ADVANCED BUSINESS VALUATION AND INVESTMENTS FINC 512

OVERVIEW

1. COURSE DESCRIPTION

This course introduces students to different financial markets and their role in the economy and offers an
exploration of current developments in the world’s financial markets and institutions, including innovation,
globalization, with a focus on the actual practices of financial institutions, investors, and financial
instruments. The course also explores alternative investments techniques available in the global financial
markets including the underlying rationale for such investment types as well as providing an understanding
of the construction and management of relevant strategies. The course will provide students a general
grounding in the stock valuation approaches such as discounted cash flow models, market multiple
models as well as valuation of a young private company. The course emphasizes practical and real-world
applications of valuation methodologies and is targeted towards students interested in careers in corporate
finance, investment banking, security analysis, consulting, and private equity. The course will also introduce
students to the CFA Institute Code of Ethics and Standards of Professional Conduct and learn to describe
the sustainability landscape and analyze sustainable technologies, strategies, and business models from the
perspective of managers, entrepreneurs, and investors.

2. REASON FOR THE COURSE

The course teaches the students to be able to pull apart the financial statements to get at the relevant
information for valuation; to identify “red flags” that indicate an impending liquidity crisis; to see clearly
how industry fundamentals and competitive forces directly affect financial results and, in the process, drive
stock valuation; to determine the valuation for any public or private company whether for purchase or sale,
investment of a minority interest, going public in an IPO, or restructuring; to assess whether a company is
creating value for its shareholders; to evaluate the reports of business valuation experts and to be able to
ask the “right” questions of these experts. Students will understand what determines the value of a firm
and how to estimate that value is a prerequisite for making rational business decisions.

3. STUDY HOURS

4. ROLE IN CURRICULUM


Prerequisites:
There are no prerequisites to this course other than the entrance requirements for the program.

SKILLS

  • LEARNING OUTCOMES
  • ASSESSMENT AND GRADING
  • TEACHING METHODS
  • STUDY PLAN
  • TEXTBOOKS AND REFERENCES

5. COURSE LEARNING OUTCOMES (CLO)

Upon successful completion of this course students should be able to:

Knowledge Level of Learning Related PLO
Explain the fundamental principles of investment (CK1)
Explain the fundamental principles of investment, with a focus on financial markets and institutions, alternative investments techniques available in the global financial markets and formulation of relevant strategies given the investor’s objective.		 Understand PK1
Explain the process of a robust equity valuation analysis (CK2)
Explain the process of a robust equity valuation analysis and the appropriate techniques for valuation and management of equity investments (for a listed and private company).		 Understand PK1
Explain the CFA Code of Ethics and Standards of Conduct (CK3)
Explain the CFA Code of Ethics and Standards of Conduct and the overview of common impact investment strategies across asset classes, including venture capital, private credit, public equities, and real assets.		 Understand PK1
Cognitive Skills Level of Learning Related PLO
Evaluate the different approaches (CC1)
Evaluate the different approaches to estimating equity investment risk and return and cost of capital from a company’s perspective.		 Evaluate PC1
Apply discounted cash flow model (CC2)
Apply discounted cash flow model in determining the value of a listed and private company. This includes analyzing historical performance, benchmarking and strategic analysis and forecasting free cash flows, identifying source of value, interpretation of results.		 Apply PC1
Apply market multiples based on comparables (CC3)
Apply market multiples based on comparables to perform the market approach to valuation and discuss the rationale for market multiples to value equity.		 Apply PC1
Communication, Information Technology, and Numerical Skills Level of Learning Related PLO
Use Microsoft Excel software and other packages (CCIT1)
Use Microsoft Excel software and other packages useful for forecasting and analysing financial information.		 Apply PCIT2
Interpersonal Skills and Responsibilities Level of Learning Related PLO
Develop teamwork skills (CIP1) Create PIP1
Behave ethically as a finance analyst (CIP2)
Behave ethically as a finance analyst in accordance with the CFA Code of Ethics.		 Respond PIP2

6. ASSESSMENT AND GRADING

Grades will be determined based on a grading score, calculated using the following assessments and score allocations:

Topic CLO Assessment and Scoring Total CLO Score Weighting for Course Grade
Attendance & Participation In-class Tests Homework Assignments
(Stock Valuation)		 Midterm Exam Final Exam
Evaluate the different approaches (CC1)             100%  
Explain the process of a robust equity valuation analysis (CK2)             100%  
Explain the CFA Code of Ethics and Standards of Conduct (CK3)             100%  
Evaluate the different approaches (CC1)             100%  
Apply discounted cash flow model (CC2)             100%  
Apply market multiples based on comparables (CC3)             100%  
Use Microsoft Excel software and other packages (CCIT1)             100%  
Develop teamwork skills (CIP1)             100%  
Behave ethically as a finance analyst (CIP2)             100%  

During the term there is one Project Assignment:

Business Valuation Assignment

Work Arrangement: Group
Output format : Professional Valuation Report Format, Presentation
Language : English
Assignment : Each team (team of 3-4 students) must prepare a written research report on the
subject company (The subject company can be ABC, PWSA, PPAP, PAS, GTI, PPSEZ,
PEPC or NagaCorp) chosen by the team, which involves an analysis of the ordinary
shares of a publicly listed company. Each team will be required to value the equity
of the chosen company. Each student will be tested on their analytical, valuation,
report writing, and presentation skills.

7. TEACHING METHODS

The course will be delivered as a mix of lectures, class discussion, practice assignments and cases. Some of
the questions on the midterm and final exams will be based on real-life financial statements of well-known
companies.

Class participation grade will be based both on attendance and constructive participation. You are expected
to participate in class discussions and you will be graded on your contribution to the classroom learning
environment. You should expect to be “cold called” to discuss assigned review problems and to offer views
on the assigned material.

8. STUDY PLAN

The course targets the study plan below but its implementation may vary somewhat depending on the progress and needs of students. Some topics may be allocated more or less than 1.5 hours.

  Lesson Learning Outcomes Teaching and Learning Activities,
Assessment
1

Introduction to the Investment Setting

  1. Define and explain what is investment and the reasons why invest (CK1)
  2. Explain the different types and functions of financial market and financial intermediaries in an investment world (CK1)
  3. Describe the choices and issues in index construction and management (CK1)
  • Lecture
  • Discussion

Reading:
CFA Material, Equity & Portfolio Management: Part I and Bodie, Kane & Marcus (2019) Investments (p. 6-143)
2

Introduction to the Investment Setting

  1. Define and explain what is investment and the reasons why invest (CK1)
  2. Explain the different types and functions of financial market and financial intermediaries in an investment world (CK1)
  3. Describe the choices and issues in index construction and management (CK1)
  • Lecture
  • Discussion

Reading:
CFA Material, Equity & Portfolio Management: Part I and Bodie, Kane & Marcus (2019) Investments (p. 6-143)
3

Introduction to the Investment Setting

  1. Describe the choices and issues in index construction and management (CK1)
  2. Compare the different weighting methods used in index construction (CK1)
  3. Calculate and analyze the value and return of an index given its weighting method (CK1)
  • Lecture
  • Discussion

Reading:
CFA Material, Equity & Portfolio Management: Part I and Bodie, Kane & Marcus (2019) Investments (p. 6-143)
4

Introduction to the Investment Setting

  1. Describe the choices and issues in index construction and management (CK1)
  2. Compare the different weighting methods used in index construction (CK1)
  3. Calculate and analyze the value and return of an index given its weighting method (CK1)
  • Lecture
  • Discussion

Reading:
CFA Material, Equity & Portfolio Management: Part I and Bodie, Kane & Marcus (2019) Investments (p. 6-143)
5

Introduction to Alternative Investments

  1. Explain what financial instruments are (CK1)
  2. Explain and differentiate between traditional and alternative investments (CK1)
  3. Describe types and categories of alternative investments (CK1)
  4. Explain investment characteristics of hedge funds; private capital; natural resources; real estate; and infrastructure (CK1)
  5. Describe the choices and issues in index construction and management (CK1)
  6. Compare the different weighting methods used in index construction (CK1)
  7. Calculate and analyze the value and return of an index given its weighting method (CK1)
  • Lecture
  • Discussion

Reading:
CFA Material, Introduction to Alternative Investments (p. 5-74)
6

Introduction to Alternative Investments

  1. Explain what financial instruments are (CK1)
  2. Explain and differentiate between traditional and alternative investments (CK1)
  3. Describe types and categories of alternative investments (CK1)
  4. Explain investment characteristics of hedge funds; private capital; natural resources; real estate; and infrastructure (CK1)
  5. Describe the choices and issues in index construction and management (CK1)
  6. Compare the different weighting methods used in index construction (CK1)
  7. Calculate and analyze the value and return of an index given its weighting method (CK1)
  • Lecture
  • Discussion

Reading:
CFA Material, Introduction to Alternative Investments (p. 5-74)
7

Investment risk and return

  1. Explain the concept of risk and return and how investors measure risk and return (CC1, CIP1)
  2. Calculate the holding period return of an investment (CC1, CIP1)
  3. Calculate the arithmetic and geometric mean return of an investment (CC1, CIP1)
  • Lecture
  • Discussion

Reading:
CFA Material, Portfolio Risk and Return: Part II (p. 191-243)
8

Investment risk and return

  1. Explain the concept of risk and return and how investors measure risk and return (CC1, CIP1)
  2. Calculate the holding period return of an investment (CC1, CIP1)
  3. Calculate the arithmetic and geometric mean return of an investment (CC1, CIP1)
  • Lecture
  • Discussion

Reading:
CFA Material, Portfolio Risk and Return: Part II (p. 191-243)
9

Investment risk and return

  1. Calculate the arithmetic and geometric mean return of an investment (CK1, CC1)
  2. Calculate the expected rate of return from an investment using CAPM (CK1, CC1)
  3. Calculate the beta, variance, standard deviation and share ratio of an investment (CK1, CC1)
  • Lecture
  • Discussion

Reading:
CFA Material, Portfolio Risk and Return: Part II (p. 191-243)
10

Investment risk and return

  1. Calculate the arithmetic and geometric mean return of an investment (CK1, CC1)
  2. Calculate the expected rate of return from an investment using CAPM (CK1, CC1)
  3. Calculate the beta, variance, standard deviation and share ratio of an investment (CK1, CC1)
  • Lecture
  • Discussion

Reading:
CFA Material, Portfolio Risk and Return: Part II (p. 191-243)
11

Investment risk and return

  1. Calculate the arithmetic and geometric mean return of an investment (CK1, CC1)
  2. Calculate the expected rate of return from an investment using CAPM (CK1, CC1)
  3. Calculate the beta, variance, standard deviation and share ratio of an investment (CK1, CC1)
  • Lecture
  • Discussion

Reading:
CFA Material, Portfolio Risk and Return: Part II (p. 191-243)
12

Introduction to Valuation: Industry Analysis

  1. Explain uses of industry analysis and the relation of industry analysis to company analysis (CK2)
  2. Explain how a company’s industry classification can be used to identify a potential “peer group” for equity valuation (CK2)
  3. Describe the elements that need to be covered in a thorough industry analysis (CK2)
  4. Describe the principles of strategic analysis of an industry (CK2)
  5. Evaluate whether economies of scale are present in an industry by analyzing operating margins and sales levels (CK2)
  6. Explain the effects of barriers to entry, industry concentration, industry capacity, and market share stability on pricing power and price competition (CK2)
  7. Describe macroeconomic, technological, demographic, governmental, and social influences on industry growth, profitability, and risk (CK2)
  • Lecture
  • Discussion

Reading:
CFA Material, Intro to Valuation: S.2.1 (p.2-4); S.2.2 (p.5-6)
Khan Academy: Interest & Debt (Videos 5-8)
13

Introduction to Valuation: Industry Analysis

  1. Explain uses of industry analysis and the relation of industry analysis to company analysis (CK2)
  2. Explain how a company’s industry classification can be used to identify a potential “peer group” for equity valuation (CK2)
  3. Describe the elements that need to be covered in a thorough industry analysis (CK2)
  4. Describe the principles of strategic analysis of an industry (CK2)
  5. Evaluate whether economies of scale are present in an industry by analyzing operating margins and sales levels (CK2)
  6. Explain the effects of barriers to entry, industry concentration, industry capacity, and market share stability on pricing power and price competition (CK2)
  7. Describe macroeconomic, technological, demographic, governmental, and social influences on industry growth, profitability, and risk (CK2)
  • Lecture
  • Discussion

Reading:
CFA Material, Intro to Valuation: S.2.1 (p.2-4); S.2.2 (p.5-6)
Khan Academy: Interest & Debt (Videos 5-8)
14

Introduction to Valuation: Industry Analysis

  1. Explain uses of industry analysis and the relation of industry analysis to company analysis (CK2)
  2. Explain how a company’s industry classification can be used to identify a potential “peer group” for equity valuation (CK2)
  3. Describe the elements that need to be covered in a thorough industry analysis (CK2)
  4. Describe the principles of strategic analysis of an industry (CK2)
  5. Evaluate whether economies of scale are present in an industry by analyzing operating margins and sales levels (CK2)
  6. Explain the effects of barriers to entry, industry concentration, industry capacity, and market share stability on pricing power and price competition (CK2)
  7. Describe macroeconomic, technological, demographic, governmental, and social influences on industry growth, profitability, and risk (CK2)
  • Lecture
  • Discussion

Reading:
CFA Material, Intro to Valuation: S.2.1 (p.2-4); S.2.2 (p.5-6)
Khan Academy: Interest & Debt (Videos 5-8)
15

Introduction to Valuation: Company Analysis

  1. Describe the elements that should be covered in a thorough company analysis (CK2)
  2. Describe how an investor reads income statements, cash flow statements, and balance sheets (CK2)
  3. Discuss tools for analyzing company strategy and financial performance (CK2)
  4. Describe the relationship between return on invested capital and competitive advantage (CK2)
  5. Explain how competitive factors affect prices and costs (CK2)
  6. Perform forecast on the following costs: cost of goods sold, selling general and administrative costs, financing costs, and income taxes (CK2)
  • Lecture
  • Discussion

Reading:
CFA Material, Intro to Valuation: S.2.1 (p.2-4); S.2.2 (p.5-6)
16

Introduction to Valuation: Company Analysis

  1. Describe the elements that should be covered in a thorough company analysis (CK2)
  2. Describe how an investor reads income statements, cash flow statements, and balance sheets (CK2)
  3. Discuss tools for analyzing company strategy and financial performance (CK2)
  4. Describe the relationship between return on invested capital and competitive advantage (CK2)
  5. Explain how competitive factors affect prices and costs (CK2)
  6. Perform forecast on the following costs: cost of goods sold, selling general and administrative costs, financing costs, and income taxes (CK2)
  • Lecture
  • Discussion

Reading:
CFA Material, Intro to Valuation: S.2.1 (p.2-4); S.2.2 (p.5-6)
17

Introduction to Valuation: Company Analysis

  1. Describe the elements that should be covered in a thorough company analysis (CK2)
  2. Describe how an investor reads income statements, cash flow statements, and balance sheets (CK2)
  3. Discuss tools for analyzing company strategy and financial performance (CK2)
  4. Describe the relationship between return on invested capital and competitive advantage (CK2)
  5. Explain how competitive factors affect prices and costs (CK2)
  6. Perform forecast on the following costs: cost of goods sold, selling general and administrative costs, financing costs, and income taxes (CK2)
  • Lecture
  • Discussion

Reading:
CFA Material, Intro to Valuation: S.2.1 (p.2-4); S.2.2 (p.5-6)
18

Introduction to Valuation: Company Analysis

  1. Describe the elements that should be covered in a thorough company analysis (CK2)
  2. Describe how an investor reads income statements, cash flow statements, and balance sheets (CK2)
  3. Discuss tools for analyzing company strategy and financial performance (CK2)
  4. Describe the relationship between return on invested capital and competitive advantage (CK2)
  5. Explain how competitive factors affect prices and costs (CK2)
  6. Perform forecast on the following costs: cost of goods sold, selling general and administrative costs, financing costs, and income taxes (CK2)
  • Lecture
  • Discussion

Reading:
CFA Material, Intro to Valuation: S.2.1 (p.2-4); S.2.2 (p.5-6)
19

Discounted Dividend Valuation

  1. Compare dividends, free cash flow, and residual income as inputs to discounted cash flow models (CC1)
  2. Identify investment situations for which each measure is suitable (CC1, CIP1)
  • Lecture
  • Discussion

Reading:
CFA Material, DD Valuation: S.3 (p.10-13); S.4.1 (p.14-16); S.5.1-S.3 (p.29-35); S.6.1-6.2 (p.44-48)
Khan Academy: Stocks and bonds (Videos 1-2, 7-12)
20

Discounted Dividend Valuation

  1. Calculate and interpret the value of a common stock using the dividend discount model (DDM) for single and multiple holding periods (CK2, CK3, CC1, CCIT1, CIP1)
  2. Calculate and interpret the implied growth rate of dividends using the Gordon growth model and current stock price (CC1, CIP1)
  • Lecture
  • Discussion

Reading:
CFA Material, DD Valuation: S.3 (p.10-13); S.4.1 (p.14-16); S.5.1-S.3 (p.29-35); S.6.1-6.2 (p.44-48)
Khan Academy: Stocks and bonds (Videos 1-2, 7-12)
21

Discounted Dividend Valuation

  1. Calculate and interpret the justified leading and trailing P/Es using the Gordon growth model (CK2, CK3, CC1, CCIT1, CIP1)
  2. Evaluate whether a stock is overvalued, fairly valued, or undervalued by the market based on a DDM estimate of value (CC1, CIP1)
  • Lecture
  • Discussion

Reading:
CFA Material, DD Valuation: S.3 (p.10-13); S.4.1 (p.14-16); S.5.1-S.3 (p.29-35); S.6.1-6.2 (p.44-48)
Khan Academy: Stocks and bonds (Videos 1-2, 7-12)
22

Free Cash Flow Valuation

  1. Compare the free cash flow to the firm (FCFF) and free cash flow to equity (FCFE) approaches to valuation (CK2, CK3, CC1, CCIT1, CIP1)
  2. Explain the ownership perspective implicit in the FCFE approach (CC1, CIP1)
  • Lecture
  • Discussion

Reading:
CFA Material, FCF Valuation: S.2.2.1-2.3.2 (p.4-6); S.3.1 (p.7); S.3.2 (p.10-11); S.3.4 (p.18-19); S.4.3 (p.39-40); S.5 (p.47)
Khan Academy: Stocks and bonds (Videos 16-17)
23

Free Cash Flow Valuation

  1. Calculate FCFF and FCFE (CK2, CK3, CC1, CCIT1, CIP1)
  2. Describe approaches for forecasting FCFF and FCFE (CC1, CIP1)
  3. Compare the FCFE model and dividend discount models (CC1, CIP1)
  • Lecture
  • Discussion

Reading:
CFA Material, FCF Valuation: S.2.2.1-2.3.2 (p.4-6); S.3.1 (p.7); S.3.2 (p.10-11); S.3.4 (p.18-19); S.4.3 (p.39-40); S.5 (p.47)
Khan Academy: Stocks and bonds (Videos 16-17)
24

Free Cash Flow Valuation

  1. Explain the use of sensitivity analysis in FCFF and FCFE valuations (CC1)
  2. Describe approaches for calculating the terminal value in a multistage valuation model (CC1, CIP1)
  3. Evaluate whether a stock is overvalued, fairly valued, or undervalued based on a free cash flow valuation model (CK2, CK3, CC1, CCIT1, CIP1)
  • Lecture
  • Discussion

Reading:
CFA Material, FCF Valuation: S.2.2.1-2.3.2 (p.4-6); S.3.1 (p.7); S.3.2 (p.10-11); S.3.4 (p.18-19); S.4.3 (p.39-40); S.5 (p.47)
Khan Academy: Stocks and bonds (Videos 16-17)
25

Multiples Valuation

  1. Distinguish between the method of comparables and the method based on forecasted fundamentals (CC1)
  2. Describe rationales for and possible drawbacks to using alternative price multiples and dividend yield in valuation (CC1, CIP1)
  • Lecture
  • Discussion

Reading:
CFA Material, Multiples Valuation: S.2.1 (p.3-4); S.3.1 (p.6-7); S.3.2 (p.37-38); S.3.4 (p.52-53); S.4.1 (p.60-61); S.4.3 (p.67)
26

Multiples Valuation

  1. Describe fundamental factors that influence alternative price multiples and dividend yield (CC1)
  2. Calculate and interpret the justified price-to-earnings ratio (P/E), price-to-book ratio (P/B), and price-to-sales ratio (P/S) for a stock, based on forecasted fundamentals (CK2, CK3, CC1, CCIT1, CIP1)
  • Lecture
  • Discussion

Reading:
CFA Material, Multiples Valuation: S.2.1 (p.3-4); S.3.1 (p.6-7); S.3.2 (p.37-38); S.3.4 (p.52-53); S.4.1 (p.60-61); S.4.3 (p.67)
27

Multiples Valuation

  1. Explain alternative definitions of cash flow used in price and enterprise value multiples and describe limitations of each definition (CC1)
  2. Explain sources of differences in cross-border valuation comparisons (CK2, CK3, CC1, CCIT1, CIP1)
  • Lecture
  • Discussion

Reading:
CFA Material, Multiples Valuation: S.2.1 (p.3-4); S.3.1 (p.6-7); S.3.2 (p.37-38); S.3.4 (p.52-53); S.4.1 (p.60-61); S.4.3 (p.67)
28

Valuing private company

  1. Understanding the process of valuing private companies (CK2, CC2)
  2. Describe the challenge analysts can face while valuing private companies (CK2, CC2)
  3. Describe the motives behind private company valuation and the different parties that could be involved (CK2, CC2)
  4. Describe the Common Methods for Valuing Private Companies (CK2, CC2)
  • Lecture
  • Discussion

Reading:
CFA Material, FCF Valuation: S.2.2.1-2.3.2 (p.4-6); S.3.1 (p.7); S.3.2 (p.10-11); S.3.4 (p.18-19); S.4.3 (p.39-40); S.5 (p.47)
Khan Academy: Stocks and bonds (Videos 16-17)
29

Valuing private company

  1. Calculate the risk adjusted cost of capital for a private company (CK2, CC2)
  2. Calculate the value of a private company using DCF and relative valuation approach (CK2, CC2)
  3. Explain the rationale for “Key Person risk” and “Illiquidity risk” and how it affects the value of private companies (CK2, CC2)
  • Lecture
  • Discussion

Reading:
CFA Material, FCF Valuation: S.2.2.1-2.3.2 (p.4-6); S.3.1 (p.7); S.3.2 (p.10-11); S.3.4 (p.18-19); S.4.3 (p.39-40); S.5 (p.47)
Khan Academy: Stocks and bonds (Videos 16-17)
30

Valuing private company

  1. Calculate the risk adjusted cost of capital for a private company (CK2, CC2)
  2. Calculate the value of a private company using DCF and relative valuation approach (CK2, CC2)
  3. Explain the rationale for “Key Person risk” and “Illiquidity risk” and how it affects the value of private companies (CK2, CC2)
  • Lecture
  • Discussion

Reading:
CFA Material, FCF Valuation: S.2.2.1-2.3.2 (p.4-6); S.3.1 (p.7); S.3.2 (p.10-11); S.3.4 (p.18-19); S.4.3 (p.39-40); S.5 (p.47)
Khan Academy: Stocks and bonds (Videos 16-17)
31

IPO Valuation

  1. Explain the reasons why a private company might go public and the twist to IPO valuation (CK2, CC2)
  2. Describe the challenges of going public as a private company (CK2, CC2)
  3. Describe the steps in an Initial Public Offering (IPO) and the types of listing (CK2, CC2)
  4. Describe the Common Methods for IPO valuation (CK2, CC2)
  • Lecture
  • Discussion

Reading:
CFA Material, FCF Valuation: S.2.2.1-2.3.2 (p.4-6); S.3.1 (p.7); S.3.2 (p.10-11); S.3.4 (p.18-19); S.4.3 (p.39-40); S.5 (p.47)
Khan Academy: Stocks and bonds (Videos 16-17)
32

IPO Valuation

  1. Explain the reasons why a private company might go public and the twist to IPO valuation (CK2, CC2)
  2. Describe the challenges of going public as a private company (CK2, CC2)
  3. Describe the steps in an Initial Public Offering (IPO) and the types of listing (CK2, CC2)
  • Lecture
  • Discussion

Reading:
CFA Material, FCF Valuation: S.2.2.1-2.3.2 (p.4-6); S.3.1 (p.7); S.3.2 (p.10-11); S.3.4 (p.18-19); S.4.3 (p.39-40); S.5 (p.47)
Khan Academy: Stocks and bonds (Videos 16-17)
33

Team Exercise: Multiples Valuation

  1. Calculate and interpret the justified price-to-earnings ratio (P/E), price-to-book ratio (P/B), and price-to-sales ratio for a stock, based on forecasted (CK2, CK3, CC1, CCIT1, CIP1)
  • Brief lecture
  • Examples of multiples valuation
  • Mini-presentation and discussion
34

Team Exercise: Multiples Valuation

  1. Calculate and interpret a predicted P/E, given a cross-sectional regression on fundamentals, and explain limitations to the cross-sectional regression methodology (CK2, CK3, CC1, CCIT1, CIP1)
  • Brief lecture
  • Examples of multiples valuation
  • Mini-presentation and discussion
35

Team Exercise: Multiples Valuation

  1. Calculate and interpret the P/E-to-growth ratio (PEG) and explain its use in relative valuation (CK2, CK3, CC1, CCIT1, CIP1)
  2. Calculate and explain the use of price multiples in determining terminal value in a multistage discounted cash flow model (CK2, CK3, CC1, CCIT1, CIP1)
  • Brief lecture
  • Examples of multiples valuation
  • Mini-presentation and discussion
36

Team Exercise: Forecasting Performance

  1. Compare top-down, bottom-up, and hybrid approaches for developing inputs to equity valuation models (CC1)
  2. Evaluate whether economies of scale are present in an industry by analyzing operating margins and sales levels (CC1, CIP1)
  • Brief lecture
  • Examples of performance forecasting
  • Mini-presentation and discussion
37

Team Exercise: Forecasting Performance

  1. Forecast the following costs: cost of goods sold, selling general and administrative costs, financing costs, and income taxes (CK2, CK3, CC1, CCIT1, CIP1)
  2. Describe the relationship between return on invested capital and competitive advantage (CC1, CIP1)
  • Brief lecture
  • Examples of performance forecasting
  • Mini-presentation and discussion
38

Team Exercise: Estimating WACC

  1. Explain and calculate the weighted average cost of capital for a company (CK2, CK3, CC1, CCIT1, CIP1)
  2. Understand the main objective of financial management (CK1, CK2, CC1, CIP1)
  • Brief lecture
  • Examples of WACC estimation
  • Mini-presentation and discussion
39

Team Exercise: Estimating WACC

  1. Describe the relationship between return on invested capital and competitive advantage (CC1, CIP1)
  • Brief lecture
  • Examples of WACC estimation
  • Mini-presentation and discussion
40

Team Exercise: Calculating FCFF and MVE

  1. Explain the appropriate adjustments to net income, earnings before interest and taxes (EBIT), earnings before interest, taxes, depreciation, and amortization (EBITDA), and cash flow from operations (CFO) to calculate FCFF and FCFE (CK2, CK3, CC1, CC2, CC3, CCIT1, CIP1)
  • Brief lecture
  • Examples of FCFF and MVE calculation
  • Mini-presentation and discussion
41

Team Exercise: Calculating FCFF and MVE

  1. Explain the single-stage (stable-growth), two-stage, and three-stage FCFF and FCFE models and select and justify the appropriate model given a company’s characteristics (CK2, CK3, CC1, CC2, CC3, CCIT1, CIP1)
  • Brief lecture
  • Examples of FCFF and MVE calculation
  • Mini-presentation and discussion
42

Team Exercise: Sensitivity Analysis

  1. Estimate a company’s value using the appropriate free cash flow model(s) (CK2, CK3, CC1, CC2, CC3, CCIT1, CIP1)
  2. Explain the use of sensitivity analysis in FCFF and FCFE valuations (CC1, CIP1)
  • Brief lecture
  • Examples of sensitivity analysis
  • Mini-presentation and discussion
43

Team Exercise: Sensitivity Analysis

  1. Calculate and interpret an equity risk premium historical and forward-looking estimation approaches (CK2, CK3, CC1, CC2, CC3, CCIT1, CIP1)
  2. Describe strengths and weaknesses of methods used to estimate the required return on an equity investment (CC1, CIP1)
  3. Evaluate the appropriateness of using a particular rate of return as discount rate, given a description of the cash flow to be discounted and other relevant facts (CK2, CK3, CC1, CC2, CC3, CCIT1, CIP1)
  • Brief lecture
  • Examples of sensitivity analysis
  • Mini-presentation and discussion
44 Team Presentations – Complete Report
(CK2, CC2, CCIT1, CIP1)		 Team presentations and feedback
45 Team Presentations – Complete Report
(CK2, CC2, CCIT1, CIP1)		 Team presentations and feedback
46 Team Presentations – Complete Report
(CK2, CC2, CCIT1, CIP1)		 Team presentations and feedback
47 Team Presentations – Complete Report
(CK2, CC2, CCIT1, CIP1)		 Team presentations and feedback
48

CFA Code of Ethics

  1. Describe a framework for ethical decision making, distinguishing between rules and ethics in regards to an investment professional (CK4, CIP2)
  2. Describe and apply the following standards and related substandards of the CFA Code of Ethics and Standards of Professional Conduct: Standard I Professionalism, Standard II Integrity of Capital Markets, and Standard VII Responsibilities as a CFA Institute Member or CFA Candidate (CK4, CIP2)
  • Lecture
  • Discussion
  • Group exercise on applying the standards to cases

Reading:
CFA Code of Ethics and Standards of Professional Conduct (p.6-226)
49

Global Investment Performance Standards (GIPS)

  1. Explain the purpose and applicability of GIPS (CK4, CIP2)
  2. Explain the purpose and construction of composites in performance reporting (CK4, CIP2)
  • Lecture
  • Discussion
  • Group exercise on applying the GIPS to cases

Reading:
Introduction to GIPS, GIPS (p.227-292)
50 Exam Review

9. TEXTBOOKS AND REFERENCES

Textbook

1. CFA Program Curriculum: Equity Investments and Portfolio Management – Level I Part I, CFA
Institute, 2019/2020
2. Damodaran A. (2012). Damodaran on Valuation: Security Analysis for Investment and Corporate
Finance, 2nd Edition, Wiley Finance.
3. Bodie, Kane & Marcus (2019) Investments, 11th Edition, McGraw Hill.
4. Reilly, F. & Brown, K. (2016) Analysis of Investments & Management of Portfolios, 10th Edition,
South-Western, Cengage Learning.

Additional References

1. CFA Institute, Introduction to the Global Investment Performance Standards, 2018.
2. CFA Institute, Global Investment Performance Standards, 2018.
3. CFA Institute, Code of Ethics and Standards of Professional Conduct Standards of Practice
Handbook, Eleventh Edition
4. CFA Institute, Guidance for Standards I–VII Standards of Practice Handbook, Eleventh Edition
5. Videos: https://www.khanacademy.org/economics-finance-domain/core-finance
6. Valuation: Measuring and Managing the Value of Companies, McKinsey & Company: T. Koller, M.
Goehart, and D. Wessels, 5th edition, 2010
7. Investment Valuation: Tools and Techniques for Determining the Value of Any Asset, A. Damodaran,
3rd edition, 2012
8. The Dark Side of Valuation: Valuing Young, Distressed, and Complex Businesses, A. Damodaran, 2nd
edition, 2009

Note: A financial calculator capable of performing operations with amortizing payments and uneven cash
flows (e.g., Texas Instruments BA II Pus, Hewlett Packard 12C, etc.). You could use an app on your smartphone
but it will not be allowed during exams. Please bring your calculator to each class.

Education Resources