Finance Case

FIN 377-4: FINANCIAL ANALYSIS (Spring 2011)

Instructor: Dr. Kamm, Department of Finance, GSB 5.124C

Email: kelly.kamm@mccombs.utexas.edu

Instructor Office Hours: 2-3:30 Tuesday and Thursday

T.A.s: John Friesen and Dan Zablotney, MBA Students

Section 03130: 11-12:30 CBA 4.348; reserved days in trading center

Required Tutorial: Yield Curves and Bond Ratings Tutorial

Required Reading Packet: Packet of Harvard, Ivey, Stanford, Darden Cases

Course Notes: Overhead notes, spreadsheets, major assignments etc. posted to Blackboard

Suggested Subscription: WSJ (subscribe); helpful in stock research and papers

Financial Calculator Required: Financial Calculator HP 10b11 or 17b11

Financial Software: Bloomberg, Stock-Trak stock, bond, and other asset 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 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.

CLASSROOM EXPECTATIONS:

Professional behavior is expected in the classroom. Arriving on time, excellent attendance, being attentive and participating are all essential for the success of the class. Electronic devices are prohibited during class; computers shall be used only for the class material being worked on at the moment. Please provide documentation via email for absences. Adherence to the above expectations helps ensure a high participation / evaluation grade. Inability to meet these expectations will lead to a lowering of the final participation / evaluation grade.

EVALUATION:

Final grades will be determined as follows:

Two Tests (Individual Grade) 40%

There will be two tests; each test will have a multiple choice section counting for about 40% of the grade and a problem solving / analysis / short essay counting for about 60% of the grade. The first counts for 15% 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 and case 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 an 8 by 11 piece of paper with notes or formulas written on one side only. In the case that a test is missed with an excused absence, the student will take a cumulative final at the end of the term.

Case Presentation with Supporting Work (Group Grade with Individual Component) 10%

Each group will present a case to the class. The presentation should be about 30-40 minutes. Approach the case as though you were in a case competition and work through any analytical or modeling issues proposed in the case. Primarily in your presentation, walk the class through the primary points and issues in the case. Your goal is to educate your peers at a deeper level. The power-point presentation will be emailed to me and posted to Blackboard to share with your peers. Your presentation and the power-point slides will be evaluated on: organization, accuracy, degree of interest, professional appearance of power-point, and communication skill.

Debate Presentation (Group Grade with Individual Component) 10%

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.

Two Papers 30%

The two papers are an analysis of the performance of the various assets held in the stock-trak portfolio. The first paper is about 10 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 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 10 to 12 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) 10%

Class participation is based on the contribution of each student to the class as a whole and to the group efforts. Solid performance in this area depends on: consistent attendance; demonstration that you are prepared for class particularly the cases; effort level toward group papers and presentations; strong reviews by peers in their evaluations; and adherence to class policies (see below for class policies including prohibition of improper use of electronics during class). For most students, participation serves as a slight curve toward the final grade. After all components prior to this one have been scored, the grades are combined to provide an “objective average” or “starting point” grade for participation. Students with good participation will receive this grade or higher (up to a letter grade) for the participation grade. A student with poor attendance or poor effort in group work, or anyone who is disruptive earns a zero. Thus the grade in this final category may range from zero to 96. Most students—those with good class performance and solid participation, receive an A or B for the participation curve. This last component, if high, tends to help students on the borderline—for example a grade of 79 prior to participation will likely result in a final grade of an 80.

Review of Breakdown

1st test 15%,

2nd test 25%

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