FIN 377 4-Financial Analysis-Kamm


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FIN 377 4-Financial Analysis-Kamm

  1. 1. FIN 377-4: FINANCIAL ANALYSIS (Spring 2008) Instructor: Dr. Kamm, Department of Finance, GSB 5.124C Email: T.A.: Amrita Dukeshier, Chris Sybille Sections 03100 & 03105: 8 to 9:30 & 9:30 to 11 in CBA 4.330 Office Hours: 11-12 Tuesdays and Thursdays Course Notes: GSB Copy Center, blackboard, class distribution Required Reading Packet: Packet of Notes and Case Studies (COOP) Suggested Subscription: WSJ (subscribe); helpful in stock research & short papers Financial Calculator Required: Financial Calculator HP 10b11 or 17b11 Financial Software: Bloomberg, Stock Val, Stock-Trak simulation COURSE OVERVIEW: Financial Analysis is designed for finance majors in order to improve their skills at analyzing companies and to advance their knowledge of finance theory and application. The overall financial analysis includes: bond valuation, financial statement analysis, financial ratios, financial forecasting, beta and the CAPM, the weighted average cost of capital, the Gordon Growth model, discounted cash flow analysis and multiples. Students are expected to integrate skills of finance, economics, and accounting in the course. The course is quantitative and analytical in nature; we made use of the trading center throughout most of the term. Students calculate and interpret financial data, build spreadsheet models, and make general conclusions about the financial health of a company and its intrinsic value. In this course a combination of methods is utilized with special emphasis on student involvement and teamwork. The professor reviews terms and theory, asks questions, demonstrates techniques, assigns problems and guides students in their case preparation. Students take a very active part in this class. Much of the learning in this course will take place outside of the classroom as students work on problem sets, invest $500,000 across various assets in a simulated portfolio, and prepare the paper and presentation. The emphasis on student involvement encourages students to learn by doing and encourages the self-motivation so important to the workplace. The course concludes with current case study applications on different types of companies in a variety of industry groups. By this time students will be formed in formal groups of 4-5 people. Students implement valuation models to determine “fair value” for
  2. 2. a company’s stock. In debate fashion, students present their financial analysis and argue that the stock is currently priced correctly or alternatively overvalued (undervalued). The WSJ (interactive edition) and market data on the Internet will be important sources of information for student learning and research. Most groups get along well with the usual “bumps in the road.” More serious problems shall be brought to the attention of the professor. COURSE OBJECTIVES: Some of the objectives of this course include: • Improved ability to analyze and value companies in different industries using skills of finance, accounting and economics. • Greater understanding of the business strategy and financial ratios of well-known companies in various industries. • Review of major accounting and finance principles. Improved forecasting and valuation skills. • Improved ability with Excel tools and better familiarity with financial data programs. • Improved presentation, communication, and analytical skills. Improved ability to work in a team. • Greater understanding of the financial issues and problems occurring at the current time. EVALUATION: Final grades will be determined as follows: Multiple Choice Tests (Individual Grade) 45% There will be two multiple-choice tests. The first counts for 20% and the second for 25% of the final grade. The tests will evaluate students’ understanding of the material covered to date. The tests primarily cover material only in that unit; to the degree that the material builds the tests include such material. The in-class tests include theory questions, problems requiring application and interpretation (including working with a spreadsheet, financial statement, or trading center handout) and current events questions. You may bring a financial calculator and a sheet with notes. Each test has twenty-five questions and each question is worth four points. 2
  3. 3. Papers and Presentation (Group Grade with Individual Component) 40% The two papers are an analysis of the performance of the various assets held in the stock- trak portfolio. The first paper is 5 to 7 pages written plus approximately the same number of exhibits. In this paper students shall review various holdings and the performance of the various assets. This paper counts for 10% of the final grade. The group presentation is given in the form of a debate. It counts for 10% of the final grade. Two teams are assigned a particular stock. One side presents financial models and information supporting the position that the stock is undervalued and a “good buy.” The other side argues that the stock is overvalued and should be rated as a “sell.” Students shall use power-point slides to outline their position and supporting evidence. Presentations will be graded on strength of analysis, level of interest, and presentation skills. The overall team effort supports each member’s performance and generally leads to similar presentation grades. Still, due to individual differences, grades may vary among students in the same group. The second paper is an analysis of the performance of various assets held in the stock- trak portfolio. This paper is more in-depth than the first paper and is 8-10 pages written plus approximately the same number of exhibits. The second paper should also highlight one stock and its valuation using a DCF and multiples approach. This paper counts for 20% of the final grade. If a group member has not contributed to written work, you may not include his or her name on papers. A group member who contributes at a very low level may be asked to withdraw from the group and work alone. You may consult with the course instructor as needed. Most students have excellent participation which is recognized (or not) in the next component of the grade. Participation & Peer Review – Curve or Reduction (Individual Grade) 15% Class participation is based on the contribution of each student to the class. Solid performance in this area requires consistent attendance, keeping up with course readings and any assigned homework, good peer evaluations, and actively working on the group presentations. For most students, participation works like a slight curve. An “objective grade” is run based on the previous 90% listed. Then, students with good participation will receive a curve of ½ to a full letter grade for this 10% component. Inconsistent attendance or limited effort results in a low participation grade. Each student fills out anonymous evaluations of all group members’ efforts and contributions. The professor uses class attendance and preparedness as well as peer evaluations as the basis for assigning the participation grade. 3
  4. 4. SCHEDULE: T, Jan 15 Review of Syllabus / Current Financial Events Get: financial calculator, readings packet at University COOP Th, Jan 17 Goldman Sachs Valuation Presentation (9:30 CBA4.330 12:30 UTC4.104) Bring case packet and financial calculator to next class T, Jan 22 Bond Math - The Yield Curve and Theory of the Term Structure Finish problems from Bond Math and from 1st Problem Set Th, Jan 24 Fixed Income Valuation / Submit Group Requests Read 2 Cases: The Income Statement and The Balance Sheet T, Jan 29 Overview of Income Statement and Balance Sheet One member register group in Stock-Trak using Fund Name instead of student name Th, Jan31 Trading Center – Spreadsheet Work with Income St. & Balance Sheet Read Cases on Cash Flow Statement and Free Cash Flow Achieve full investment in Stock-Trak by Th, Jan 31-Mon, Feb 4 T, Feb 5 Overview of Cash Flow Statement & Free Cash Flow Read & prepare Cases on Cash Flow Statement and Free Cash Flow Th, Feb 7 Trading Center - Spreadsheet Work on Forecasting FCF and DCF Group H.W. Assignment – Articles & updated DCF (WMT, EBAY, DELL, TIF) T, Feb 12 In-Class Analysis of Stock Valuation Read & prepare Note on Value Drivers Th, Feb 14 Trading Center – Value Drivers Case – Beta, P/B, EVA Read & prepare Introduction to Valuation Multiples T, Feb 19 Overview of Valuation Multiples / 2nd Problem Set - In-Class Problems on convertible bonds, EPS forecast Th, Feb 21 Trading Center – Multiples Valuation … P/E, PEG, EV/EBITDA T, Feb 26 Current Financial Events & Catch-Up / 5 Example Problems Distributed Th, Feb 28 1st Multiple Choice Test Read & prepare in the Year 2000 T, Mar 4 in the Year 2000 – Case Discussion and Professor Lecture Work on 1st Paper 4
  5. 5. Th, Mar 6 Trading Center – Assessing Amazon’s Financial Health post-2000 Read Introduction to Financial Ratios and FS Analysis for after spring break Mar 10 –14 Spring Break T, Mar 18 Overview of Introduction to Financial Ratios& F.S. Analysis Finish 1st Paper to submit by Thursday, Mar 20, 4 p.m. Finance Department Th, Mar 20 Trading Center – Financing Forecasting Case Review & Spreadsheets Submit 1st Paper by 4 / Read 3 Cases: Bond Ratings, Cost of Capital, Required Returns T, Mar 25 Overview off Bond Ratings, Cost of Capital and Required Returns 3rd Problem Set - Cost of debt, cost of equity, WACC, DDM Th, Mar 27 Trading Center – Beta Regression, CAPM, WACC Read & prepare next 3 Cases –bring financial calculator to class T, April 1 Dividend Discount Model, IBM and Coca Cola: Case Review 4th Problem Set / Read Valuing a Business or Earnings Stream Th, April 3 Valuing a Business or Earnings Stream: Case Review Prepare for Valuation Debate T, April 8 Trading Center – Review of Bloomberg DDM and multiples Prepare for Valuation Debate Th, April 10 Valuation Debate 1 & Evaluation of Debate T, April 15 Valuation Debate 2 & Evaluation of Debate Th, April 17 Current Financial Events & Catch-Up / 5 Example Problems Distributed T, April 22 Valuation Debate 3 & Evaluation of Debate Th, April 24 Valuation Debate 4 & Evaluation of Debate T, April 29 Valuation Debate 5 & Evaluation of Debate Th, May 1 2nd Multiple Choice Test Th, May 8 Turn in Final Group Paper, 4p.m., Finance Dept. * Please note that current events will be added when the schedule allows. The above schedule is meant to be approximate. At times we may be slightly ahead of or slightly behind schedule. Trading center dates may need to be moved. Necessary changes regarding times, assignments, and other matters will be announced in class. 5
  6. 6. Information Regarding Scholastic Dishonesty, Class Web Sites and Student Privacy I. Scholastic Dishonesty – I follow university policy on scholastic dishonesty and include for your benefit a review of the Policy Statement on Scholastic Dishonesty for the McCombs School of Business. It says, “By teaching this course, I have agreed to observe all of the faculty responsibilities described in that document. By enrolling in this course, you have agreed to observe all of the student responsibilities described in that document. If the application of that Policy Statement to this class and its assignments is unclear in any way, it is your responsibility to ask me for clarification. Policy on Scholastic Dishonesty: Students who violate University rules on scholastic dishonesty are subject to disciplinary penalties including the possibility of failure in the course and / or dismissal from the University. Since dishonesty harms the individual, all students, and the integrity of the University, policies on scholastic dishonesty will be strictly enforced. You should refer to the Student Judicial Services website at or the General Information Catalog to access the official University policies and procedures on scholastic dishonesty as well as further elaboration on what constitutes scholastic dishonesty.” II. Class Web Sites and Student Privacy: Please know that I use Blackboard to post your course packet and relevant course documents and I use egradebook to post grades where each student in the class is able to check his or her grade privately. I also use the email list provided me in Blackboard to send out occasional class emails. From the Fall 2001 Course Schedule the following paragraph may help you determine any related privacy issues. It states, “Password-protected class sites will be available for all accredited courses taught at the University. Syllabi, handouts, assignments, and other resources are types of information that may be available within these sites. Site activities could include exchanging email, engaging in class discussion and chats, and exchanging files. In addition, class e-mail rosters will be a component of the sites. Students who do not want their names included in these electronic class rosters must restrict their directory information in the Office of the Registrar, Main Building, Room 1. For information on restricting directory information, see” 6