Course Summary:

Project Finance involves the raising of funds to finance an economically separable capital investment project in which the providers of the funds look primarily to the cash flow from the project as the source of funds to service their loans and provide the return of and a return on their equity invested in the project. This is a practical course that provides students an opportunity to understand the risk-return character of limited recourse projects from multiple perspectives. Case studies on risk structuring span a variety of sectors and geographical regions.

Course Objectives:

• Understand the principles of project financing (PF)
• Be able to evaluate the key components of the risk and the profitability of projects
• Know how to use simple financial software to model the net present value of a project  
• Know how to structure the financing for a project deemed worthwhile
• Know how to calculate Project’s Cost of Capital
• Understand how to compare Project’s Cost of Capital and Project’s IRR
• Know if Project creates Shareholder Value?
• Understand how to evaluate maximum Borrowing Capacity for a Project 
• Know how to draft a financing recommendation for a board
• Handle Warm-Up cases to apply Key Concepts
• Preparing and submitting outcomes of a presentation to an Ad-Hoc Credit Committee supervised by Prof based on 4 to 5 real-world cases (OIL & GAS, AIRPORT, Infrastructure, Energy).

Course Outline

What do accountants do?

• The finance function, types of accountant, financial v management accounting and the treasury function
• Understanding the role of the finance function and how the information you provide may be used

 The basic financial statements

• Balance sheets and income statements (P&L accounts)
• What they are, what they contain and above all what they can reveal – how to read them
• The accounting process – from transactions to financial statements
• What underpins the statements – accounting systems and internal controls

 Why be in business? – from a financial perspective

• The driving forces behind financial information
• Performance measures – profitability, asset utilisation, sales and throughput, managing capital expenditure

 Accounting rules – accounting standards

• Accounting concepts and the accounting rules: accruals, ‘going concern’, substance over form and other ‘desirable qualities’
• Accruals – why the timing of a transaction is so important to the finance function
• Depreciation and amortisation – the concepts and practice
• Accounting standards – the role of International Financial Reporting Standards

 Cash

• The importance of cash flow – working capital management
• Cash flow statements – monitoring overall cash flows
• Raising cash – levels of borrowing, gearing
• Spending cash – an outline of capital expenditure appraisal

Budgeting

• Why budget? – good and bad practice
• Determining why budgets play a key role and should not be simply an annual ritual
• Justifying your budgets – the link between the strategic plan and day-to-day budgeting – alignment of company culture
• Budgets as motivators – the importance of the right culture
• Techniques to improve budgeting – whether day-to-day or capital budgeting

 Costing

• The type and detail of costing very much depends on the nature of your business
• Issues with overhead allocation
• Accounting for R&D

Reading financial statements

• Annual financial statements – why they are produced, what’s in them and what you should look for
• Learning what a set of accounts reveals about a company’s current situation, profitability and future prospects

Performance measurement – analytical reviews and ratio analysis

• ROI/ROCE
• Profitability, margins and cost control
• Sales – asset turnover
• Efficiency (asset / stock turnover, debtor / creditor days)
• ‘City’ measures
• Investment (interest / dividend cover, earnings per share, dividend yield)