Financial Statement Analysis_en
Syllabus
Financial Statement Analysis
Fall 2011
Text::
Jeffrey C. Hooke, Security Analysis and Business Valuation, "on Wall Street", + Website, A Comprehensive Guide to Today's' Valuation Methods, John Wiley and Sons, Inc., Hoboken, New Jersey, USA, 2nd. Edition, 2010.
Student Companion Site:: http://bcs.wiley.com/he-bcs/Books?action=index&itemId=0470277343&bcsId=5631
Class::
Male/Female: Sat, Mon, Wed 08:00 – 09:00, Rm.: A2-403
Instructor::
eMad AbuShaaban, CPA (PAL)
MSA, Master of Science in Accounting /USA
MMD, Master in Management Development /SPAIN
Inception Phase, Ph. D in Accounting /EGYPT
Office Hour::
Tue, Thu 9:00 - 10:00 or
By Appointment, Cellular: 0599 885 448,
Email: emad.abushaaban@gmail.com
Objective::
This course contains five main parts. Part One: provides an overview of the environment in which common stocks are issued, researched, bought, and sold. Part Two: Performing the Analysis and Writing the Research Report. The investment merits of a particular business are evaluated through a methodical approach. Both the history and the prospects of the company are considered. Part Three: Valuation and the Investment Decision. At the conclusion of the report, the equity analyst must answer two questions: (1) Is this company fairly valued? and (2) Based on the previous answer, should I recommend investing in the business? Part Four: Special Cases. The model company for security analysis training is a U.S.-based manufacturer with a history of improving sales and earnings. Part Five: looks at how investors are reacting to two major market declines in 10 years. The course closes with some observations and a few maxims
Class::
Lecture, class discussion, problem solving, assignment presentation Format and computer lab if it was possible.
Assignment::
For full credit, assignments must be submitted at the beginning of class on the date due. Late assignments are accepted unless (1) they are discussed in class or (2) the start of final exams . Grads on assignments are reduced proportionate to the extent that they are late.
Workgroups:
Group study and discussion outside of class is encouraged. Group work on assigned exercises and problems from the text is acceptable only if each student submits his or her own copy of the assignment (Note: reproductions are not acceptable.)
Grading Scale:
- Mid-term Exam 10%
- Presentation 35%
- Final Examination 55%
Examination questions are tested for validity. If 60% or more of those who respond to a question give an incorrect answer, that question (or part of a question) will be invalidated and the basis of the examination adjusted; equivalent extra credit is added to the score of those students who answer the question correctly.
Week #1
PREFACE
WHAT IS SECURITY ANALYSIS?
- Recent Trends
- Why Study Security Analysis and Business Valuation?
- Overview of the Contents
- What’s New in the Second Edition
PART ONE: THE INVESTING ENVIRONMENT
CHAPTER 1: WHY ANALYZE A SECURITY?
- The Origins of Security Analysis
- No Profit Guarantee
- Day-to-Day Trading and Security Analysis
- Herd Psychology and Security Analysis
- Momentum Investors
- Game Theory and Security Analysis
- The Premise of Security Analysis
- Scientific Method
- Security Analysis Techniques
- Basic Valuation Approaches
- Other Valuation Approaches
CHAPTER 2: WHO’S PRACTICING SECURITY ANALYSIS AND BUSINESS VALUATION?
- Securities Firms and Their Analysts
- Major Institutional Investors
- A Dying Art?
- Index Funds and Exchange-Traded Funds
- Small Money Management Firms
- Rating Agencies
- Individual Investors: A Special Category
- Business Valuation
Week #2
CHAPTER 3: SEEKING A LEVEL PLAYING FIELD
- Brief History of Securities Regulation
- The Chief Regulator: The Securities and Exchange Commission
- Sales and Trading Practices
- Margin Regulation
- The Life Cycle of a New Security Issue
CHAPTER 4: OTHER SOURCES OF INFORMATION
- The Business Media
- The Free Internet
- The Fee-for-Service Internet
- Trade Associations, Consulting Firms, Government
- Publications, and Financial Organizations
- Credit Rating Agencies
- Securities Firm Research
- Newswires
- Independent Expert Services
Week #3
PART TWO: PERFORMING THE ANALYSIS AND WRITING THE RESEARCH REPORT
CHAPTER 5: STARTING THE ANALYSIS
- The Security Analysis Process
- Model Research Report
- The Analyst’s Responsibility
- The Cascade of Projections
- Selecting Stocks for Study: Top-Down versus Bottom-Up
- Limited Time and Resources
- The Margin of Safety
CHAPTER 6: INDUSTRY ANALYSIS
- Background
- Organizing an Industry Analysis
- Industry Classification
- External Factors
- Demand Analysis
- Supply Analysis in the Industry Study
- Profitability, Pricing, and the Industry Study
- International Competition and Markets
Week #4
CHAPTER 7: COMPANY-SPECIFIC ANALYSIS
- Systematic Approach of a Business Analysis
- Overview and Business Description
- Products and Markets Section
- Production and Distribution
- Competition
- Other Topics Included in the Business Review
CHAPTER 8: FINANCIAL STATEMENT ANALYSIS OF AN ESTABLISHED BUSINESS
- Beginning the Investigation
- The Raw Materials of an Analysis
- Evolution of the Approach to Financial Statements
- Illustration of the Basic Approach
- Review of Neiman Marcus Financial Analysis
Week #5
CHAPTER 9: THE LIMITATIONS OF ACCOUNTING DATA
- Basic Accounting Issues
- Global Issues
- Company-Specific Accounting Issues
- The Fundamental Objective of Public Companies
- Case Study: Stability Corporation
CHAPTER 10: FINANCIAL ANALYSIS AND COMPANY CLASSIFICATION
- Company Classifications
- The Mature Company
- The Growth Company
- The Cyclical Company
- The Declining Company
- The Turnaround 175
- The Pioneer 175
- Financial Games
- Extra Shares Outstanding?
Week #6
Midterm Exam
Week #7
CHAPTER 11: FINANCIAL PROJECTION POINTERS
- The Cascade of Projections
- The Typical Financial Projection
- Alternate Means of Forecasting
- Critiquing the Huntsman Chemical Projection
- Preparing Projections
- Cyclical Company Forecast
- Hockey Stick Phenomenon
PART THREE: VALUATION AND THE INVESTMENT DECISION
CHAPTER 12: Valuation Methodologies
- Assessing Each Methodology
- Applying Multiple Methodologies
CHAPTER 13: INTRINSIC VALUE AND DISCOUNTED CASH FLOW
- Issues in Applying Discounted Cash Flow
- Discounted Cash Flow versus Relative Value
- Discounted Cash Flow and the P/E Ratio
- The Discounted Cash Flow Valuation Process
Week #8
CHAPTER 14: DISCOUNTED CASH FLOW: CHOOSING THE RIGHT DISCOUNT RATE
- Beta
- The Buildup Method for the Equity Rate of Return
- Special Cases
CHAPTER 15: THE RELATIVE VALUE APPROACH
- Real Estate Analogy
- What’s the Right P/E Ratio?
- Case Study: Temporary Staffing Services
- Valuing an Initial Public Offering
- Balance Sheet Items and Relative Value
- How High Is Up?
CHAPTER 16: MARGINAL PERFORMERS
- Defining the Problem Company
- Small Companies and Relative Value
Week #9
CHAPTER 17: THE MERGERS AND ACQUISITIONS MARKET, SECURITY ANALYSIS, AND VALUATION
- Understanding Leveraged Buyouts
- LBO Mechanics
- Case Study: Keane, Inc.
- How Much Can the PE Firm Pay?
- LBO Valuation and the Security Analysis of a Publicly
- Traded Company
- Strategic Takeover Values
CHAPTER 18: SUM-OF-THE-PARTS ANALYSIS
- Background
- Taxes Favor Spin-Offs versus Cash Sales
- Sample Sum-of-the-Parts Analysis
- Business Division Valuation
- Nonoperating Corporate Assets and Liabilities
- Unlocking Sum-of-the-Parts Values
CHAPTER 19: THE INVESTMENT RECOMMENDATION
- Summary Top-Down Analysis
- Discounted Cash Flow Valuation
- Relative Value/Sum-of-the-Parts Valuation Approach
- Acquisition Value
- Leveraged Buyout Method
- Investment Recommendation
Week #10
PART FOUR: SPECIAL CASES
CHAPTER 20: PRIVATE EQUITY
- Industry Segmentation and Size
- Fee Structure
- Private Equity Does Not Beat the S&P 500
- Private Equity Funds and Information Collection
- Private Equity Changes to the Public Company
- Valuation Methodology
- Liquidity and Control Adjustments
CHAPTER 21: NATURAL RESOURCE COMPANIES
- General Methodology
- The Financial Reporting of Natural Resource Companies
- Case Study: Encore Acquisition Company
- Mining Companies
Week #11
CHAPTER 22: FINANCIAL INDUSTRY STOCKS
- Product Lines
- The Nature of Financial Assets
- Two Sets of Skills
- Lending
- Large Commercial Banks
CHAPTER 23: INSURANCE COMPANIES
- General Background
- Principal Functions of an Insurance Company
- Insurance Company Regulation
- Financial Statement Analysis: Property and Casualty Company
- Financial Statement Ratios
- Life Insurance Companies
Week #12
CHAPTER 24: HIGHLY SPECULATIVE STOCKS
- Background
- Discounted Cash Flow
- Case Study: Ballard Power Systems
- Venture Capital Markups and IPOs
- Historical Perspective
- Security Analysis, Technology Stocks, and Portfolio
CHAPTER 25: DISTRESSED SECURITIES AND TURNAROUNDS
- Investment Opportunities
- Screening Technique
- Recognize the Options of an Unsuccessful Turnaround
- Financial Analysis of a Company with Leverage Problems
- The Investment Decision
- Evaluating Turnarounds
- Liquidations
Week #13
CHAPTER 26: INTERNATIONAL STOCKS
- The Role of Security Analysis
- American Depositary Receipts
- Developed Country Markets
- Relative Value Multiples
CHAPTER 27: THE EMERGING MARKETS
- Emerging Markets and Security Analysis
- Stock Pricing Guidelines
- Financial Projections
- Emerging Market Equity Discount Rate
- Relative Value in the Emerging Markets
Week #14
PART FIVE: IN CONCLUSION
CHAPTER 28: ASSET BOOMS AND BUSTS
- The 2008 Crash: Contributing Causes
- Collapse of the U.S. Housing Bubble
- Failure of the Referees
- The Certainty of Another Crash
- How Might Security Analysis and Business Valuation Change?
CHAPTER 29: CLOSING THOUGHTS
Week #15
PRESENTATIONS, WRAP UP AND CONCLUDING
Week #16
Final Exam
Good Luck
Important Links:
http://www.virtualpet.com/industry/howto/search.htm
http://www.virtualpet.com/industry/howto/search2.htm#companies
http://www.virtualpet.com/industry/howto/search.htm#magazines
http://www.philau.edu/infolit/sba/candiresearch.htm
http://www.philau.edu/infolit/sba/candiscreenshots.htm#lnindustry
http://www.philau.edu/infolit/sba/candiresearch.htm
http://faculty.philau.edu/lermackh/