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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—a company needs to invest in new ideas and innovations that will help to improve the business and the products and services it sells. Part of this challenge lies in coming up with new ideas to support the strategic and tactical needs of the business. But equally important is evaluating these ideas, using consistent criteria that enable the company to compare very different business proposals in order to determine which to invest in and which to reject.

Join expert Rick Adams to learn how businesses use discounted cash flows to assess business proposals from a financial perspective. You’ll explore the basic theory behind this technique as you walk through the process of evaluating a business proposal using standard financial criteria and industry best practices, just as if you were making a real financial assessment. You’ll leave 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 online course, you’ll understand:

  • The need for business investment proposals and the concepts 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 enable objective comparative analysis between all types of proposals
  • The difference between simple cash flows and discounted cash flows
  • Why discounted cash flows provide a useful way to evaluate a business proposal
  • The process used to create a discounted cash flow and calculate potential financial value for a business proposal

And you’ll be able to:

  • 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...

This course is for you because…

  • You’re responsible for creating internal business cases that contain financial justification components that must be assessed before they can be approved.
  • You’re responsible for presenting internal business cases to investment committees.
  • You’re a sales executive who needs to create sales proposals that contain a financial justification component.
  • You’re a sales executive who wants 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’re responsible for evaluating business cases or sales proposals on behalf of your company.

Prerequisites

  • A machine with Microsoft Excel installed (required to complete the in-course exercises)
  • 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

Recommended preparation:

Recommended follow-up:

Read “Entrepreneurship, New Ventures, and Business Ownership” (chapter three in Business Essentials, 12th edition)

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)

  • Group discussion: What does the term “value” mean to you?; Does value change in different situations or over time, and if so how?; What’s “risk,” and how is risk related to value?
  • Lecture: Deciding how much value is required and how much risk is acceptable within a business context
  • Hands-on exercise: Evaluate risk and value

The role of a financial justification within a business case or sales proposal (20 minutes)

  • Group discussion: How do businesses make financial decisions?; Who’s involved in preparing information to assist with financial decision making?; Who’s involved in making financial decisions on behalf of their company?
  • Lecture: The role of the investment or funding committee in financial decision making for business proposals
  • Hands-on exercise: Compare two identical business cases that have different financial justifications

Introduction to discounted cash flow concepts (20 minutes) - Lecture: What a discounted cash flow is; how it’s used to present financial information within a business proposal - Q&A

Break (5 minutes)

Creating a discounted cash flow: Part 1—simple cash flow (30 minutes)

  • Lecture: Creating a simple cash flow
  • Hands-on exercise: Create your own simple cash flow

Creating a discounted cash flow: Part 2—net present values and discount rates (35 minutes)

  • Lecture: Net present values and discount rates
  • Hands-on exercise: Create your own discounted cash flow
  • Q&A

Break (5 minutes)

Creating a discounted cash flow: Part 3—calculating value and risk (30 minutes)

  • Lecture: Calculating value and risk
  • Hands-on exercise: Calculate and show value and risk

Wrap-up and Q&A (15 minutes)