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Aims:

The aim of this module is to introduce the basics of statistical methods as a foundation on which to explore the world of finance. By the end of the module, you can expect to be aware of the main forms of finance used by the various types of businesses in the construction industry.

Objectives:

To understand the principles of statistical thinking. A range of concepts, theories and statistical analysis methods will be covered, including:

• Arithmetic mean, mode and median
• Variance and standard deviation
• Normal distribution and central limit theorem
• Probability
• Estimation, confidence and hypotheses
• Correlation and regression

To understand the principles of financial appraisal of potential investments, financial planning and management in on-going business contexts. Consider the role of finance in adding commercial value to construction activity from both contractor and developer perspectives. A range of concepts, theories and financial analysis methods will be covered, including:

• time value of money
• financial statements and ratios
• valuation of stocks and bonds
• cost of capital (debt and equity)
• portfolio diversification
• stock classification (value vs growth)
• capital structure
• investment valuation
• the role of trade credit in financing contractor business models

Learning Outcomes:

This module is designed to give you knowledge to understand:

• Basic statistical concepts from observed data
• The concept of probability
• The concept of correlation and regression
• Discounted cash flow techniques for project investment decisions
• Net Present Value and internal rate of return (IRR)
• Payback, cost of capital and the capital asset pricing model (CAPM)
• Discount rate and hurdle rate
• Risk and return through exploration of historical data
• Estimating and forecasting cash flows
• Capital structure and weighted average cost of capital (WACC)
• Portfolio diversification, risk and investor expectations
• Financial statements: balance sheet, cash flow and profit & loss

Content:

This first term of this module provides an introduction to statistics, to develop appreciation for the concepts of variance and statistical correlation required to tackle core financial theories. Recent data from the financial statements of contractors across the UK construction industry will be used to communicate statistical concepts.

The second term will then explore deeper financial concepts required to understand firm financing. The various methods and products firms use to appraise potential investments in their business will be explored, within particular consideration of the contrasting nature of contractor and developer business models. Material will also consider corporate and project finance methods as alternative ways to raising financial capital for firm and asset investments.

Essential Reading

Brearly, Myers and Allen, (2008) Principles of Corporate Finance, 9th Edition, McGraw Hill.

Parker, R. H., (1999) Understanding Company Financial Statements, 5th Edition, Penguin Business.

Hillebrandt, P.M. (2000) Economic Theory and the Construction Industry, 3d Edition, MacMillan.

Gruneberg, S. and Ive, G. (2000) The Economics of the Modern Construction Firm, MacMillan.

Ive, G., and Gruneberg, S. (2000) The Economics of the Modern Construction Sector, MacMillan.

Ive, G., and Murray, A. (2013) Trade credit in the UK Construction Industry - BIS research paper 118.

Rowntree, D., (2018) Statistics without Tears: An Introduction for Non-Mathematicians, 1st edition, Penguin.