FIN 377 3-Security Analysis-Kamm.doc

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FIN 377 3-Security Analysis-Kamm.doc

  1. 1. FIN 377-3: SECURITY ANALYSIS (Spring 2008) FINANCIAL ANALYST PROGRAM Instructor: Dr. Kamm, Department of Finance, GSB 5.124C Email: kelly.kamm@mccombs.utexas.edu T.A.: Amrita Dukeshier, amrita.dukeshier@mba08.mccombs.utexas.edu Chris Sybille christopher.sybille@mba08.mccombs.utexas.edu Sections 03060: 12:30 to 2 in UTC 4.104 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 MBA Investment Fund: www.mccombs.utexas.edu/AIMCenter/AppInvMan/index.asp FINANCIAL ANALYST PROGRAM OVERVIEW: The Financial Analyst Program is a yearlong program designed for outstanding seniors who are finance or accounting majors. The program is an opportunity for students to develop their skills and experiences as financial analysts. It is an intensive, “hands-on” experience in financial analysis and valuation in corporate, investment, and financial service settings. The program requires that students integrate and apply previously acquired skills in finance, accounting and economics. Students selected for the program learn to assess the operating, financing and investing performance of a company as well as make financial projections relative to both the company’s recent operating performance and its peer group of competitors. Participants learn to compare and interpret live data by way of financial software in the EDS trading and technological center, a center that is equipped with real-time data feed of financial information. Students use Bloomberg, Stock Val, Bridge-Telerate and First Call as well as spreadsheets to demonstrate the comprehensive company financial analysis they have undertaken for the midterm and final projects. Moreover, undergraduate analysts work as researchers for the MBA Investment Fund managers. The MBA Investment Fund is the first legally constituted, private investment fund to be managed by students. There are three funds – the growth fund, the value fund, and the endowment fund. Undergraduate analysts assist the Fund managers in a number of functions. Undergraduates help monitor stocks held in the growth and value funds and stocks and fixed
  2. 2. income securities held in the endowment fund. In addition, undergraduates provide support by researching the financial performance of various companies and by presenting their opinions on different equity investments to fund managers. They also assist by undertaking special project assignments such as building and maintaining databases. 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 the Financial Analyst Program; individuals must be able to make a clear commitment of time and energy. Much of the learning in this course will take place outside of the classroom particularly in your groups. The emphasis on student involvement encourages learning by doing and further develops the attributes of self-motivation and leadership. COURSE OBJECTIVES: Some of the objectives of this course include: • Hands-on research for MBA Fund Managers. • Better understanding of Portfolio objectives and management as well as stock selection. • 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. Two Papers – Stock Analysis and Alternative Investments (Group Grade): 20% In the FAP undergraduates work as research assistants to the MBA Managers for the growth and value stock funds and for the MBA REIT fund managers. In working with the MBA students, undergraduates specialize in one area (real estate; technology; consumer stocks; financial, energy & industrial; healthcare). It is important that all students become more familiar with holdings across the three main funds—the MBA growth fund, MBA value fund, and the MBA REIT fund. Therefore, all students will participate in a stock-trak portfolio simulation project that includes positions in stocks from various sectors and REITS. This will allow all students exposure and experience to all sectors and asset classes. The first paper is 8 pages written plus the same number of exhibits. In this paper students shall in an introductory paragraph discuss the nature of a growth fund, value fund, and a fund focused on REITS. Primarily in the paper students should focus on reviewing various holdings, reasons for asset selection, and the performance of the various assets. The second paper is an update and expansion relative to the first paper; in the second paper more focus is placed on asset and portfolio performance. Also, in the second paper students shall focus on the stock that they have been assigned to debate. The assigned stock will be an asset currently held in either the MBA Growth or Value Fund. Students shall undertake a comprehensive financial analysis and valuation of a stock and conclude with a buy or sell recommendation. Two Stock / REIT Pitches With Supporting Investment Thesis / Quantitative Work 20% There are two presentations given in the spring term as a member of the FAP. One stock valuation and analysis (or REIT valuation) shall have been assigned by the MBA Managers and presented to them at a time outside this class. For students working with the MBA REIT fund, they may make the presentation during their class. Submit a copy of the valuation and / or power points slides used for credit in this class as part of your role in the FAP. The second group presentation is given near the end of the term in the form of a debate and is focused on a stock currently held in the MBA Growth or Value Fund. This is the same stock highlighted in the second paper. The two groups present opposing sides. 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. 3
  4. 4. Professor Evaluation, MBA Review & Peer Review (Individual Grade) 15% The professor’s evaluation is based on attendance and class preparation as well as on the quality of your participation in all aspects of the financial analyst program. You will be working closely in one group throughout the term producing analyses that will aid Fund managers. The success of the Financial Analyst Program depends, in part, on your efforts and your approach to dealing with others. In this portion of the grade, the Professor evaluates feedback from your peers, senior FAP students and the MBA Investment Fund managers. 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 may receive a several point curve. Inconsistent attendance or limited effort in working with your group will result in a lowering of the participation grade below the objective grade. ** Please note: Due to the applied investment aspect of the financial analyst program, there is a much higher level of responsibility on the part of each member. Students are encouraged to work together within their teams and across teams to help ensure a successful and rewarding year. Please contact me if you are having any difficulties. If a student is not able to meet the obligations of the FAP at a high level, I shall contact said student to discuss various alternatives including withdrawal from the program. 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) 4
  5. 5. 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 Amazon.com in the Year 2000 T, Mar 4 Amazon.com in the Year 2000 – Case Discussion and Professor Lecture Work on 1st Paper 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 5
  6. 6. 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 or assignments will be announced in class. 6
  7. 7. 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 http://deanofstudents.utexas.edu/sjs/ 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 http://www.utexas.edu/student/registrar/catlalogs/gi02-03/app/appc09.html.” 7

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