Financial Statement Analysis and Valuation (Katz) SU2016

7/25/2019 Financial Statement Analysis and Valuation (Katz) SU2016

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Financial Statement Analysis and Valuation

MBA 8009|Summer 2016

Professor Sharon Katz

Course Description and Syllabus

Instructor:

Professor: Sharon KatzOffice: 605A Uris HallTelephone: 212-851-9442Email: [email protected]

Teaching Assistant:

Yuan [email protected]

Course Objective:

The objective of the course is to provide students with hands-on experience in financialstatement analysis. Students will be exposed to general tools of financial analysis, theoretical

concepts, and practical valuation issues. By the end of the course, students should be

comfortable with using firms' financial statements to develop an understanding of their

performance and to establish a basis for making reasonable valuation estimates.

Course content and organization:

In this course students will be exposed to a comprehensive financial statement analysis and

valuation framework that integrates strategy, financial reporting, financial analysis and

valuation, and the application of this framework to fundamental analysis.

The first half of the course develops an accounting-based valuation framework that integrates

a firm's strategy, its financial performance, and its accounting credibility. Two main topics

will be covered:

Reporting strategy analysis: assessing a firm's value proposition and identifying key

value drivers and risks; evaluating the degree to which a firm's accounting policies

capture the underlying business reality; assessing a firm's earnings quality; making

accounting adjustments to eliminate management biases.

Performance analysis and valuation: evaluating current performance and its future

sustainability, making forecasts of future profitability and risk, and valuing businesses

using earnings and book value data.

The second half of the course applies the above framework to a variety of business valuation

contexts, including equity-investment analysis, IPOs, and mergers.

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Connection to the core

The learning in this course will utilize, build on and extend concepts covered in the following

core courses. Students will be expected to have mastered these concepts and be able to apply

them in the course.

Core Course Connection with Core

Financial Accounting

The different financial statements and their line items The accounting equation (Assets = Liabilities + Equity) Accounting concepts (e.g., revenue recognition, matching) Cash vs. accrual accounting

Corporate Finance Firm valuation model Cost of capital (e.g. CAPM, WACC) Time value of money

Strategy Formulation Sources of economic value

Who should take this course?

This course is aimed at all students who expect at some point in their careers to use financialstatements to evaluate the performance, prospects, and value of a business. The primary

emphasis will be on the analysis of public companies, but many tools and techniques utilized

are relevant to private enterprise financial analysis as well.

Please note that this is not a course on forensic accounting. We will focus on accounting

issues so that we can cleanse the financial statements before we carry out any analysis.

Please look through the session by session outline to get a better feel for what this course

entails.

Emphasis on Cases:We will use the case method almost exclusively in this course. There will be at least fourteen

full-class length cases during this course.

Method of Evaluation:

Grading will be based on a combination of the following.Class Participation: 30%Individual Project: 60% (Assignment Type B)Individual Pre-Course and During-Course Assignments: 10% (Assignment Type B)[In accordance with Columbia Business Schools policy all grade appeals should be made inwriting].

Class Participation:

Class Participation is essential for a course such as Financial Statement Analysis and Valuation

to ensure that one learns from the experiences of others and meaningfully contributes to the

overall discussion. Grading for class participation will be based on factors such as quality of

participation, interest, level of participation, and attendance. Everyone should come to class

having read the materials assigned and prepared the cases. I will cold call in class, both at the

beginning of the case discussion and during the class.

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Individual Project:

To deepen students' ability to apply the course skills in a practical context, they will work on an

individual project. Students will apply complete financial statement analysis of a firm of their

choice, using the course framework. Additional information will be provided about the project,

as the course progresses. (Assignment Type B).

Individual Pre-Course and During-Course Assignments:

Students will need to hand-in the two pre-course assignments on the first day of class, as well as

several additional assignments during the course (Assignment Type B).

Curriculum Materials:

This course will rely heavily on the textbook, "Business Analysis and Valuation using Financial

Statements, By Palepu & Healy (5thedition). Almost all the readings will be from the book.

There are two versions of the book. It is important to get the edition without the cases as the

relevant cases are in the course packet. It is a hard-cover book: ISBN-13: 978-1111972301

(ISBN-10 1111972303). The book should look like:

In addition, I will occasionally provide handouts, research papers relevant to the course, and

clippings from the business press. There will also be a course packet with handouts, case

materials and PowerPoint slides. I will use CANVAS for posting assignments, announcements,

and grades.

About me:

I have been at the Columbia Business School since 2010, after spending four years teaching at

Harvard Business School. I have a Ph.D. in Business Administration from Columbia Business

School, an MBA from UCLA, and a B.A. in economics and LL.B. in law from Tel-Aviv

University. I have served in the Israeli Air Force, and have worked as a corporate lawyer in

Israel and as an investment banker in NYC.

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Course Outline (Indicative Refer to CANVAS for details)

* Individual Pre-Course Assignments: Students will need to hand-in the two pre-course assignments on the first day

of class.

Day Module Topic Case /Lecture Pre-CourseAssignments*

Readings

1 Introduction Course Overview HurryDate Chapter 1

Accounting Analysis Revenue Recognition Bausch & Lomb, Inc. (A) Yes* Chapter 4Accounting Analysis Consolidation Boston Chicken, Inc.Accounting Analysis Depreciation choices Depreciation at Delta Air Lines and

Singapore AirlinesYes*

2 Financial Analysis Debt Covenants Home Depot, Inc. Chapter 5Financial Analysis Financial Ratios Target Corporation: Ackman versus

the BoardProspective Analysis- Forecasting

Forecasting (stores) Krispy Kreme Doughnuts Chapter 6

Prospective Analysis- Forecasting

Forecasting (mean reversion) Lecture - Dupont

3 Prospective Analysis- Forecasting

Forecasting (condensed ratios) Corrections Corp. of America

Prospective Analysis Valuation

Residual Income (RI) Model Lecture - RI/DCF Chapter 7


Application RI, PB, PE Exercises Chapter 8


Review Class and Project Lecture - Review

4 Applications Plain Vanilla Valuation Ryanair Holdings plcApplications IPO (2 sessions) United Parcel Service's IPOApplications Emergence from Bankruptcy Eddie Bauer (A)

5 Applications M&A Schneider and Square D Chapter 11Applications LBO Dollar General Going PrivateFinancial Analysis of

Banks

Regulatory Capital Citigroup 2007: Financial Reporting

and Regulatory CapitalSummary Wrap-up Summary/Debrief

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Course Outline (Indicative Refer to CANVAS for details)

Monday, May 16 Tuesday, May 17 Wednesday, May 18 Thursday, May 19 Friday, May 20

9:00 10:30 AMIntroduction

Case HurryDate

9:00 10:30 AMDebt Covenants

Case Home Depot

9:00 10:30 AMForecasting

(Condensed Ratios)

Case Correction Corp

9:00 10:15 AMPlain Vanilla

Valuation

Case Ryanair

9:00 10:15 AMM&A

Case Schneider

and Square D

10:30 11:15 AM

Discussion Groups

10:30 11:15 AM

Discussion Groups

10:30 10:45AM

Coffee Break

10:15 11:00 AM

Discussion Groups

10:15 11:00 AM

Discussion Groups

11:15 12:30

Revenue Recognition

Case Bausch &

Lomb

11:15 12:30

Financial Ratios

Case Target Corp

10:45 12:00

Residual Income Model

Lecture RI/DCF

11:00 12:15

IPO

Case UPS (1)

11:00 12:30

LBO

Case Dollar

General

12:30 1:30 PM

Lunch

12:30 1:30 PM

Lunch

12:00 1:00 PM

Lunch

12:15 1:15 PM

Lunch

12:30 1:30 PM

Lunch1:30 2:15 PM

Discussion Groups

1:30 2:15 PM

Discussion Groups

1:00 1:45 PM

Discussion Groups

1:15 2:00 PM

Discussion Groups

1:30 2:15 PM

Discussion Groups

2:15 3:45 PM

Consolidation

Case Boston

Chicken

2:15 3:45 PM

Forecasting (Stores)

Case Krispy Kreme

1:45 3:00 PM

Applications

Exercises

Case Valuation Ratios

in the Restaurants

Industry

2:00 3:15 PM

IPO

Case UPS (2)

2:15 3:45 PM

Regulatory Capital

Case - Citigroup

2007

3:45 4:00 PM

Coffee Break

3:45 4:00 PM

Coffee Break

3:00 3:15 PM

Coffee Break

3:15 3:30 PM

Coffee Break

3:45 4:00 PM

Coffee Break

4:00 5:30 PM

Depreciation Choices

Case Depreciation at

Delta Air Lines and

Singapore Airlines

4:00 5:30 PM

Forecasting (mean

reversion)

Lecture Dupont

3:15 5:30 PM

Review Class and

Project

Lecture Review

3:30 5:30 PM

Emergence from

Bankruptcy

Case Eddie Bauer

4:00 5:30 PM

Wrap-Up

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Documents

Financial Statement Analysis and Valuation (Katz) SU2016