I start the 3rd trimester of my MBA studes this week. Corporate Finance. This is an area I already find interesting and have been anticipate. I’ve read a of adhoc information on the topic, practiced a bit and even completed a few basic courses, but I hope this bring about new ways of looking at problems. The first good sign that I’ll enjoy it is much of the recommended “viewing” were movies I love:
- The inside job – crazy stuff
- The corporation – sickening
- Startup.com – a fascinating failure
- Wall Street and Wall Street – entertaining
- Enron: the smartest guys in the room – amazing
Motivation: BTW, this relates to my motivation for studying a part-time MBA. I follow a lot of business information already and guessed an MBA may be a way to bring it together with a bit more discipline. I hate some of the overtly academic and impractical traditions, but after each subject I feel I’ve learnt a lot and improved a lot. I try not to think about the price and rationalise the opportunity cost as unproductive time converted to study.
The basic purpose of this subject seems to be to understand:
- value-based management: that every decision should be adding value to the business. How we measure that, know that or forecast that…
- the time value of money: that a dollar today is worth more than a dollar tomorrow. My suspicion is that many people don’t get this.
- diversification: risk management through spreading risk. The subject also looks at risk shifting (transferring risk; tools of choice by the contributors to the GFC).
- arbitrage: more complex, this considers the situation that two assets that yield the same cashflows (or other outcomes) should have the same price. In markets where this isn’t the case abnormal returns can be made until the price corrects. This area also considers the difference between a market for an asset and the market for information about an asset; one may be strongly efficient (not open to arbitrage) while the other is weakly efficient (by efficient here I mean in the economic sense; a fully efficient market is good for an economy; an inefficient market provides a surplus (~read as advantage) to either the producers or consumers). The interesting part is that this relates to information and who has it. In most capital markets, the experts are seeking and trading information.
For a business, these fundamentals apply to choices in investment and finance policies, and the risk and strategic management practices. Of course we’ll go into much more detail than that. The objective is to understand corporate finance enough to know what’s important and be able to work properly with the specialists (and, perhaps recognize how important they are to a business and why they’re all incredibly wealthy).