Initial Term Plan smn 352 2018 - 13th March PDF

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SMN 352- 2018 Financial Statement Analysis and Security Valuation Dr. Aditi Gupta Contact Details Tel: 0207 848 3883 Email: [email protected] (I aim to answer all emails within 2 working days so it is the best way to reach me.) Office hours: Thursday and Friday 1-2 pm. Room: BH (S) 3.21 Timing, Location and Organisation Lectures will take place on Thursdays 2-3.30 in Bush House Auditorium BH(N)-1.01, and will comprise a mixture of lectures, case studies, problem solving and presentation by guest speakers. There is NO lecture capture for this module. Tutorials will he held weekly on the following Fridays. Students are required to prepare for the tutorials to be able to attend. You will be notified of the tutorial questions via Keats. Tutorials start in Week 2 (week starting 22nd January). Students are recommended to bring a calculator to both the lectures and tutorials. Aims and Objectives This course presents financial statement analysis from the point of view of the primary users of financial statements: company managers, creditors, and investors. The aim of this module is to provide students with tools to enable them to analyse financial statements and draw inferences about the performance and the value of a firm. The course is structured in two broad parts. Financial analysis forms the first part, focusing on past and present performance evaluation to generate expectations about future performance (prospective analysis), credit rating and distress prediction. The second part, security valuation, focuses on marketand accounting-based models to derive the value of a firm. All analyses are conducted within the context of a firm’s industry and strategy. On completion of the course students should be able to:  Expand their understanding of financial statements and develop key analysis tools that facilitate practical financial statement analysis;  Interpret balance sheets, profit and loss statements and cash flow statements on a time series and cross sectional basis;

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   

Calculate and interpret measures of a company’s liquidity, operating performance, risk and growth potential; Understand the uses and limitation of the tools for analysing financial statements; Compute and understand the value of a stock using different valuation models; Appreciate why it is important to examine a company’s performance relative to its competitors, industry and the economy.

Assessment A 3500 word written piece of course work in which students will be required to produce a professional equity analysis report based on a FTSE 100 firm of their choice (40%) in teams of up to 3 students (deadline Thursday 29th March 2018). Tutorials will examine cases which require preparation in advance and in-class participation. A two-hour written examination in May forms the remaining 60% of the assessment. Reading List Essential text: Palepu, K. G., Healy, P. M., & Peek, E. (2015). Business Analysis & Valuation: IFRS edition- Text and Cases. 4th Edition (Hereafter, referred to as PHP) You can buy the third edition of the book as long as you photocopy any new material and keep track of change in page numbers and question numbers from the old edition. Students are recommended to read the following text:- S. Penman, (2012), Financial Statement Analysis and Security Valuation, 5th Ed. McGraw-Hill Irwin. (or any previous editions) Key/additional readings and all course materials will be posted on Keats. Initial Course Outline and essential reading (subject to changeupdated in lectures; additional reading will be indicated in lecture notes) Week Topic Chapter Case Coursew s study ork Introduction to SMN PHP Part 1 1: Thursday, 352. Introduction to Chapter 18th Financial Statements, 1, parts January: IFRS. Financial of 2-3.30 Statement Analysis. Chapter 4 (ignore BH(N)Framework for

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1.01

Analysis and Valuation Using Financial Statements

detailed accounti ng treatmen ts).

2: Thursday, 25th January: 2-3.30 BH(N)1.01

Strategy analysis and Accounting analysis. Industry & competitive advantage analysis. Porter’s five forces. Accounting analysis: international variations in GAAP, managerial discretion, red flags. Fiat Group (PHP chapter 3: pp. 118-21) Ratio and Cash flow analysis. Financial analysis of investment, financing, dividend and operating policies. Sustainable growth rate. In class example: cash flow analysis. Credit analysis and distress prediction I Suppliers of credit. Debt ratings. Bankruptcy laws. Altman Z score model to predict bankruptcy: Uses and Limitations.

PHP Chapters 2, 3, 4 (ignore detailed accounti ng treatmen ts).

Additional Part 2 case 9aTwo European hotel groups (A): Accor and NH Hoteles (on Keats)

PHP Chapter 5

H&M and Part 3 Inditex (PHP Chapter 5)

PHP Chapter 10

Forecasting and Price Multiples Structure and nature of forecasts. Role of

PHP Chapter 6

Additional Part 4 case 10: Two European hotel groups (B): Accor and NH Hoteles (PHP- on keats). Part 5 Optional First drafts

3: Thursday, 1st February 2018: 23.30 BH(N)1.01 3: Thursday, 8th February: 2-3.30 BH(N)1.01

5: Thursday, 15th February:

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2-3.30 BH(N)1.01

analysts. Introduction to valuation. Price multiples, Comparable valuation.

6: Thursday, 22nd February 7: Thursday, 1st March, 2-3.30 BH(N)1.01

Reading Week

Credit analysis and distress prediction II Guest Lecture: Peter Kernan, S&P’s Ratings. Managing Director, Global Criteria Officer, Corporate RatingsLecture 2-3 followed by informal Q&A.

PHP Chapter 10

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Equity Valuation I:

PHP

due 4.00pm. Friday 16th February . Sign up for feedback slots on in reading week and on 2nd March 14th Feb 3-5pm Visit to London Stock Exchange 50 places. First come first ‘served’!

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Sign up for feedback on first drafts NO tutorials – coursewo rk related office hours Friday 2nd March No tasks

Chapter 7, 8; Penman (2007) Financial Statemen t Analysis and Security Valuation, 3e, Chapter 4.

Thursday, 8th March, 23.30 BH(N)1.01

Present values. Forecast horizon. Terminal value. Entity and equity approach. Discounted cash flow and discounted dividend models. Cost of capital.

9: Thursday, 15th March, 23.30 BH(N)1.01 10: Thursday, 22nd March, 23.30 BH(N)1.01

Revision lecture. Free cash flows, Past exam paper (2016) and exam structure discussion

11: Thursday, 29th March.

Equity Valuation II: TBC Guest Lecture: Steve Taylor, EX Senior Partner at Ernst & Young. Valuation & Business Modelling. Lecture 2-3 followed by informal Q&A NO Lectures and tutorials

for CW Tuesday 6th March 24pm Visit to Bloomber g- 20 places. First come first ‘served’! No tasks for CW

Final Coursewo rk submissio n 29th March

Lecture, tutorials and office hours for SMN 352. Time Monday Thursday Wednesday Thursday 10-11

Friday Tutorial 1 BH (NE) 1.02 Tutorial 2

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BH (NE) 1.02

12-1

Tutorial 3 BH (NE) 1.02

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Office hours Office hours BH (S) 3.21 BH (S) 3.21

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2-3.30 Bush House Auditorium BH(N)-1.01

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Tutorial 4 BH (NE) 1.02 Tutorial 5 BH (NE) 1.02...