Financial Management – Workshop 1 (Estimating Capital Requirements)

The Appleton Greene Corporate Training Program (CTP) for Financial Management is provided by Dr. Norman Certified Learning Provider (CLP). Program Specifications: Monthly cost USD$2,500.00; Monthly Workshops 6 hours; Monthly Support 4 hours; Program Duration 12 months; Program orders subject to ongoing availability.

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Learning Provider Profile

Dr. Norman is a 21-year United States Army veteran and Bronze Star recipient with over 10 years of financial experience. He possesses a comprehensive background in financial management, cost reduction strategies, and organizational leadership, and has managed assets of $400M. In addition to creating and executing strategies to achieve the financial objectives of various organizations, he has also administered budgets of $500M and ensured costs stayed 15% under-budgeted expectations.

Dr. Norman identifies issues and develops financial strategies to deliver more effective stewardship of assets. In one case, he identified opportunities to minimize operational expenses, resulting in a 27% decrease in overhead.

Dr. Norman is skilled in motivating and empowering others to surpass performance requirements and develop professionally. His advanced degree in Financial Management and certifications further demonstrate his vast knowledge and dedication to continuing to learn. Dr. Norman’s leadership experience enables him to seamlessly fit into a wide variety of organizations and help them grow.

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MOST Analysis

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Mission Statement

Estimating capital needs such as fixed capital requirements and working capital needs to avoid over-capitalization or under-capitalization.

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Objectives

01. Introduction to Capital Estimation: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
02. Types of Capital in Business: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
03. Fixed Capital Requirements: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
04. Working Capital Components: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
05. Forecasting Sales and Expenses: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
06. Cash Flow Analysis: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
07. Risk Assessment in Capital Estimation: departmental SWOT analysis; strategy research & development. 1 Month
08. Financial Ratios and Metrics: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
09. Sources of Capital: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
10. Capital Estimation Tools and Software: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
11. Case Studies in Capital Estimation: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
12. Building a Comprehensive Capital Estimation Strategy: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month

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Strategies

01. Introduction to Capital Estimation: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
02. Types of Capital in Business: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
03. Fixed Capital Requirements: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
04. Working Capital Components: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
05. Forecasting Sales and Expenses: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
06. Cash Flow Analysis: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
07. Risk Assessment in Capital Estimation: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
08. Financial Ratios and Metrics: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
09. Sources of Capital: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
10. Capital Estimation Tools and Software: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
11. Case Studies in Capital Estimation: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
12. Building a Comprehensive Capital Estimation Strategy: Each individual department head to undertake departmental SWOT analysis; strategy research & development.

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Tasks

01. Create a task on your calendar, to be completed within the next month, to analyze Introduction to Capital Estimation.
02. Create a task on your calendar, to be completed within the next month, to analyze Types of Capital in Business.
03. Create a task on your calendar, to be completed within the next month, to analyze Fixed Capital Requirements.
04. Create a task on your calendar, to be completed within the next month, to analyze Working Capital Components.
05. Create a task on your calendar, to be completed within the next month, to analyze Forecasting Sales and Expenses.
06. Create a task on your calendar, to be completed within the next month, to analyze Cash Flow Analysis.
07. Create a task on your calendar, to be completed within the next month, to analyze Risk Assessment in Capital Estimation.
08. Create a task on your calendar, to be completed within the next month, to analyze Financial Ratios and Metrics.
09. Create a task on your calendar, to be completed within the next month, to analyze Sources of Capital.
10. Create a task on your calendar, to be completed within the next month, to analyze Capital Estimation Tools and Software.
11. Create a task on your calendar, to be completed within the next month, to analyze Case Studies in Capital Estimation.
12. Create a task on your calendar, to be completed within the next month, to analyze Building a Comprehensive Capital Estimation Strategy.

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Introduction

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What are capital requirements?

Capital requirements refer to the minimum amount of capital that financial institutions, such as banks and insurance companies, are required to hold as a regulatory safeguard against financial risks. These requirements are set by regulatory authorities to ensure the stability and soundness of the financial system, protect depositors and policyholders, and prevent institutions from becoming insolvent during times of economic stress.

Capital requirements serve as a cushion that institutions can use to absorb losses arising from various risks, including credit risk, market risk, operational risk, and more. Adequate capitalization is vital to ensure that institutions have sufficient financial resources to meet their obligations even in adverse scenarios.

There are different components and methods for calculating capital requirements, including:

1. Basel Accords: The Basel Committee on Banking Supervision has developed international standards for bank capital requirements known as the Basel Accords. These accords, including Basel I, Basel II, and Basel III, provide frameworks for banks to calculate capital requirements based on risk factors associated with their assets and activities.

2. Internal Ratings-Based (IRB) Approach: Under Basel II and subsequent revisions, banks can use their internal risk assessment models to calculate capital requirements for credit risk, taking into account factors such as probability of default, loss given default, and exposure at default.

3. Standardized Approach: An alternative to the IRB approach, the standardized approach provides predefined risk weights for different asset classes and activities. It simplifies capital calculation by categorizing assets into broad risk categories.

4. Risk-Weighted Assets (RWA): Capital requirements are often expressed as a percentage of risk-weighted assets, which are calculated based on the risk profiles of a bank’s assets. Riskier assets receive higher weights, leading to higher required capital.

5. Leverage Ratio: In addition to risk-based capital requirements, regulators often impose leverage ratios, which set a minimum capital threshold as a percentage of a bank’s total exposure. This ensures that a bank maintains a minimum level of capital regardless of the riskiness of its assets.

6. Stress Testing: Regulatory authorities require financial institutions to undergo stress tests that assess their resilience to adverse economic scenarios. The results of stress tests may influence capital requirements.

Capital requirements are a central component of financial regulation aimed at safeguarding the stability of financial institutions and the broader economy. They ensure that institutions have the financial strength to manage risks, absorb losses, and continue to provide essential services even during challenging times.

Where does capital come from?

Capital comes from various sources, both internal and external, and it plays a crucial role in financing business activities, investments, and operations. Here are the primary sources of capital:

1. Equity Capital:

• Owners and Founders: When a business is established, its founders and initial owners contribute their personal funds or assets to finance the startup.

• Private Investors: Individuals, often referred to as angel investors or venture capitalists, provide funding in exchange for ownership stakes in the company. This is common among startups seeking early-stage investment.

• Public Investors: Companies can raise capital by issuing shares of stock to the public through initial public offerings (IPOs). Public investors who buy these shares become shareholders and provide equity capital.

2. Debt Capital:

• Loans: Companies can borrow money from financial institutions, such as banks, in the form of loans. These loans are repaid over time, along with interest.

• Bonds: Businesses can issue bonds to raise funds from investors. Bonds are debt securities with fixed interest rates and maturity dates. Investors who buy bonds become creditors and are repaid the principal amount along with interest.

• Financial Instruments: Various financial instruments, such as commercial paper and promissory notes, allow companies to borrow money from investors for shorter periods.

3. Retained Earnings:

• Companies can generate capital from their own profits by retaining a portion of their earnings instead of distributing them as dividends to shareholders. These retained earnings can be reinvested into the business for growth and expansion.

4. Asset Sales:

• Companies can sell non-essential assets, such as real estate, equipment, or investments, to raise capital. This approach is often used to generate funds quickly.

5. Government Funding and Grants:

• Governments may offer grants, subsidies, or low-interest loans to support specific industries, research projects, or initiatives. These funds contribute to capital in various sec