University of Management and Technology

Course Outline
Course code: FN-733_______ Course title: Advanced Financial Modeling

Program MS- Finance

Credit Hours 3 CH
Duration 15 sessions of 3 hours each
Prerequisites Introductory level finance courses
Resource Person Zainab Mehmood
[email protected]
Counseling Timing Tue: 10am – 10am and 12:30pm – 2pm; Wed: By appointment; Thu: 12pm
– 2pm; Fri: 10am – 10am and 12:30pm – 2pm; Sat: 1pm – 3pm

Course Outline Page 1

Learning Objective:
In today’s information age, managers increasingly rely on quantitative models and big data to make
financial decisions that have a profound impact on the performance of their organizations. Often
business analysts produce the quantitative models that top management use to support their
decision making, but top management must also understand the strengths and weaknesses of the
models if they are to use them effectively to support their decisions. The objective of this course is
to equip you with the frameworks, tools, and methodologies necessary to build and/or be an
educated user of quantitative models for financial decision making. The course is suitable for
students seeking career in finance, but also for students with broader interests who wish to
strengthen their general modeling skills, and it does not require any quantitative background other
than what is covered in the core courses. The modeling tools will be illustrated by applying them to
a variety of real-world cases.

Business decisions and most routine financial roles are increasingly made based on a financial
model built in Excel. In today's ever-changing business environment being able to accurately model
and forecast the volatile economic inputs is a critical skill for business professionals, the capability
to write simple spreadsheets is just not enough. You have to be able to incorporate all the "what if"
scenarios and stress any proposal to its limits. Financial Modeling with Excel is such a workshop
where knowledge of Finance meets with Technology for better understanding of the Financial
World.

It’s a skill set focusing course, bridging the gap between a research focus master program
and the needs of the market by practically implementing the financial theory.

By the end of the course, students should be able to

1. Discuss uses and applications for financial models, including uses as decision making tools.
2. Understand uses for financial analysis and sensitivity analysis.
3. Have develop a deeper understanding of Excel and STATA, its functions, tools and add-ons
4. Gained guidelines on how to format, set-up, label and structure financial models
5. Developed a deeper understanding of selected financial techniques, and the skills required
to construct practical models to estimate appropriate out-comes

Learning Methodology:
A famous Chinese proverb reads “I hear, I forget. I see, I remember. I do, Learn”. The structure of the
course “Financial Modeling” tries to capture the wisdom of this proverb. A typical session consists
of three steps. First, the instructor lectures about academic concepts from the fields of Management
Science and Finance (I hear). Second, the instructor applies these concepts to a particular business
situation (I see). Third, the students themselves apply the concepts to a real-world business case
with the help of the instructor (I do).

Given the sheer number of models that need to be constructed on an individual basis, this course
will be run more as a seminar and independent study rather than a pure “lecture/discussion”
course. The textbooks do a great job on presenting how to construct each model. The lectures will
be staged throughout the semester to either expand on your readings or provide insight into
various Excel and R topics that are not covered in the textbooks. Students will be assigned a
number of models to construct from the textbooks on an individualized basis. You will also be
required to work on an individual project. The class will wrap up with each team presenting a demo

Course Outline Page 2

of their model along with commentary regarding the business case and the technical approach
taken in the design of the model.

A series of academic papers (published in impact factor journals) will be provided to you.
You will need to go over them as we progress through the course and present the model,
data and results of any two papers in class.

Required Software
1. Microsoft Excel
2. R/R-studio

Grade Evaluation Criteria

Following is the criteria for the distribution of marks to evaluate final grade in a semester.

Course Breakup
In class Activity and Assignments 10%
Paper Replication/summary and Critical review 30%
Mid-Term Exam 20%
Term Paper 40%
 Total 100%

Recommended Text Books:

A comprehensive Course Pack with selection of readings from reputed texts on the subject will be
provided. Financial statements of companies from different sectors will be consulted.

Reference Books:
The materials in the course pack and portal should be sufficient to take the course and hence there
is no required textbook for the course. Several textbooks, however, can be used to complement the
materials in the course pack and in the Portal:
1. “Spreadsheet Modeling and Applications”, by Albright and Winston, Thomson/Duxbury Press
2005.
2. “Principles of Corporate Finance”, by Brealey, Myers, and Allen, 10th ed., 2010.
3. “Options, Futures and Other Derivatives”, by John C. Hull, Sixth Edition, Prentice Hall 2006.
4. “VBA for modelers”, by Christian Albright, Second Edition, Palisade 2006.
5. Excel Modeling in Corporate Finance 2nd Ed., Craig W. Holden, Prentice-Hall 2004 Microsoft
Office Excel 2010: A Lesson Approach, Complete, Kathleen Stewart, McGraw-Hill 2010
6. John Walkenbach's Favorite Excel 2010 Tips & Tricks
7. Excel 2010 Formulas, John Walkenbach
8. Excel 2010 Bible, John Walkenbach
9. Excel 2007 Charts, John Walkenbach
10. Principles of Finance with Excel, Simon Benninga
11. John Simon Benninga, Financial Modelling, 3rd edition, the MIT Press.

One of the best sites and authors of Excel books can be found at http://www.spreadsheetpage.com

Course Outline Page 3

 Calendar of Course contents to be covered during semester

Sessio
n Topic
Introduction
1
Excel Basic Features and Functions
Calculation and operation of Arrays and Matrices
2
Data Table Analysis
3 Time Value of Money and Basic Valuation of Bonds and Stock
Enterprise valuation
4 Accounting Method
Efficient Markets
Discounted Cash Flow method
Forecasting Free Cash Flows based on Consolidated Statement of Cash
5
flows (CSCF)
Forecasting Free Cash Flows based on Pro Forma Financial Statements
Calculation of WACC
6
Two Approaches in Calculation of Firm's Cost of Equity
Implementation of Gordon Growth Model
7
Computation of Beta
8 Three different cases: Calculation of WACC
  Mid-Term
Regression and CAPM and FF3
9 Multivariate Regression
Arbitrage Pricing Theory
Introduction to Financial Engineering-Stock and Bond Valuation, using the
10
discounting approach
Valuation through Comparables
11
EVA and other value added approaches
Altman Z Score
12
Logistic Model
Portfolio
13 Efficient Frontier
Optimal Portfolio
Volatility Modeling
14 ARCH
GARCH
Value at Risk Calculations, Historical, Monte Carlo Simulation, and GARCH
forecasting
15
Monte Carlo Simulation
GARCH forecasting

Course Outline Page 4