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Principes de Finance at HEC Montréal

The “Principes de Finance” course at HEC Montréal serves as a foundational introduction to the core concepts and tools of corporate finance. It’s typically a core course for undergraduate business administration students and often serves as a prerequisite for more advanced finance electives.

The curriculum typically covers a range of essential topics, including:

Time Value of Money

A fundamental concept in finance, the course emphasizes understanding how the value of money changes over time. Students learn to calculate present values, future values, annuities, and perpetuities. This involves applying discount rates to future cash flows to determine their worth today. This skillset is crucial for evaluating investment opportunities and making informed financial decisions.

Financial Statement Analysis

Students learn to interpret and analyze key financial statements: the balance sheet, income statement, and statement of cash flows. The course covers ratio analysis, which uses financial ratios to assess a company’s profitability, liquidity, solvency, and efficiency. This analysis helps students identify trends and potential problems within a company’s financial performance.

Valuation Principles

The course introduces basic valuation techniques, focusing primarily on discounted cash flow (DCF) analysis. Students learn to project future cash flows and discount them back to their present value to estimate the intrinsic value of an asset or company. Topics like free cash flow (FCF), weighted average cost of capital (WACC), and terminal value are explored.

Capital Budgeting

This section focuses on the process of evaluating investment projects. Students learn to use various capital budgeting techniques, such as net present value (NPV), internal rate of return (IRR), payback period, and profitability index, to determine whether a project should be accepted or rejected. Risk assessment in capital budgeting is also often covered.

Risk and Return

An introduction to the concepts of risk and return, including diversification and portfolio theory. Students learn how to measure risk using standard deviation and beta, and understand the relationship between risk and expected return. The Capital Asset Pricing Model (CAPM) is often introduced as a tool for estimating the required rate of return for an investment.

Cost of Capital

Understanding a company’s cost of capital is crucial for making investment decisions. The course covers how to calculate the cost of debt, cost of equity, and the weighted average cost of capital (WACC). The WACC is then used as the discount rate in DCF analysis.

The “Principes de Finance” course typically involves a combination of lectures, problem sets, case studies, and group projects. Students are expected to develop strong analytical and problem-solving skills, as well as the ability to apply financial concepts to real-world situations. Successful completion of the course provides a solid foundation for further study in finance and related fields.

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