University of Technology SydneyHandbook 2008

25705 Financial Modelling and Forecasting

Faculty of Business: Finance and Economics
Credit points: 6 cp

Subject level: Postgraduate

Result Type: Grade and marks

Requisite(s): 25742 Financial Management OR 25746 Financial Management: Concepts and Applications
These requisites may not apply to students in certain courses.
There are also course requisites for this subject. See access conditions.

Handbook description

This subject introduces students to basic probability, statistical inference and forecasting techniques. The discounted cash flow approach to the valuation of companies is introduced, emphasising the use of forecasting and inference in the preparation of inputs to the valuation process. Students learn practical spreadsheet skills by estimating the value of a publicly listed company.

Subject objectives/outcomes

On successful completion of this subject, students should be able to:

  1. Understand the quantification of uncertainty, using basic probability and statistical inference.
  2. Use basic forecasting techniques in constructing the expected future values required for financial models.
  3. Apply the discounted cash flow approach to valuation at an introductory level.
  4. Use forecasting methods in multiples based equity valuations.
  5. Understand and apply statistical analysis and forecasting using a spreadsheet software package.

Contribution to graduate profile

This course will cultivate within students the ability to handle uncertain decision contexts. In performing a valuation exercise the students will gain expertise in the use of information technology and the retrieval of internet hosted materials. The course emphasises the use of statistical methods and thinking in the context of a common problem in the area of finance.

Teaching and learning strategies

The subject will be taught using a combination of lectures and workshops. These classes will be supplemented with both printed and electronic learning materials and resources. The UTS web-based communication tool (UTS Online) will be used to share information and encourage interaction between staff and students. Students will also use appropriate computer software such as spreadsheets and word processors to complete assigned tasks.

Content

  • Introduction to Models and Modelling
  • Financial Valuation Tools
  • Introduction to Probability
  • Introduction to Inference, Time Series and Forecasting
  • Decomposition and Smoothing
  • Modelling the Trend with Simple Regression
  • Spreadsheet Design and Planning
  • Using Financial Statements
  • Building Pro Forma Financial Statements
  • Analysing the Firms Environment and Operations
  • Estimating Discount Rates
  • Using Multiples to determine Firm Value.

Assessment

Assignment (Group)30%
This will assess students' understanding of the concepts of financial modelling and forecasting in a practical application. It will also allow students to demonstrate that they can use both spreadsheets and word processing packages to tackle practical valuation problems. This assignment will allow students to demonstrate that they have met objectives 1-5.
Mid-semester exam (Individual)20%
The mid semester exam is designed to assess students' understanding of the theories and concepts to demonstrate that students have met objectives 1 and 2.
Final exam (Individual)50%
This exam, consisting of multiple choice and short answer questions, will test students' understanding of the theory and their ability to apply the theory to financial modelling and forecasting. This will enable students to demonstrate that they have met objectives 2-4.

Recommended text(s)

Hanke J.E. and Wichern D.W., (2005), Business Forecasting, International Edition, 8th Edition, Pearson Prentice Hall.

Indicative references

Middleton, M. (2003). Data Analysis Using Excel 3ed. Duxbury

Benninga, S. Z and Sarig, O. (1997). Corporate Finance, A Valuation Approach, McGraw-Hill.

Gaynor, P.E. and Kirkpatrick, R.C. (1994). Introduction to Time-Series Modeling and Forecasting in Business and Economics, McGraw-Hill.

Holloway, C. A., (1979). Decision Making Under Uncertainty, Prentice Hall.

Ross, S., (1997). Introduction to probability models (6th Ed), Academic Press.