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BA E222 Outline Revised.doc.doc Document Transcript

  • 1. BA E222 FINANCIAL INFORMATION ANALYSIS Pascal Frantz Visiting LSE Course Outline (Revised 02/25/00) Overview This course introduces and develops an economic framework for financial information analysis and valuation. The economic framework covers key analysis components such as business strategy analysis, accounting analysis, financial analysis, and prospective analysis. It is then applied to a variety of decision contexts including credit analysis, securities analysis, merger and acquisition analysis, and management communications analysis. The primary focus of the course is on equity valuation. Methods to determine “intrinsic values”, including both accounting-based and cash flow-based approaches, are examined and applied in projects involving valuations of listed companies. Each of the topics introduced in this course covers institutional details, results of relevant academic research, and is furthermore supported by a case study. The course should appeal to those contemplating careers in investment banking, security analysis, strategy consulting, venture capital, and corporate finance. The course comes in the form of lectures, case studies, and exercises, and involves a course project. By the end of the course, students should be able to answer the following questions: • What is the relevance of business strategy analysis for financial analysis? • How does one analyze the quality of accounting earnings? • How is financial analysis developed for strategy and planning? • How does financial analysis help in equity valuation? • What is the relevance of cash flow information? What is the relevance of accruals in accounting? • How does one measure value added? • What are the determinants of a firm’s P/E Ratio?
  • 2. • What are the determinants of a firm’s market-to-book (P/B) Ratio? • How are “intrinsic values” calculated? • What is the role of financial statements in determining “intrinsic values? • Are some aspects of financial statements more important than others? • How does one trade on the basis of financial analysis? • How does the market value internet stocks? Instructor Pascal Frantz F477 642-6192 frantz@haas.berkeley.edu Office hour: Wednesday, 2:30pm - 4:30pm (F477) Wednesday, 7:30pm - 8:15pm Core Text The main text is “Introduction to Business Analysis and Valuation” by Palepu, Bernard, and Healy (1996) published by South-Western. Other Readings The core text is supplemented by relevant journal articles and working papers1. In addition, the following books provide useful reference for the course: A good introduction is: Copeland, Koller, and Murrin, 1994, “Valuation: Measuring and Managing the Value of Companies”, published by Wiley. Other books on financial information analysis: Stickney, 1999, “Financial Reporting and Statement Analysis: A Strategic Perspective”, published by Dryden Press. White, Sondhi, and Fried, 1998, “The Analysis and Use of Financial Statements”, published by Wiley. 1 Copies of the working papers will be supplied to you in due time.
  • 3. Other useful books for reference include: Keiso and Weygandt, 1998, “Intermediate Accounting”, published by Wiley. Brealey and Myers, 1996, “Principles of Corporate Finance”, published by McGraw-Hill. Assessment The course grade will be calculated 40% from an exam and 60% from a project. The exam will be of 2 hours duration. Project The project consists in writing an equity research report on a company (with an estimated intrinsic share price). The project may be done individually or in groups of up to four students. The project report has to be handed in prior to the exam. Remaining Course Schedule Session 7: Wednesday 1st March Prospective Analysis: Forecasting Exercises: Questions 1, 2, and 7 [Palepu, Bernard, and Healy, Chapter 5] Case Studies: The Home Depot (2) CUC International (1) Readings: Chapter 5 [Palepu, Bernard, and Healy] Session 8: Wednesday 8th March Prospective Analysis: Discounted Cash-Flows Based Valuation Exercises: Questions 2, 5, 7, and 8 [Palepu, Bernard, and Healy, Chapter 6]
  • 4. Case Studies: CUC International (1) The Gap (1) Readings: Chapters 6 and 11 [Palepu, Bernard, and Healy] Session 9: Prospective Analysis: Accounting-Based Valuation Techniques (1) Wednesday 15th March Exercises: Questions 2, 3, and 4 [Palepu, Bernard, and Healy, Chapter 7] Case Studies: America Online (2) The Gap (2) Readings: Chapters 7 and 8 [Palepu, Bernard, and Healy] Session 10: Wednesday 22nd March Prospective Analysis: Accounting-Based Valuation Techniques (2) Exercises: Questions 5, 6, and 7 [Palepu, Bernard, and Healy, Chapter 7] Case Study: The Computer Industry in 1992 Readings: Fairfield, P. P/E, P/B and the present value of future dividends. Financial Analysts Journal, July-August 1994, p.23-31. Francis, J., Olsson, P., and Oswald, D. Comparing the accuracy and explainability of dividend, free cash flow, and abnormal earnings equity valuation models, Working Paper, 1997, University of Chicago.
  • 5. Session 11: Wednesday 29th March Credit Analysis and Distress Predictions (1) Case Study: Pageturner Bookstores Readings: Chapter 9 [Palepu, Bernard, and Healy] Session 12: Wednesday 5th April Credit Analysis and Distress Predictions (2) Exercises: Questions 1, 5, and 6 [Palepu, Bernard, and Healy, Chapter 9] Case Study: Debt Ratings in the Chemical Industry Session 13: Wednesday 12th April Mergers and Acquisitions Exercises: Questions 1 and 5 [Palepu, Bernard, and Healy, Chapter 10] Case Study: Schneider and Square D Readings: Chapter 10 [Palepu, Bernard, and Healy] Session 14: Wednesday 19th April Advanced Accounting-Based Valuation Models Readings: Ohlson, J. Earnings, book values, and dividends in security valuation. Contemporary Accounting Research, Spring 1995, p. 661-687.
  • 6. Session 15: Wednesday 3rd May Valuation of Internet Firms Readings: Trueman, B., Wong, F., and Zhang, X. The eyeballs have it: searching for the value in internet stocks. Working Paper, 2000, University of California at Berkeley.