content should be coherent
with the excel model submitted.

A comprehensive Excel model is to be submitted along with the word document submitted earlier with addition
of the assumptions taken. The following components must be included.

• Ratio Analysis – Last 5 years

A detailed ratio analysis could add weight to recommendations made. All aspects including
liquidity, profitability, activity and solvency should be effectively addressed through Ratio
Analysis

• Pro Forma Income Statement – Next 5 years

Percentage of Sales method can be used to determine the pro forma figures. Any anticipated
economy-wide or industry-wide change should be incorporated into the assumptions.

• Pro Forma Balance Sheet – Next 5 years

Statement of Financial Position should be drafted in accordance with investment policy of the
company. The plans of the senior management hinted in annual report could be used in
estimating the balance sheet figures.

• Expected Cash flows - 5 years

Cash flows should be in line with both Income Statement and Statement of Financial Position.
Dividend Policy of the company is to be rightly assumed for this purpose.

Holistically, it is required that through these statements groups should be able to derive the Enterprise
Value (EV) and base their investment decision on the quantitative element. EV can be computed using
Free Cash Flow method. Groups are required to calculate WACC for the respective firm and given the
circumstances estimate the long-term growth rate which would then be employed to determine the
terminal value.

For WACC, the risk-free rate could be assumed to be SBP’s Policy Rate and ideally a market premium
of 5% could be incorporated into the model. While in order to calculate Beta values, data can be
downloaded from Yahoo Finance or Bloomberg. Using already available Beta values online won’t serve
the intended purpose and that is why it is mandatory to calculate Beta values.

** The assumptions must be clearly mentioned in the model**

3- Report and Final Presentation (Submission Deadline: TBA, Page limit: Max 10 pages)
 Lahore University of Management Sciences
Each group is required to submit a final report. The report should include the introduction to
organization, industry analysis and all the financial statement and analysis done in parts 1 & 2 of the
project. Each group is supposed to present their company, analysis and decision regarding investment.

In addition, every group shall be given 10 minutes for presentation followed by 5 minutes for Q&A.

Annexure 2

Useful links
Whenever you are valuing a company you need to understand the industry. You need to understand the demand drivers, the economic
conditions, and external environment, the nature of company’s business and competitors before you can do financial projections.
Remember, financial projections are not just some numbers: These numbers are coming from the factors you will discuss in the
reports. For example, if you say revenues are expected to increase by 50%, you should argue why this should be the case

(Some useful hints and guidelines for financial model can be taken from
http://www.smeda.org/business-development/pre-feasibility-studies.html)
http://www.nestle.pk/asset-library/documents/financial_reports/nestle_ar_2012.pdf
http://www.unilever.pk/Images/Unilever%20Pakistan%20Limited%20Financial%20Result%20Q2%202013_tcm96-370009.pdf
http://www.unilever.pk/
http://www.unilever.pk/Images/Unilever%20Pakistan%20Sustainability%20Report%202012_tcm96-355078.pdf
http://engro.com/wp-content/uploads/2012/03/F-E-Corp%20AR%202011.pdf
http://www.pg.com/en_US/sustainability/reports.shtml
http://www.pg.com/en_US/downloads/sustainability/reports/PG_2012_Sustainability_Overview.pdf
http://www.pg.com/en_US/downloads/investors/annual_reports/2013/2013_AnnualReport_proxy.pdf
http://www.pg.com/en_US/investors/index.shtml
http://www.pg.com/annualreport2012/files/PG_2012_AnnualReport.pdf
http://www.kse.com.pk/