• Compute key financial ratios using financial statements of publicly traded companies
• Determine financial health of the companies by interpreting key financial ratios
• Convert data from accounting statements into free cash flows for valuation purposes
• Apply DCF (discounted cash flow) model for in valuation of projects and companies in various industries and economic conditions
• Apply relative valuation models using market and transaction multiples

This course covers the use of financial information to value firms, projects, and securities in a variety of industries under different economic conditions. The course
will be largely based on case studies and will focus on learning techniques of financial analysis, selecting an appropriate valuation model, analyzing the quality of financial data, and forecasting financial variables and cash flows. The course assumes that you have a good working knowledge of introductory accounting, finance, and economics.

Preliminary assignment:

Read two papers: (1) Introduction to Financial Ratios and Financial Statement Analysis and (2) Assessing a Company’s Future Financial Health;

Class 1: Review of financial statements and financial ratios: balance sheet, income statement, statement of cash flows, key ratios; Case: Santa Fe Trading Company;
Class 2: Valuation framework and the cost of capital calculations; Case Eaton Corp.
Class 3: Pro-forma financial statements and evaluation of investment projects; Case: Hansson Private Label Inc.: Evaluating an Investment in Expansion
Class 4: Evaluating financial information in the M&A scenario; Case: Sun Micro.
Class 5: Analysis of financial statements in banking; Case: Citigroup 2007: Financial Reporting and Regulatory Capital
Class 6: in-class company valuation (AT&T and Time Warner merger);

Feedback activity: Students will be asked to analyze financial information and estimate the value of a company (financial statements will be provided). The final exam will also be a case study.

Class 7: Accounting ratios and relative valuation process; Case: SUN Brewing
Class 8: Real estate industry (REITS) analysis; Case: Simon’s Hostile Tender for Taubman
Class 9: Health care industry: leveraged buyout analysis; Case: HCA, Inc.
Class 10: How activist investors use accounting data to identify their targets; Case: Kerr-McGee
Class 11: Course review;

6-week course.

Preliminary Assignment: The course coordinator uploads Preliminary Assignment on Canvas at the end of May. It is expected that students participate as it will be included in the final exam, but the assignment is without independent assessment and grading.

Mandatory readings

Notes:
1. Introduction to Financial Ratios and Financial Statement Analysis, 9-193-029, Rev. September 13, 2004
2. Assessing a Company’s Future Financial Health, #9-911-412, Rev. May 28, 2012
3. Business Valuation: Standard Approaches and Applications, UV6586; rev. Nov. 21, 2013
4. Corporate Valuation and Market Multiples, #9-206-039, Rev. January 16, 2009
5. The Cost of Capital: Principles and Practice, #UV6793, Rev. Nov. 13, 2015
Required Cases:
1. Santa Fe (provided on Canvas)
2. Hanson Private Label Inc.: Evaluating an Investment in Expansion, Brief Cases, #4021, Rev. March 1, 2010
3. Sun Microsystems. UV5626.
4. Citigroup 2007: Financial Reporting and Regulatory Capital, 9-111-041; Rev. October 6, 2010
5. SUN Brewing (B), #9-207-039, Rev. June 28, 2010
6. Simon’s Hostile Tender for Taubman (A), 9-205-052, Rev. January 19, 2006;
7. HCA, Inc (A), 9-207-076, Rev. December 21, 2011
8. Kerr-McGee, #9-207-020, Rev. July 25, 2012

Required reading materials to be purchases from HBS Publishing at this link:
https:/​/​hbsp.harvard.edu/​import/​1096746

Additional relevant readings:
Ivo Welch, Corporate Finance: 4th Edition, 2017 (Free online access) Ch. 14-15, 21