In contemporary corporate and project finance the optimisation of entities’ capital structures is a critical process in financial risk management as well as in maximising investor value. Firms’ target capital structure can potentially comprise funding from a number of sources across equity, sukuk, conventional debt including bonds, and in some instances, mezzanine finance in the form of preferred shares and subordinated debt. The capital optimisation process is complex: in addition to its basis in comprehensive capital budgeting assessment of current and expected future availability of appropriate financing in the required form (and acceptable pricing) is required to sustainably support the pursuit of new business opportunities, as well as maintaining existing capital assets, through the cycle. This comprehensive, applied programme covers the key issues and considerations in capital structuring and – via a number of case studies – examines the specific challenges across different sectors and project finance types as well as the dynamic nature of entities’ funding requirements as they evolve.
At the end of the training program, the participant should be able to:
1 Introduction: the dynamics of contemporary capital structuring
Role and purpose of entities’ liability
What should we expect firms’ capital structures to look like?
2 On-balance sheet financing
Capital requirement analysis
Working Capital
Capital expenditure
Determining the optimal Debt/Equity balance: key considerations
3 Off-balance sheet financing options
Leasing structures
Project finance
4 Case Study: Analysing the capital structures of Retailer businesses
1 Overview: principal sources of corporate
2 Bank credit
Bilateral lending
Loan Syndications
3 Securities markets
Money markets
Debt Capital Markets
Equity Capital Markets
4 Analysis: Comparing international and local capital markets
1 Introduction: the integral role of capital budgeting in corporate finance
2 Categories of capital budgeting projects
Replacement projects
Expansion projects
New product
Mandatory projects
Strategic projects
3 Key principles of capital budgeting
Sunk costs
Conventional and unconventional expected cash flow patterns
Opportunity cost analysis
Reflection of financing costs
4 The capital budgeting process
Idea generation
Project proposal analysis
Enterprise-wide budgeting
Monitoring decisions
5 Common pitfalls in capital budgeting
Failure to integrate economic responses into analyses
Over-standardisation of analysis
Optimistic forecasting
Decision-making based on increasing RoE/EPS rather than NPV discipline
6 Case Study: Capital budgeting for Agribusinesses
1 Individual project quantitative analysis
Net Present Value (NPV) and Internal Rate of Return (IRR)
Payback periods
Profitability Indexation
2 Qualitative evaluation
Strategic import, including medium- to longer-term risks of NOT undertaking project
Independent versus mutually exclusive projects
Project sequencing
3 Project selection
Expected profitability vis-à-vis available funding
Capital rationing
4 Analysis: Selecting among several potential projects and initiatives with a finite capital budget
1 Introduction: the Modigliani
Capital Structure and the cost of equity funding
Capital Structure and firm valuation
2 Key theoretical constructs
Static trade-off theory
Pecking order theory
Modelling risks of financial distress
Agency problems and capital structure “signalling”
3 Target credit rating
4 Dividend
5 Group structures, including inter-group guarantees
1 Overview: the pivotal role of capital costs and differentials
2 Debt capital costs and underlying drivers
Bank lending
Debt Capital Markets
Money markets and liquidity pricing
Longer term bond yield curve dynamics
3 Equity funding
Overview: key challenges in determining the cost of equity capital
Equity capital cost models
Beta factor sensitivity
Dividend Discount Model
Bond yield plus equity risk premium
Sources of Equity funding
Founder shareholder capital
Internally generated equity: the cost of retained earnings
Rights issuance
Public equity market flotation
1 Setting horizon target capital weights
2 Adjusting debt capital costs for the marginal rate of taxation
3 Modelling changing costs of debt and equity capital for different capital structure
4 Quantitative Analysis: Capital Structure optimisation given different assumptions
1 Overview: the principal forms of leverage and their impact on expected risk and return
2 Operating Leverage and EBIT sensitivity analysis
3 Financial Leverage and Earnings sensitivity analysis
4 Modelling the impact of leverage on entity Return on Equity
5 Case Study: The Food Processing sector and Nestlé’s operating and financial leverage strategy
1 Introduction: Working Capital definitions
2 Principal components of Working Capital
3 Working Capital requirements across sectors
4 Analysing Working Capital requirements
Cash Conversion Cycle
Other liquidity requirements
5 Sources of Working Capital
Bank lines: Uncommitted, Committed and Revolving Credit Facilities (RCF)
Money Markets: Commercial Paper (CP), Bankers’ Acceptances (BA)
6 Pricing and risk dynamics of Working Capital
Costs of Funding
Overall market liquidity conditions
7 Case Studies: Capital structuring of Importers and Wholesaling businesses
1 Principal types of Real Options and valuation impact
Timing
Abandonment
Expansion
Flexibility
Fundamental
2 Modelling Real Option Values
NPV approaches
Decision Trees
Option pricing models
3 Case Studies Capital structuring for Conventional Energy and Natural Resources sectors
1 Overview: the nature of Project Finance vis-à-vis Corporate Finance
2 Residual Value modelling for Project Finance valuation
3 Capital Structure optimisation in the Construction
4 Refinancing planning after the Construction Phase
5 Case Studies Capital structuring for Renewable Energy projects
1 Key inputs from the capital budgeting process
2 Analysis of expected horizon financing costs
3 Setting target capital structures in the short-, medium-
4 Maximising long term shareholder value
5 Case Study Microsoft’s capital structure strategy
Not Available
Names of the training programs that are integrated (enriched) with the training program:
Names of the training programs that after the training program:
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