VALUATION AND INVESTMENTS (FINC 412)

AIM

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 and real estate valuation (focus on commercial and residential property, and on Cambodia real estate market) approaches such as discounted cash flow models, market multiple models as well as valuation of a 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.

  • COURSE DESCRIPTION
  • ROLE IN CURRICULUM
  • LEARNING OUTCOMES
  • STUDY PLAN
  • TEACHING METHODS
  • ASSESSMENT AND GRADING
  • TEXTBOOKS AND REFERENCES

COURSE DESCRIPTION

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; learning to evaluate real estate investment opportunities; Identify the core drivers of market value and market performance in the property market; 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 a real estate asset and how to estimate that value is a prerequisite for making rational business decisions.

Credit: 5
Lecture Hours: 75

Self-Study Hours:

  • Reading: 54 (162 pages of technical reading)      
  • Review: 42 (3 short case studies, final case study)
  • Assignment: 54 (research, analysis, writing)
    150  

Total Study Hours: 225

ROLE IN CURRICULUM

Prerequisites

Students must have completed Finance 1 before attempting this course.

 

 

LEARNING OUTCOMES

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

1  Knowledge

Level of Learning PLO CLO Learning Outcome
Understand PC1 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 PC1 CK2 Explain the appropriate techniques for valuation and management of equity investments (for a listed and private company) and real estate investment and considerations that may impact the assets value.
Understand PIP2 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.

2  Cognitive Skills

Level of Learning PLO CLO Learning Outcome
Evaluate PC1 CC1 Evaluate the different approaches to estimating equity investment risk and return and cost of capital from a company’s perspective.
Create PC1 CC2 Apply different models for stock valuation of a listed company and a private company in the context of real-world evidence.
Evaluate PC1 CC3 Evaluate different models for real estate valuation of a commercial and residential property considering issues that impact on the valuation.

3  Communication, Information Technology, and Numerical Skills

Level of Learning PLO CLO Learning Outcome
Apply PCIT2 CCIT1 Use Microsoft Excel software and other packages useful for forecasting and analysing financial information.

4   Interpersonal Skills and Responsibilities

Level of Learning PLO CLO Learning Outcome
Create PIP2 CIP1 Develop teamwork skills
Remember PIP3 CIP2 Behave ethically as a finance analyst in accordance with the CFA Code of Ethics

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.

No 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

Portfolio Risk and Return

  • Explain risk aversion and its implications for portfolio selection (CC1).
  • Illustrate and interpret the minimum-variance and efficient frontiers of risky assets and the global minimum-variance portfolio (CIP1).

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.   Compare alternative investments with traditional investments (CC1).
  2.   Describe categories of alternative investments (CC1, CIP1).
 Lecture
Discussion
Reading:
CFA Material, Introduction to Alternative Investments (p. 5-74)
6

Introduction to Alternative Investments

  1.   Describe categories of alternative investments (CC1, CIP1).
  2.   Summarize hedge funds, private equity, real estate, commodities, infrastructure, and other alternative investments (CC1).
 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

  1.   Illustrate definitions of value and justify which definition of value is most relevant to public company valuation (CC1, CIP1).
  2.   Explain broad criteria for choosing an appropriate approach for valuing a given company (CC1, CIP1).

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

  1.   Illustrate definitions of value and justify which definition of value is most relevant to public company valuation (CK1, CC1, CIP1).
  2.   Explain broad criteria for choosing an appropriate approach for valuing a given company (CK2, CC1, CIP1).
  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

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.5.1-5.3 (p.29-35); S.6.1-6.2 (p.44-48)
Khan Academy: Stocks and bonds (Videos 1-2, 7-12)
15

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.5.1-5.3 (p.29-35); S.6.1-6.2 (p.44-48)

Khan Academy: Stocks and bonds (Videos 1-2, 7-12)
16

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.5.1-5.3 (p.29-35); S.6.1-6.2 (p.44-48)

Khan Academy: Stocks and bonds (Videos 1-2, 7-12)
17

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)
18

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)
19

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)
20

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)
21

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)
22

Multiples Valuation

  1.   Explain alternative definitions of cash flow used in price and enterprise value (EV) 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)
23

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)
24

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)
25

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)
26

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)
27

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)
28

Real Estate Valuation

  1.   Classify and describe basic forms of real estate investments (CC1).
  2.   Describe the characteristics, the classification, and basic segments of real estate (CC1, CIP1).
 Lecture
Discussion
Reading:
CFA Material, Private Real Estate Investments (p. 5-44)
29

Real Estate Valuation

  1.   Explain the role in a portfolio, economic value determinants, investment characteristics, and principal risks of private real estate (CK1, CK2, CC1).
  2.   Compare the direct capitalization and discounted cash How valuation methods (CC1, CIP1).
 Lecture
Discussion
Reading:
CFA Material, Private Real Estate Investments (p. 5-44)
30

Real Estate Valuation

  1.   Describe due diligence in private equity real estate (CC1).
  2.   Discuss private equity real estate investment indexes, including their construction and potential biases (CK2, CK3, CC1, CCIT1, CIP1).
 Lecture
Discussion
Reading:
CFA Material, Private Real Estate Investments (p. 5-44)
31

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 (P/S) for a stock, based on forecasted (CK2, CK3, CC1, CCIT1, CIP1)
 Brief lecture
Examples of multiples valuation
Mini-presentation and discussion
32

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
33

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 (DCF) model (CK2, CK3, CC1, CCIT1, CIP1).
 Brief lecture
Examples of multiples valuation
Mini-presentation and discussion
34

Team Exercise: Forecasting Performance

  1.   Compare top-down, bottom-up, and hybrid approaches for developing inputs to equity valuation models (CC1).
  2.   Evaluate whether economics 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
35

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
36

Team Exercise: Forecasting Performance

  1.   Explain how competitive factors affect prices and costs (CC1, CC2, CC3).
  2.   Explain how to forecast industry and company sales and costs when they are subject to price inflation and deflation (CK2, CK3, CC1, CCIT1, CIP1).
 Brief lecture
Examples of multiples valuation
Mini-presentation and discussion
37

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
38

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
39

Team Exercise: Estimating WACC

  1.   Estimate the required return on an equity investment using the capital asset pricing model (CK2, CK3, CC1, CCIT1, 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: Calculating FCFF and MVE

  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 FCFF and MVE calculation
Mini-presentation and discussion
43

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
44

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
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 Team Presentations – Complete Report  (CK2, CC2, CCIT1, CIP1) Team presentations and feedback
49

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)
  1.   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).
50

Global Investment Performance Standards (GIPS)

  1. Explain the purpose and applicability of GIPS (CK4, CIP2)
  1. 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).
 

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.

ASSESSMENT AND GRADING

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

Assessment Weight of each assessment Learning Outcome Assessed
CLO PLO
Attendance & Participation 5% All CK, CC1, CCIT1, CIP PCIT1, PCIT 2
In-class tests 10% All CK, CC1, CCIT1, CIP1 PCIT1, PCIT 2
Homework 10% CK1, CK2, CK3, CC1 PCIT1, PK2, PC1
Assignments (Stock Valuation) 30% CK1, CK2, CK3, CIP1 PCIT1, PCIT 2
Midterm exam 15% CK1, CK2, CK3, CC1,CC3 PCIT1, PCIT 2
Final exam 30% CK1, CK2, CK3, CC1,CC3, CIP1 PCIT1, PCIT 2
Total grading score 100%  

During the term there is one assignment.

Business Valuation Assignment

Work Group: 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.

or  Real estate valuation assignment

This assignment requires each team to value a property in Cambodia. A detailed analysis of the local real estate market condition is the starting point. In addition, you need to predict the future cash flow generated from the asset and use the discount cash flow model to value the property. The quality of the report, the quality of the analysis, and the logical reasoning in developing the analysis are the key factors for the assessment.

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.

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. nvestment 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