Post Graduate Programme in Management

2014-15 TERM: IV

TITLE OF THE COURSE: FINANCIAL REPORTING, ANALYSIS AND VALUATION CREDITS: 4COURSE: Elective Course No. of Section, if elective course: 1 Instructor Email: Tel. Number Faculty Block and Room No. Dr. Ramesh Gupta COURSE DESCRIPTION This course is about the use of financial information in valuation. With a careful assessment of accounting quality of published reports, financial analysis is used to develop practical analytical tools for valuation and active investing. It integrates accounting principles with finance concept through fundamental analysis. In discussing valuation models, the latest academic research will be integrated with traditional approaches, such as discounted cash flow models and earnings and book value multiples, which are widely used. COURSE OBJECTIVES By the end of the course students should have answers to the following questions: How are fundamental values (or intrinsic values) estimated? How is value created for shareholders identified? What are the key drivers? How does one analyze the financial statements to get at the relevant intimation for valuing equities? How does one analyze the quality of financial reports? What is the relevance of cash-flows? Of dividends? Of earnings? Of book values? How does profitability tie into valuation? What is growth? How does one analyze growth? How does one value a growth firm? What determines a firms P/E ratio? What determines a firms market-to-book (P/B) ratio? How does one evaluate an equity research report? The course should be of interest to those contemplating careers in investment banking, security analysis, consulting, and corporate finance. And it will also help with personal investing.

PEDAGOGY/TEACHING METHOD The participants are expected to go-through the readings and adequately prepare the case assigned for the day. On some topics lectures would be used as a follow-up to cases to more clearly lay out the conceptua l issues raised in the case discussion EVALUATION Weightage Class Attendance/Participation 10% Course Project 20% Quizzers/mid - term 30% Final Exam 40% Total 100% SCHEDULE OF SESSIONS Module I Introduction to investing and valuation Module Objective Introduces the financial statements and the tools that are used in fundamental analysis. Sessions and Objective Session 1: A Framework for Financial Statement, Analysis & Valuation Objective: Linking Business Analysis & Financial Strategy using financial statements. Reading: SP Ch. 1 Assignment: E 1.5, E1.6 Case: M1.1 America Online Inc. Session 2: Introduction to the Financial Statements Objective: Reviewing Financial Statements and other published information Reading:SP Chapter 2 Assignment:E 2.7, E.2.10, E.13 and Annual Report of ??? Case: ?

ModuleII Valuation Models Module Objective Understanding of different valuation models that use the features of financial statements. Alternative models are discussed so as to appreciate the strength and weaknesses of alternative approaches. Sessions and Objective Session 3:How financial statements are used in Valuation Objective:Multiples, assets-based valuation, architecture of fundamental analysis Reading:SP Chapter 3 Assignment:E 3.7, E 3.10 Cases: M 3.3 Weyerhouser Company Session 4:Cash Accounting, Accrual Accounting, and Discounted Cash Flow Valuation Objective:Discounted Cash Flow Model, The Statement of Cash Flows, Cash flow earnings and accrual accounting Readings:SP Ch 4 Assignment:E 4.10, E 4.11 Cases: M 4.1 Coca Cola and Home Depot Session 5:Estimating Terminal Values in Discounted cash flow Valuation Objective: ? Readings:? Assignment:Rocky Mountain Case:? Session 6: Accrual Accounting and Valuation: Pricing Book Values Objective: The concept behind the Price-to-Book Ratio, Residual Earnings Model Reading: SP Ch 5 Note: Accounting Based Valuation- Ohlson Assignment: E 5.3, E5.5, E5.6, E 5.10 Case: M5.1, Cisco system M5.2 Pepsi and Coca Cola

Session 7: Accrual Accounting and Valuation: Pricing Earnings Objective: How to price earnings income statement and calculate intrinsic price-earnings ratio Reading: SP Ch 6 Assignment: E 6.3, E 6.4, E 6.11, E 6.12 Cases: M 6.2 Pepsi & Coca cola, M 6.3 Google Module III The Analysis of Financial Statement Module Objective Learn financial statement analysis that identifies value generation in business and provides information for forecasting. Sessions and Objective Session 8: Business Activities and Financial Statements Objective: Reformulating statements accruals Reading: SP Chapter 7 Assignment: E 7.6, 7.7 7.8 Case: ? Session 9: Analyzing the Statement of Shareholders Equity Objective: Reformulation highlights the concept of comprehensive income, clean and dirty surplus Reading: SP Chapter 8 Assignment: E 8.9, 8.12 Cases: M 8.1 Microsoft Corporations Session 10: The Analysis the Balance Sheet and Income Statement Objective: Reformulation of these statements and Comparative Analysis Reading: SP Chapter 9 Assignment: E9.5, 9.9 Case: 9.1 P and G I

Session 11: Analyzing the Cash Flow Statement Objective: Reformulates the cash flow to capture operating and financing activities Reading: SP Chapter 10 Assignment: E10.3, 10.7, 10.11 Case: ??? Session 12: Analyzing Profitability Objective: Analysis of profitability that is necessary for forecasting future profitability and valuations. Reading: SP Chapter 11 Note - Ratio Analysis and Valuation- Dorron Nissin Assignment: E 11.4, 11.7, 11.10 Cases: M 11.1 P and G II Session 13: Analyzing Growth and Sustainable Earnings Objective: Analysis of Growth that is necessary to complete the evaluation of P/B and P/E ratio Reading: SP Chapter 12 Assignment: E 12.5 Cases: M 12.1 P&G III, M 12.2 Microsoft, M 12.3 IBM ModuleIV Forecasting and Valuation Analysis Module Objective To find values, one needs to compute payoffs. This module shows how to forecast payoffs within a financial statement framework thru proforma financial statement analysis. The analysis then would show how to convert forecasts into valuation of firms and their strategies. Sessions and Objective Session 14: Valuation of Operations Objective: Learn to develop valuation based only on operations and how to calculate intrinsic P/E and P/B ratios from operations Reading: SP Ch. 13 Assignment: E 13.9, E 13.11, E13.18 Case: M 14.2 Cisco System

Session 15: Simple Forecasting and Simple Valuation Objective: Develop simple valuation model based on forecast of operating profitability and growth Reading: SP Ch. 14 Assignment: E 14.5, E14.7, E14.10 E14.13 Case: M 14.2 Cisco System Session 16: Full Information Forecasting and Valuation Objective: How information outside the financial statements is utilized to improve simple forecasts Reading: SP Ch. 15 Assignment: E 15.4, E 15.6, E15.9 Case: P&G V, M15.3 Maytag Module V Accounting Analysis and Valuation Module Objective Deals with accounting issues that arises with the use of accounting based valuation. How to deal with variety of accounting practices and assess the quality of accounting used. Sessions and Objective Session 17: Creating Accounting Value and Economic value Objective: The effect of alternate accounting policies forecasts of profitability and growth Reading: SP Ch 16 Note- Diversity in Accounting Principles Assignment: E16.3, 16.4, E 16.6 Case: M 16.1 E* Trade Sessions 18 and 19: Analysis of the Quality of Financial Statements Objective: Finding out quality of accounting and its affect on current earnings and forecasted earnings Reading:SP Ch 17 Note- Accounting Scams- Genesis by Ramesh Gupta Assignment: E 17.7, E17.11, E. 17.12 E17.14 Case: M 17.1 Xerox

Session 20: Review and Catch-up Additional Reading 1. Koller, T., Goedhart, M., and Wessels D., Valuation: Measuring and Managing the

Value of Companies, McKinsey & Company Inc., 5th Edition, 2010

2. Palepu K., Healy P. and Bernard, Business Analysis and Valuation: Using Financial Statements, Text and Cases, South-Western, 5th Edition, 2010.

3. White G., Sondhi A., and Fried D., the Analysis and Use of Financial Statements, Wiley, 3rd Edition, 2004

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