Financial Modeling: Where can web startups learn about financial modeling that accounts for the important metrics and costs?

Matthew Carroll, Building fashion & footwear brands is...

252 votes by Sae Min Ahn(안세민), Clement Vouillon, Ian McAllister, (more)

[Alright so here is the deal, below is a fairly detailed & illustrated walkthrough of a financial model for a web-only product startup.  There is a ton of info here with screenshots & annotations - but if you want to play with the model yourself, message me with your email and I will forward it over it you.  Here’s the only thing I ask → you have to email me back with ideas on how to make it better, comments on things you don't like, clarifications for illustrating data better, etc - that's it.

The point is to throw this out to the world & rap with cool people working on interesting things]

To get the dialogue flowing, I created a Google Moderator for this because the comments section of Quora just doesn't work.  Check it out at:  https://spreadsheets.google.com/...

Introduction
This financial model was built to illustrate modeling methodology & logic flows as it relates to a web-only hard goods startup.  The format is geared to transition into an operational guide for you to update with data as it becomes available & provide insight into the financial performance of your new firm.  A word of caution for non-finance people (& hyper-detailed focused developers specifically) - you can get absorbed (sometimes on the verge of obcessive) into getting every number perfect and conducting a lot of data analysis.  My advice - the inputs should be fairly conservative and general to reduce the friction of others (READ Investors).  Additionally, a model can become hyper-addictive because you can put ALL the pieces together and clearly understand & see the impacts/results of changes/assumptions over time.  You can spend hours breaking out the minutia, which is great for understanding your company (super important), but make sure that there is clear benefit for new insight into the firm by virtue of making these investments

*** At the bottom of the answer, you can find images of each sheet in total  OR here is a link to the Google Spreadsheet https://spreadsheets.google.com/...

Important Background Assumptions for this model:

1. The startup has completed product development at a factory in China
2. The first month of the model is the first selling month - meaning that the purchase order (PO) was placed with the Chinese factory 90 days prior to the start of this model
3. There are three product categories (Large Luggage, Packs & Bags, and Accessories).  Generally these will have broadly similar costs & selling patterns & hence why they will be categorized together

The model takes you through a full build, but these resources will build out your knowledge base for customizing this model to your startup.  And with that - Let's do this thing!

Sales Build
The Sales Build tab is a standard tab in nearly every single financial model that you will come across.  It is the canvas where you begin to paint the picture as to what you want revenue to look like.

Steps for the Traffic Build

Traffic Build
Sales for any website (or company for that matter) originates from the # of visitors that you have coming to your site.  In order to calculate the Sales per Visitors (e.g. your conversion rate), you need to start with the # of total people (unique visitors) that came to your website and divide that by the # of orders that we completed on your site over a specific

Organic Traffic:
1.  Organic Growth Rate:  This is % change from one month to the next that you are forecasting to grow based upon your company organically growing from people randomly searching for something related to your product on Google (this is why SEO is important), users talking about your company with their friends, or stumbling across previous marketing campaigns.  This is a variable figure that you can toggle in this model based on what you see fit.

2.  Unique Visitors / Mo:  You need to start somewhere and this row calculates the compounded impacts of the previous month’s unique visitors * (1 + Organic Growth Rate).  In the example template, the baseline figure is 2,000 unique visitors (a figure that I pulled from one of my old companies VÆL Project - a men’s footwear line).  Therefore in Mo-2, we had 2,000 unique visitors from last month and we grew 5% organically - so 2,000 * (1 + 5%) = 2,100 forecasted unique visitors.

Marketing & Promotion:  
Businesses need to market their products in order to let potential customers know that they exist and how their product/service solves a problem or a want.  Therefore, when a marketing piece is published (i.e. a Thrillist email about your cool product or TechCrunch posts a review of your service) people who see this piece of marketing will come to your site.

As you run your company, you will see that there are 3 generic profiles that construct the traffic being driven to your site.  Don’t waste your time in getting super analytical about this metric - after 10 marketing pieces are posted about your site take a look at when the marketing piece was posted & annotate your Google Analytics with the event.  You will notice a general trend in # of visitors to your site.  For the purposes of this financial model, I averaged three traffic categories (Premium, Moderate, Niche) from 4 fashion brands for whom I had access to their Google Analytics data.

Qualifying the three categories:
Premium:  These are the marketing pieces that have the highest viewership bases of the source breakdown.  They are compromised of highly engaged readers who admire / respect the content creator.  

Moderate:  This source is a 2nd tier distribution vehicle or ad hoc company references (i.e. when a blogger writes an article and references/links to your company in the main article - but the reference is not the focus of the piece).

Niche:  This is a 3rd tier source that will drive a little traffic - maybe a design blog.

Conversion Rates

A conversion is a customer that “purchases” from the site or, in other words, “converts” from a visitor into a customer.  We want to break out the conversions by source because each source has unique behavior and converts at different rates.

One of the most important things to know about building a financial model - is that you don't want to look like an ass - so saying that you have a 15% conversion rate is cause for someone to completely discredit your model.  I ran into this problem when I was at a Bulge iBank training for new bankers - basically serving as the entrepreneur for the youngsters to argue against.  In the Saturday session, I used Salesforce as a comp & fucked up the EV calculation because of the shares outstanding calc from that super complex convertible note that they brilliantly issued in Jan '10.  Basically, the rest of the session the banker (smartly and to my dismay/irritation) a comment about the mistake to drastically reduce any clout in the argument that I was making.

So the most important thing is to present yourself and your calculations as reasonable, logical, and prudent.  To do that, you are going to need some comparable statistics to demonstrate that you know what you are talking about & that your build is sound.

Sales Mix & Pricing
Sales Mix is the weighting average order value for your company's sales.  A simple average is misleading because smaller $ value items will compromise a higher proportion of sales #s than the larger ticket items (most likely).

Just like in the conversion rates, I wanted to give you folks some comparable figures to provide a basis for when you estimates are just crazy.

Company, Avg Order Value:
LL Bean,                     $139
Gap,                            $110
Saks Fifth Avenue,      $400
Neiman Marcus,         $410
Urban Outfitters,        $130
Gilt Groupe,               $360
Abercrombie & Fitch, $125
American Eagle,         $145
Blue Nile,                   $1,669
Net-A-Porter,             $190
Eastern Mountain Sports, $100
ModCloth (Adil Wali)   $95
Karmaloop,                 $100

Sorry for the formatting - Quora doesn't allow you to tab.

Shipping Analysis

Purchases by Segment

Revenue Build

Long Term Value per Customer

Some of you have noted in messages that there is this huge portion of the Sales Build that I omitted from explaining in the Long Term Value per Customer.      It is a contentious issue that is very difficult to quantify, but I will explain it in more detail here.

Logic
 - Building brands is an intensely emotional process of connecting with your customers and creating an ongoing dialogue that makes your customers feel like you are really friends IRL.

 - Customers want to feel like they are close to small brands almost to the point where they can say "Oh this shirt?  It's my buddy's brand.."  For small brands, the first customers are going to  be ideologically similar to the founders and the branding/external communication will support this.  In fact, some people who I would qualify as good friends began as customers of one of my old brands, VÆL Project.

 - As such, there are a certain portion of customers that will love the product so much that they will look to purchase additional products from you to fill out their collections / purchase complementary goods (Dopp Kit with Overnight or Category C when the original purchase was Category A).

Long Term Revenue is reflective of two main segments - Secondary / Complimentary purchases & Replacement Purchases.

Secondary Purchases are purchases based on super satisfied customers & those strongly connected to the brand.  Most likely they are purchasing down-stream so if they purchased the big bag (Cat. A) then they would purchase a Dopp Kit for the overnight bag.  Most likely, this purchase will take place after the initial purchase because they will have the opportunity to feel & use the product & have a time to experience it (like a trip).

So to calculate the Secondary Purchases, we need:
Repurchase Rate: The % of customers in each cohort that will purchase another item.  I set this rate at 10% because that is a good baseline forecast.  For apparel companies this is way different, but for a leather goods company like the one I built in the model - it's kinda all that we have.

Secondary Purchase Value:  This is a modifier from the AVG Order Value that will be used to calculate LTV rev.  Above I mentioned that customers will most likely be purchasing complimentary goods, so category C is a safe bet as to what they will be buying next.  OR if they are a Category B who purchased the backpack, they most likely will purchase the messenger for different occasions.  Either way a forecasted secondary purchase value of $220 (or 75% of Avg order value for the monthly of the cohort) is pretty safe to assume

Secondary Purchase Timeframe:  The timeline when the vast majority of purchases will be taking place.  This is an arbitrary # based on experience, but I think that 6-months is going to cover the vast majority of the cases.  Since we can't really forecast a distribution - we should assume that the secondary purchases are evenly distributed throughout this 6-month window.  For example.

Now we know that the timeframe is 6-months.  In this simple example, the incremental monthly from Cohort 1 is $220/mo for periods (mo-2 through Mo - 7)

Now that we have the 2ndary purchases calculated, there is going to be a lifetime customer.  The is essentially the same calculation as a secondary purchase just the logic is different.  
Replacement Timeframe: The date at which the product will most likely want to be replaced.  I arbitrarily set this as 18-months so that it fits on my 24-month forecast. But this is the time when you start to see people returning to the site to pick up the same good or more.

Replacement %:  This is the # of customers that were stoked on the product that want to get another.  This # is going to be different than the secondary purchase rate so it has it's own toggle.

[NOTE:  There was an incredible infographic out of KISSmetrics (Hiten Shah - Damn you guys are good - always inspiring me to contribute more to Quora - Wish I could keep up with the incredible contributions you guys make) - I didn't want to lose it, so here is the link: http://www.fastcodesign.com/1664...

Sales Build Overview
This is how it all fit together

Email Build
One of the most important things to do as a young startup is to communicate & engage with your consumer.  At least today, the primary & most valuable way of doing this is through email.  The goal is to build a direct & engaging dialogue between you and your fans in a private format with the visual and content freedom (READ branding) that most effectively communicates your story & builds the relationship.  This section is where you work to systemically build out how this list will generate revenue for your startup.

Newsletter Reach  is the total # of people that are subscribed to your email list.  If you previously worked at a brand, have a personal blog/email list, or had a bad ass pre-launch strategy that got a ton of emails (a la hipster.com) - 4,500 is a decent # to start.  As we go down this build there will be additions & subtractions to this # reflected in the changes shown for the following month.

Campaigns are the # of emails that you are sending to each member of the newsletter.  This number grows fairly slowly (1 → 1.3 → 1.5) due to the fact that you are going to invest more time, cash, and energy on capitalizing on this opportunity as it becomes a more substantive revenue source.  In addition, over the course of two years you will learn what your subscribers want to read and customize the content & message to deliver on their expectations

Segments are the qualitative differentiating factors that compromise your subscriber list.  All customers fall into broad customer segments that you will learn more and more about as you gain experiential knowledge from working with them.  For purposes of this model, I arbitrarily put the numbers to 1, 2, 3, 4.  You can get as complex as you want, but keep in mind that this takes a lot of time building custom content in a way that delivers positive ROI for the time invested - don’t go nuts here.

Click Through Rate (Engagement)
Click Throughs are newsletter recipients that opened the email & clicked on something within the link (performed an action), thereby placing them within the medium to purchase something from your site.   If you create more engaging emails & more clear about what actions you want the recipient to take, then you will have more people clicking & coming to your site.  To get better at something relies on experience, knowledge, and trial & error - hence why in the 6th month, the model adds a second customer segment (meaning you have learned what you did well & poorly over the last 5 months and are positioned to capitalize on those mistakes in month 6)

1.  Optimization Gains from Segmentation

     CTR Optimization Gains (2.5%)
X   # of Monthly Segments (Segments = Optimizing Emails)
     Total Optimization Gain (2.5% * 2 Segments = 5.00%)

2.  Total Click Through Rate

     Base Rate (15.00%)
+  Optimization Gains (5.00% = 2.5% * 2 Segments)
     Monthly CTR Rate ( Mo-6 = 20.00% = Base Rate 15.00% + 5.00% Optimization Gains

Forward Rate
This is an area that I was hesitate to initially build into the model, but it was something that I saw very often in myself and a behavior that is systemically different from the open & engagement rates of other asks of the forecast.  The logic is that the email marketing will excite to a certain % of your subscribers that they will want to forward the message onto to their friends - something maybe more applicable to someone else or simply to show off something cool.  Think of it like sharing on Facebook & tagging a friend in the post.

Forward Rate:  The % of readers that will forward the campaign to someone else (they could be a subscriber but most likely not).  Based on the campaigns that I have run & the campaigns of companies that I work with, I set this # at 4.5% - this # could trend up over time, but for illustrative purposes let’s keep this constant since it’s a more difficult variable to conceptually quantify.

Forward Rate is based on “Open Rate” because conceptually the original recipicient may see it and think “Wow, this is perfect for John” and subsequently forward the email to John.  It doesn’t necessarily rely on that recipient engaging with the email or clicking through him/herself - only that they saw it.

Forward Click Through Rate ( FWD CTR):  The % of users that will click on the email and go to your site.  In the model, the CTR rate is 75% - this may appear high, but odds are that this person is close friends with the recipient as implicitly the sender has some understanding of the forwarded person’s personality that this email will appeal to them.  Hence why they will open it.

Email Traffic to Site (Calculated Summary)This is a calculation summary section to provide explicit #s of visitors going to your site.

Net Additions to Email List (Newsletter Reach Growth)The goal is obviously to build your email marketing channel and more effectively generate revenue from your customers → serve as a controlled demand source for your business.

Site Signups:  When a visitor comes to your site and enters her email into the “Newsletter Signup” box & successfully signs up for your list.

Signup Optimization Rate:  A toggle metric that reflects that you will get better at signing up visitors to your site as you gain more experience & deeper understanding of what they are doing & how you can effectively capture their email.

Signup Rate:  The conversion rate of visitors to your site that signup for the newsletter.  This number can be found in your KissMetrics or setup as a Goal in Google Analytics.

Purchase Signups:  
Think about when you enter your billing information on a standard shopping cart, there is generally a check box selected by default to sign up for the site’s newsletter list.  Since this enabled by default, there is a strong possibility (i.e. 75% of the time, which is what I have in the model & my average experience of successful cart goal completions in my analytics for Purchase Conversions + Email Signup) →  This becomes important for Long Term Value per customer.

Unsubscribes:  As easily as users signup to follow your company - they can likewise unsubscribe.  One guiding principle to govern your strategic decisions about your email marketing initiatives - every email is a touch point with your consumer that you give them the power to say “do I really like this?  Do these guys “get” me?  Do I really care about receiving these emails?”  This is why I add the segmentation & the campaigns to the main section to reflect that you will learn how to better target your customer.  However, prudence is your friend - often times it is better to not say anything at all, if you aren’t sure that you will say the right thing to grab the email subscribers attention & bring them closer to the brand.

Saturation Rate:  As you send more emails, you are increasing the natural churn rate in email subscribers.  This # increases based on the fact that a certain % of users will simply just “get tired” of getting your emails.  This is okay - don’t be upset, it’s normal.  But it’s your job to learn from this to understand why and how to better tailor your emails to reduce this risk

Unsubscribe Rate:   The % of the your email list that unsubscribe on a monthly basis. The number that I used here .25% begins low because you are a small brand (read: cool, new, you are cool because you are new).  So you have a low # in the beginning - this sample variable is the average from 4 companies in fashion that I have run or been a part of for the last 5 years.

Social Build
This is fairly rudimentary approach to calculating the impact of social virality as a traffic source.  The foundation is approach this:
1.  An article is written about your company ( # of articles from the Marketing & Promotions section from the Sales Build Sheet)

2.  The assumption is that of those who click through (i.e. Premium: 1,500) to your site a certain % will share it on Facebook or Twitter (illustrated below by Rebroadcast rate by Source)

3.  Do a Twitter search / SocialMention.com / Klout search for a good idea for the distribution of average # of followers.

4.  Take the sumproduct to establish the total potential # of people that could become aware of your company by virtue of their followers

5.  There is a fairly low engagement rate these days from social sources.  Hence the 0.5% traffic inbound to your site.

Rebroadcast Build
A rebroadcast is essentially a "Tweet" based on the original content marketing piece that references your company.  Considering the tech-focused community on Quora, I will use a TechCrunch example:
1.  TechCrunch posts an article about your company.
2.  000,000s of people see this article and think it's cool, so they Tweet a link to the article - this is what I refer to as the "Rebroadcast Rate", meaning that readers of the article promote the content piece to their followers.
3.  Followers of the "Rebroadcaster" (readers of the TechCrunch article who tweeted/shared on Facebook) - then come to the site.
4.  In order to get a proxy for how many users could, we have to calculate the average # of followers by source.  Obviously, the premium source (TechCrunch) has techie users who are more inclined to have lots of followers.  

[Note:  Don't get bogged down in a super detailed data analysis of average twitter followers by source - just look at like 20 or 30 profiles (this will take all of 5 mins I know) and get a general picture - then use that #.  This number changes over time & as the more followers build on Twitter or Facebook, hence why this Figure reoccurs monthly]

5.  We calculate Rebroadcast rate by the following:  TC Reader Tweets, then one of the followers of the Rebroadcaster clicks on the shared link & goes to TechCrunch.  In turn a certain % (in this cast we forecast it at 0.50%) will click through from the TC article to your site.

I know this is a little confusing but it's important to begin to format the framework for understanding how traffic & subsequently sales will grow as references diffuse through the social-sphere.

Sphere of Influence Build
In the same way that we built the newsletter reach, we are going to quantify the net gains of Facebook/Twitter followers of your site.

We start at the Organic Follow-Rate - or users who just came to your site & started following you.  This rate is generally very low because although their are 100m Twitter users only a small % of those users are "active" - hence social is not within their workflows.

We can see that a connecting with brands & companies via social is "catching on"  so let's take a look at some research that was just research about demographics of users that are following brands.

Paid

Production & Expense Build
The Production & Expense Build is where the we breakdown the demand estimates (from the Sales Build) into their cost pieces and forecast how these expenses will connect with pricing & margins.  The main aspect of this model is that all goods are purchased FOB Hong Kong. This means that the factory assumes all aspects of the production process (sourcing materials, labor, cartonizing, containerizing, and transport to Hong Kong as the port of export).

Shipping & Landing Expense

==========================================================
DOES IT CHECK
=========================================================

Let's take Bonobos (company) for a comparison.  Some background stats;
Rev:
'08:  $1.8m (http://www.businessweek.com/smal...)
 - 8 EEs

'09: $4.9m (Ibid)
    - 20,000 Customers for Bonobos (company)

'10: Est. $15m
     - Sept '10: $830k/mo
     - Nov  '10: $1.3m

So how does this model compare?

Well by end year 2, we are forecasting:
   - 7.782 paying customers
   - 12,967 email subscribers
   -  4,428  Social Influence
   -  9 Forecasted EEs for FY2

So a focused product selection after two years looks moderately comparable to Bonobos (company)

Not half bad, when you think about it? eh Andrew Weber, Andy Dunn, D. Craig Elbert - Please feel free to add any insight for the comps to Bonobos

In addition to the Sales Build Comps, I figured that I should wrap this piece of with some additional supporting info to support the validation of this framework for all of you startuppers!!!

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Additional Background Piece

Data Sources
After building models for several of my companies, refining them over the years, and working with dozens of product startups to help them understand their financial picture, the following model’s inputs are filled with general variable toggles.  They may not necessarily be perfect for your startup, but they should give you a good starting point.  This is a short list of where you can find the data to tailor the model to your company:

1. Google Analytics - Visitor Data, Traffic Source (Performable will make your life much easier, but more on that later.  You will need to export the data & break out product traffic by how you segment your categories (best done in Excel)
2. MailChimp - Email Newsletter campaign performance
3. Magento - Shopping Cart & Sales by Category

Additional Resources:
The reason that I wrote this is that there isn't very much written / explained about the full build from Mo-1.  

1.  Read Featured Essays by the metrics god himself, Andrew Chen - http://andrewchenblog.com/list-o...

Pay Attention to: http://andrewchenblog.com/2009/0...

2.  Mark Suster had a great TWIVC talking about Cap Tables & models - I can't find the link now.  But it's somewhere around TWIVC #15 -

3.  Mark MacLeod's startupCFO's archives has loads of resources & Fred Wilson's MBA Mondays give you a lot of the background details.

All Screenshots

9+ Comments • Repost (6) • 19:14 on Mon Jun 13 2011

http://www.quora.com/Financial-Modeling/Where-can-web-startups-learn-about-financial-modeling-that-accounts-for-the-important-metrics-and-costs

Bachelor of Business (Economics and Finance)

Semester 1

Business Computing

This course develops your skills to build solutions that meet the requirements of business to effectively integrate Information and Communication Technologies into their operations. You will acquire the ability to build models using database, web and spreadsheet technologies and communicate with management using business reports and presentations.

The learning capabilities are set below:

·         Use information technology terms and concepts appropriately

·         Gather and analyse client requirements

·         Model business problems and design integrated solutions

·         Present your findings appropriately as written documents and visual presentations

·         Create business solutions that support professional practice and in particular ethical behaviour.

·         Employ a variety of information technology (IT) and information systems (IS) tools and use these tools to communicate results when making decisions and solving problems

·         Analyse different types of problems, the contexts in which they exist and develop and apply solutions based on approaches you have learnt in your studies

·         Use data and information to support decision-making.

·         Build the case study models to create solutions to business problems.

·         The creation of management information systems that enable efficient and productive planning and decision-making.

·         Communicate the solution to business management.

Introductory Accounting

Introductory Accounting introduces students to the role of accounting information in business and is taught with the assumption that participants have not previously studied accounting concepts and techniques.

Successful completion of Introductory Accounting means that students should be able to:

• Identify and understand the most significant accounting factors that influence the success or failure of a business. 
• In addition, the course provides an opportunity for students to develop generic capabilities. These include the ability to:
• Analyse, reason logically and conceptualise issues
• Identify, understand and interpret basic concepts.

Introduction to Organisational behaviour

The study of organisational behaviour enables managers to understand, predict and influence the behaviour of individuals and groups in organisations. This course will introduce theories and models relating to organisational behaviour and encourage students to apply and reflect upon the theories and models. The course will provide the opportunity for experiential learning in practical situations, and analysis of and reflection on that learning.

Marketing Principles

Marketing Principles is an introductory marketing course aimed at students commencing the Bachelor of Business (Marketing) or students from other courses who have not previously studied marketing. It is a core course for the Bachelor of Business (Marketing). It may also be undertaken as a single elective by students outside the Marketing Degree or as the first of several marketing electives taken as a minor stream. Marketing Principles is a prerequisite for all other marketing courses.

Marketing Principles provides an overview of the marketing process, and how it works within the Australian business context. The aim is to introduce students to the important concepts underpinning the marketing process and the practical tools used by marketers to implement marketing strategies and campaigns.

The course is based on both the theory and practice of marketing. Throughout lectures, tutorials and assessment tasks you will be encouraged to apply the theoretical learning to real world practices.

The course will introduce you to the importance of the marketing philosophy to future business viability and how each person in an organisation can make a contribution to the marketing process.

For marketing students, Marketing Principles offers a preview of many of the important marketing courses you will be studying throughout your course and will provide you with the basic concepts and tools with which to explore the more specialised marketing courses that follow. It leads into Advanced Marketing

Concepts and Applications, where specific topics and skills are developed further.

For all other students Marketing Principles offers insights into the field of marketing, putting into context the role of marketing in an organisation, and how you may interface with marketing in your role.

Semester 2

Business Statistics

This course introduces you to a range of statistical techniques which managers use. You will apply these techniques to relatively simple practical examples. To do this you need a calculator with a memory and an exponential function key. For larger applications you will learn how to use Microsoft Excel to perform any of the calculations associated with these statistical techniques. The focus in this subject however is on how to analyze and interpret your own results or the output from Excel. You will learn how to apply these techniques by working with examples which are relevant to most major business disciplines and the functional areas of large organizations. These include examples from Accounting (particularly Auditing), Economics, Finance, Financial Planning, Human Resource Management, Information Technology, Logistics and Transport and Marketing.

Prices and Markets

Prices and Markets is a study of microeconomic theory and its applications. The course focuses on how individual consumers and firms behave, the functioning of the markets within which they operate, and in particular how prices are determined. The purpose of the course is to enable students to acquire the basic analytical tools needed to understand the working of the micro economy.

Macroeconomics 1

This course aims to introduce you to the workings of the domestic economy and its effects on the business environment; to provide you with analytical skills which will assist you in identifying the current state of the economy and likely future developments in the economy; to enable you to examine critically the effects of actual and projected macroeconomic policies; and to foster in you the ability to express clearly your understanding of macroeconomic events both domestically, and in the broader Asia-Pacific region. The course also aims to help you to understand how current economic developments impact on organisations and on you as a participant in the economy.

Financial Markets

Financial Markets is a first year course that introduces you to the financial markets environment in which business organisations operate.  You will investigate the nature and role of the main financial markets within the domestic and global environment.  The course presents an overview of the financial system and its various financial markets, instruments and institutions.  Students enrolled in the subject will be required, as part of their assessments to write a treasury team report, using current market news and come up with their own strategies in different financial markets

Semester 3

Commercial Law

This course provides an introduction to commercial law fundamentals, relevant to business and the accounting professions. The course provides students with the knowledge and skills necessary to pursue further and more specific studies in the law discipline.

Commercial Law is a compulsory core unit in the Bachelor of Business (Accountancy) degree and is required for membership of CPA Australia

Quantitative Analysis

The focus of this course is the application of mathematical techniques to problems in the areas of accounting, economics and finance. In this course you will learn the underlying maths of many of the formulas used in finance, accounting and economics. There is an emphasis on the use of Microsoft Excel to solve the problems encountered.

Macroeconomics 2

The aim of this course is to extend students’ understanding of the workings of the macro economy and its effect on the business environment. The analytical tools necessary for such understanding will be developed throughout the semester.

Business Finance

The theory of finance stems from the broad area of applied economics. Over the past thirty or so years extensive research and theoretical developments have resulted in the emergence of this discipline as a science in its own right. Today, the theory of finance is a field that equips the individual with techniques and skills that ensure the objective analysis and evaluation of alternatives, resulting in effective financial decision-making. These techniques and skills are applicable in a number of sectors of our economy, namely financial markets (including financial products such as derivative instruments), financial institutions and the financial management of companies.

The theory of finance plays a significant role in the area of business, or corporate, finance. The effective financial management of firms, large or small, private or publicly listed, is paramount for the well-being of any economy. However, not only does its importance lie in its benefit to the economy as a whole, but it is vital that financial managers are capable of developing sound financial policies for the benefit of the firm itself and its owners, the shareholders. Financial managers must have a sound framework that will provide the analytical tools to competently evaluate alternatives and make objective decisions both in the short term and in the long term. Investment options and financing choices must be analysed and assessed using techniques that have a solid theoretical base.

Business Finance provides an introduction to some of the key skills required for good financial management. It introduces financial concepts and issues that will provide the necessary guidelines to solve many corporate finance problems. It also introduces some of the more important theories in modern finance to provide a substantial grounding in the discipline.

Semester 4

Price Theory

This course is designed to benefit students who wish to gain a broader and deeper understanding of economic concepts and principles and their applications to actual decision making situations in the real world. You will be taught how to use key economic variables as a problem solving tool for firms and use simple economic models to produce reasonably good predictions of firms’ market behaviour. A major focus of this course will be on understanding the factors which influence the strategic behaviour of firms and consumers in their respective profit (or other) and utility maximising roles in the product and factor markets and the assessment of the impact of such behaviour on industry structure and performance. Pricing and output decisions as well as alternative non-price behaviour to achieve desired economic outcomes in markets with varying degrees of firm concentration will be analysed to provide a basis for understanding and evaluating real world market strategies of firms. Topics to be covered include: consumer demand theory, pricing and output decisions in competitive markets, market power and strategic behaviour, market failure, pricing of factor inputs in factor markets of varying degrees of competition and decision making in situations of uncertainty and in markets with asymmetric information.

Introduction to Futures and Options.

This course is intended to familiarise you with the concepts of derivative securities, their nature, how they are priced, and how they are used.
Derivative securities are so called because they are derived from an underlying asset. The most familiar derivative securities are futures and options (call and put). In recent years there has been an explosion of applications of derivative securities in portfolios. The concepts of derivatives is becoming more important to understand these applications,
There are several advantages of using derivative securities, for instance transaction costs in derivative markets are usually less that those prevailing in cash markets. The volume of trading in derivatives often exceeds the volume of trading in the underlying asset. Derivatives are used for hedging, speculation, and managing risk profiles. It is now difficult to imagine how modern financial and commodities markets could function without the availability of efficient, liquid, derivatives markets.

Risk Management

This course aims to expand on the concepts that you have been introduced to in Financial Markets. It introduces you to the concepts of financial risk management and how to identify exposures and their associated risks. It will also introduce various hedging and derivative instruments that are used in financial markets. You will also be able to appreciate the role of the Treasury function within corporations and banks and differentiate between the two. This course is designed to enable you to apply your academic learning to a contemporary workplace situation. The integration of work-based learning and academic learning will allow you to solve authentic business problems or address real issues faced in organisations.

Law of Investments and Financial Markets

This course offers you a program of studies focusing on regulation of the financial services sector, regulation of some financial products and securities, aspects of the Corporations Act.

Law Of Investments And Financial Markets is an elective unit in the Bachelor of Business (Accountancy) degree and is open to all students who have satisfied the pre-requisite courses and assumed knowledge and capabilities detailed above.

Semester 5

International Trade

International Trade analyses the economic theory of free trade and of intervention in the trade process. It acquaints you with the fundamental determinants of the size and pattern of the gains from international trade. Implementing technical tools, you will evaluate the case for and against interfering with the free flow of trade as well as the effect that trade has on welfare, economic growth and income distribution.

Investment

In this Work Integrated Learning (WIL) course we will explore and analyse the theory, concepts, tools and techniques of investment and portfolio management. We will look at investment theories as well as examine equity valuation and portfolio management practices. At the conclusion of the course you should be familiar with current industry practice in this area and have developed an understanding of the theoretical framework supporting investment analysis and equity portfolio management. We expect you to gain confidence in the application of a range of techniques, and develop a capacity for independent thought and critical analysis, in the areas of investment analysis and portfolio management. The integration of work-based learning and academic learning, commonly referred to as Work Integrated Learning (WIL), will allow you to solve authentic business problems or address real issues faced in organisations.

This course builds upon and extends the concepts and techniques presented in the foundation finance course, BAFI1008 Business Finance. It also requires you to apply many of the concepts, tools and techniques studied in the first year of the Bachelor of Business program, particularly in the areas of microeconomics, macroeconomics, accounting and statistics.

The course begins with an examination of background material on the nature of investments and investment markets and an overview of asset allocation. This is followed by a discussion on portfolio theory and capital market theory as a prelude to an examination of asset pricing models. Here, we will examine and compare equilibrium and statistical models. Next, we discuss fundamental and technical analysis as a prelude to an in-depth look at discounted cash flow and relative valuation models commonly used in share valuation.  This will also entail an examination of aspects of macroeconomics and microeconomics that are relevant to the analysis of shares.

After this, the course set the stage for an examination of portfolio management and conclude with a review of some issues relating to the evaluation of the performance of portfolios.

Hopefully you will enjoy this course, but be prepared to work hard. The course is a capstone course and, as such, draws on and integrates material from earlier courses, as well as introducing new material. The course covers a lot of ground, and has a lot of assigned work, so you will need to keep up or you risk being overwhelmed. The theory, concepts, tools and techniques examined in this course are among the most important in finance, and some may require a lot of effort to understand. However, the payoff should be substantial.

Student Elective 1

Students can choose any course offered by RMIT University Vietnam for which they meet the prerequisite requirements.

Student Elective 2

Students can choose any course offered by RMIT University Vietnam for which they meet the prerequisite requirements.

Semester 6

International Monetary Economics

This course is intended to provide you with an understanding of the principles of open economy macroeconomics. The aim is to provide you with insights into the concept of external equilibrium and exchange rate determination. This material is then applied to practical problems such as macroeconomic management in an open economy and the choice of exchange rate regime.

Empirical Studies in the Equities Markets

Student Elective 3

Students can choose any course offered by RMIT University Vietnam for which they meet the prerequisite requirements.

Student Elective 4

Students can choose any course offered by RMIT University Vietnam for which they meet the prerequisite requirements.

Vietnamese

Report

Sustaining Vietnam's growth: The productivity challenge

Feb. 2012 | by Marco Breu, Richard Dobbs, Jaana Remes, David Skilling, Jinwook Kim
Contributing Practices: Hanoi

Vietnam’s economy has come an extraordinarily long way in a short time. China is the only Asian economy that has grown faster since 2000. But today Vietnam's economy faces complex challenges that require a transition to a productivity-driven growth trajectory. Vietnam now needs to boost labor productivity growth by more than 50 percent to maintain its rapid growth.

MGI finds that between 2005 and 2010, an expanding labor pool and the structural shift away from agriculture contributed two-thirds of Vietnam’s GDP growth. The other one-third came from improving productivity within sectors. Vietnam has globally competitive niches across the economy from textiles and footwear and coffee and rice to tourism.

But the first two drivers now waning in their power to drive further growth and Vietnam needs to boost its overall labor productivity growth by more than 50 percent, from 4.1 percent annually to 6.4 percent, if the economy is to meet the government’s target of 7 to 8 percent annual growth by 2020.  Without such a boost, Vietnam’s growth is likely to decline to between 4.5 and 5 percent annually. The difference sounds small, but it isn’t. By 2020, Vietnam’s annual GDP would be 30 percent lower than it would be if the economy continued to grow at a 7 percent pace.

Exhibit

MGI identifies areas where new measures could boost the nation’s economic performance:

• Stabilizing the macroeconomic environment to address investor concerns about inflation, currency instability, and rising interest rates. Measures could include greater transparency and the monitoring of banks’ performance and systemic risk.
• Strengthening productivity and growth enablers to enhance competitiveness. Measures could include long-term infrastructure development focused on private-sector needs and addressing shortages of skilled workers through the introduction of common standards for public- and private-education institutes and a certification system for graduates.
• Shaping a coordinated, industry-specific government growth agenda by targeting investment to raise agricultural productivity; higher value-added in manufacturing; and energy efficiency. Vietnam can also establish an enabling environment at the level of individual industries and sectors by enhancing domestic competition and helping industries move up the value chain. Offshore services such as data, business-process outsourcing, and IT appear to be promising areas. Building on its expanded pool of university graduates, Vietnam has the potential to become one of the top ten locations in the world for offshore services.
• Improving government performance to deliver a growth agenda. The government should continue to adjust its role in the economy and strengthen its organizational effectiveness and the delivery skills necessary to execute reforms. Because state-owned (SOE) enterprises still hold enormous weight, accounting for about 40 percent of the nation’s output, the report finds that continued reform of the ownership and management incentives for these enterprises is likely to be crucial to long term growth, as will the need to improve the overall capital efficiency of SOE operations.

After 25 years of strong and stable growth, the Vietnam economy is moving into a more challenging period. Although many of its economic fundamentals remain strong, companies and policy makers need to shift their thinking and approach.

http://www.mckinsey.com/Insights/MGI/Research/Asia/Sustaining_growth_in_Vietnam

Report

Sustaining Vietnam's growth: The productivity challenge

Feb. 2012 | by Marco Breu, Richard Dobbs, Jaana Remes, David Skilling, Jinwook Kim
Contributing Practices: Hanoi

Vietnam’s economy has come an extraordinarily long way in a short time. China is the only Asian economy that has grown faster since 2000. But today Vietnam's economy faces complex challenges that require a transition to a productivity-driven growth trajectory. Vietnam now needs to boost labor productivity growth by more than 50 percent to maintain its rapid growth.

MGI finds that between 2005 and 2010, an expanding labor pool and the structural shift away from agriculture contributed two-thirds of Vietnam’s GDP growth. The other one-third came from improving productivity within sectors. Vietnam has globally competitive niches across the economy from textiles and footwear and coffee and rice to tourism.

But the first two drivers now waning in their power to drive further growth and Vietnam needs to boost its overall labor productivity growth by more than 50 percent, from 4.1 percent annually to 6.4 percent, if the economy is to meet the government’s target of 7 to 8 percent annual growth by 2020.  Without such a boost, Vietnam’s growth is likely to decline to between 4.5 and 5 percent annually. The difference sounds small, but it isn’t. By 2020, Vietnam’s annual GDP would be 30 percent lower than it would be if the economy continued to grow at a 7 percent pace.

Exhibit

MGI identifies areas where new measures could boost the nation’s economic performance:

• Stabilizing the macroeconomic environment to address investor concerns about inflation, currency instability, and rising interest rates. Measures could include greater transparency and the monitoring of banks’ performance and systemic risk.
• Strengthening productivity and growth enablers to enhance competitiveness. Measures could include long-term infrastructure development focused on private-sector needs and addressing shortages of skilled workers through the introduction of common standards for public- and private-education institutes and a certification system for graduates.
• Shaping a coordinated, industry-specific government growth agenda by targeting investment to raise agricultural productivity; higher value-added in manufacturing; and energy efficiency. Vietnam can also establish an enabling environment at the level of individual industries and sectors by enhancing domestic competition and helping industries move up the value chain. Offshore services such as data, business-process outsourcing, and IT appear to be promising areas. Building on its expanded pool of university graduates, Vietnam has the potential to become one of the top ten locations in the world for offshore services.
• Improving government performance to deliver a growth agenda. The government should continue to adjust its role in the economy and strengthen its organizational effectiveness and the delivery skills necessary to execute reforms. Because state-owned (SOE) enterprises still hold enormous weight, accounting for about 40 percent of the nation’s output, the report finds that continued reform of the ownership and management incentives for these enterprises is likely to be crucial to long term growth, as will the need to improve the overall capital efficiency of SOE operations.

After 25 years of strong and stable growth, the Vietnam economy is moving into a more challenging period. Although many of its economic fundamentals remain strong, companies and policy makers need to shift their thinking and approach.

http://www.mckinsey.com/Insights/MGI/Research/Asia/Sustaining_growth_in_Vietnam