FIN 377-4: FINANCIAL ANALYSIS (Spring 2008)
Instructor: Dr. Kamm, Department of Finance, GSB 5.124C
Email: kelly.kamm@mccombs.utexas.edu
T.A.: Amrita Dukeshier, amrita.dukeshier@mba08.mccombs.utexas.edu
Chris Sybille christopher.sybille@mba08.mccombs.utexas.edu
Sections 03100 & 03105: 8 to 9:30 & 9:30 to 11 in CBA 4.330
Office Hours: 11-12 Tuesdays and Thursdays
Course Notes: GSB Copy Center, blackboard, class distribution
Required Reading Packet: Packet of Notes and Case Studies (COOP)
Suggested Subscription: WSJ (subscribe); helpful in stock research & short papers
Financial Calculator Required: Financial Calculator HP 10b11 or 17b11
Financial Software: Bloomberg, Stock Val, Stock-Trak simulation
COURSE OVERVIEW:
Financial Analysis is designed for finance majors in order to improve their skills at
analyzing companies and to advance their knowledge of finance theory and application.
The overall financial analysis includes: bond valuation, financial statement analysis,
financial ratios, financial forecasting, beta and the CAPM, the weighted average cost of
capital, the Gordon Growth model, discounted cash flow analysis and multiples. Students
are expected to integrate skills of finance, economics, and accounting in the course. The
course is quantitative and analytical in nature; we made use of the trading center
throughout most of the term. Students calculate and interpret financial data, build
spreadsheet models, and make general conclusions about the financial health of a
company and its intrinsic value.
In this course a combination of methods is utilized with special emphasis on student
involvement and teamwork. The professor reviews terms and theory, asks questions,
demonstrates techniques, assigns problems and guides students in their case preparation.
Students take a very active part in this class. Much of the learning in this course will take
place outside of the classroom as students work on problem sets, invest $500,000 across
various assets in a simulated portfolio, and prepare the paper and presentation. The
emphasis on student involvement encourages students to learn by doing and encourages
the self-motivation so important to the workplace.
The course concludes with current case study applications on different types of
companies in a variety of industry groups. By this time students will be formed in formal
groups of 4-5 people. Students implement valuation models to determine “fair value” for
a company’s stock. In debate fashion, students present their financial analysis and argue
that the stock is currently priced correctly or alternatively overvalued (undervalued). The
WSJ (interactive edition) and market data on the Internet will be important sources of
information for student learning and research. Most groups get along well with the usual
“bumps in the road.” More serious problems shall be brought to the attention of the
professor.
COURSE OBJECTIVES:
Some of the objectives of this course include:

Improved ability to analyze and value companies in different industries using skills of
finance, accounting and economics.

Greater understanding of the business strategy and financial ratios of well-known
companies in various industries.

Review of major accounting and finance principles. Improved forecasting and
valuation skills.

Improved ability with Excel tools and better familiarity with financial data programs.

Improved presentation, communication, and analytical skills. Improved ability to
work in a team.

Greater understanding of the financial issues and problems occurring at the current
time.
EVALUATION:
Final grades will be determined as follows:
Multiple Choice Tests (Individual Grade)
45%
There will be two multiple-choice tests. The first counts for 20% and the second for 25%
of the final grade. The tests will evaluate students’ understanding of the material covered
to date. The tests primarily cover material only in that unit; to the degree that the
material builds the tests include such material. The in-class tests include theory
questions, problems requiring application and interpretation (including working with a
spreadsheet, financial statement, or trading center handout) and current events questions.
You may bring a financial calculator and a sheet with notes. Each test has twenty-five
questions and each question is worth four points.
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Papers and Presentation (Group Grade with Individual Component)
40%
The two papers are an analysis of the performance of the various assets held in the stocktrak portfolio. The first paper is 5 to 7 pages written plus approximately the same number
of exhibits. In this paper students shall review various holdings and the performance of
the various assets. This paper counts for 10% of the final grade.
The group presentation is given in the form of a debate. It counts for 10% of the final
grade. Two teams are assigned a particular stock. One side presents financial models
and information supporting the position that the stock is undervalued and a “good buy.”
The other side argues that the stock is overvalued and should be rated as a “sell.”
Students shall use power-point slides to outline their position and supporting evidence.
Presentations will be graded on strength of analysis, level of interest, and presentation
skills. The overall team effort supports each member’s performance and generally leads
to similar presentation grades. Still, due to individual differences, grades may vary
among students in the same group.
The second paper is an analysis of the performance of various assets held in the stocktrak portfolio. This paper is more in-depth than the first paper and is 8-10 pages written
plus approximately the same number of exhibits. The second paper should also highlight
one stock and its valuation using a DCF and multiples approach. This paper counts for
20% of the final grade.
If a group member has not contributed to written work, you may not include his or her
name on papers. A group member who contributes at a very low level may be asked to
withdraw from the group and work alone. You may consult with the course instructor as
needed. Most students have excellent participation which is recognized (or not) in the
next component of the grade.
Participation & Peer Review – Curve or Reduction (Individual Grade)
15%
Class participation is based on the contribution of each student to the class. Solid
performance in this area requires consistent attendance, keeping up with course readings
and any assigned homework, good peer evaluations, and actively working on the group
presentations. For most students, participation works like a slight curve. An “objective
grade” is run based on the previous 90% listed. Then, students with good participation
will receive a curve of ½ to a full letter grade for this 10% component. Inconsistent
attendance or limited effort results in a low participation grade. Each student fills out
anonymous evaluations of all group members’ efforts and contributions. The professor
uses class attendance and preparedness as well as peer evaluations as the basis for
assigning the participation grade.
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SCHEDULE:
T, Jan 15
Review of Syllabus / Current Financial Events
Get: financial calculator, readings packet at University COOP
Th, Jan 17
Goldman Sachs Valuation Presentation (9:30 CBA4.330 12:30 UTC4.104)
Bring case packet and financial calculator to next class
T, Jan 22
Bond Math - The Yield Curve and Theory of the Term Structure
Finish problems from Bond Math and from 1st Problem Set
Th, Jan 24
Fixed Income Valuation / Submit Group Requests
Read 2 Cases: The Income Statement and The Balance Sheet
T, Jan 29
Overview of Income Statement and Balance Sheet
One member register group in Stock-Trak using Fund Name instead of student name
Th, Jan31
Trading Center – Spreadsheet Work with Income St. & Balance Sheet
Read Cases on Cash Flow Statement and Free Cash Flow
Achieve full investment in Stock-Trak by Th, Jan 31-Mon, Feb 4
T, Feb 5
Overview of Cash Flow Statement & Free Cash Flow
Read & prepare Cases on Cash Flow Statement and Free Cash Flow
Th, Feb 7
Trading Center - Spreadsheet Work on Forecasting FCF and DCF
Group H.W. Assignment – Articles & updated DCF (WMT, EBAY, DELL, TIF)
T, Feb 12
In-Class Analysis of Stock Valuation
Read & prepare Note on Value Drivers
Th, Feb 14
Trading Center – Value Drivers Case – Beta, P/B, EVA
Read & prepare Introduction to Valuation Multiples
T, Feb 19
Overview of Valuation Multiples /
2nd Problem Set - In-Class Problems on convertible bonds, EPS forecast
Th, Feb 21
Trading Center – Multiples Valuation … P/E, PEG, EV/EBITDA
T, Feb 26
Current Financial Events & Catch-Up / 5 Example Problems Distributed
Th, Feb 28
1st Multiple Choice Test
Read & prepare Amazon.com in the Year 2000
T, Mar 4
Amazon.com in the Year 2000 – Case Discussion and Professor Lecture
Work on 1st Paper
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Th, Mar 6
Trading Center – Assessing Amazon’s Financial Health post-2000
Read Introduction to Financial Ratios and FS Analysis for after spring break
Mar 10 –14
Spring Break
T, Mar 18
Overview of Introduction to Financial Ratios& F.S. Analysis
Finish 1st Paper to submit by Thursday, Mar 20, 4 p.m. Finance Department
Th, Mar 20
Trading Center – Financing Forecasting Case Review & Spreadsheets
Submit 1st Paper by 4 / Read 3 Cases: Bond Ratings, Cost of Capital, Required Returns
T, Mar 25
Overview off Bond Ratings, Cost of Capital and Required Returns
3rd Problem Set - Cost of debt, cost of equity, WACC, DDM
Th, Mar 27
Trading Center – Beta Regression, CAPM, WACC
Read & prepare next 3 Cases –bring financial calculator to class
T, April 1
Dividend Discount Model, IBM and Coca Cola: Case Review
4th Problem Set / Read Valuing a Business or Earnings Stream
Th, April 3
Valuing a Business or Earnings Stream: Case Review
Prepare for Valuation Debate
T, April 8
Trading Center – Review of Bloomberg DDM and multiples
Prepare for Valuation Debate
Th, April 10
Valuation Debate 1 & Evaluation of Debate
T, April 15
Valuation Debate 2 & Evaluation of Debate
Th, April 17
Current Financial Events & Catch-Up / 5 Example Problems Distributed
T, April 22
Valuation Debate 3 & Evaluation of Debate
Th, April 24
Valuation Debate 4 & Evaluation of Debate
T, April 29
Valuation Debate 5 & Evaluation of Debate
Th, May 1
2nd Multiple Choice Test
Th, May 8
Turn in Final Group Paper, 4p.m., Finance Dept.
* Please note that current events will be added when the schedule allows. The above
schedule is meant to be approximate. At times we may be slightly ahead of or slightly
behind schedule. Trading center dates may need to be moved. Necessary changes
regarding times, assignments, and other matters will be announced in class.
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Information Regarding Scholastic Dishonesty, Class Web Sites and Student Privacy
I. Scholastic Dishonesty – I follow university policy on scholastic dishonesty and include
for your benefit a review of the Policy Statement on Scholastic Dishonesty for the
McCombs School of Business. It says, “By teaching this course, I have agreed to
observe all of the faculty responsibilities described in that document. By enrolling in this
course, you have agreed to observe all of the student responsibilities described in that
document. If the application of that Policy Statement to this class and its assignments is
unclear in any way, it is your responsibility to ask me for clarification. Policy on
Scholastic Dishonesty: Students who violate University rules on scholastic dishonesty
are subject to disciplinary penalties including the possibility of failure in the course and /
or dismissal from the University. Since dishonesty harms the individual, all students, and
the integrity of the University, policies on scholastic dishonesty will be strictly enforced.
You
should
refer
to
the
Student
Judicial
Services
website
at
http://deanofstudents.utexas.edu/sjs/ or the General Information Catalog to access the
official University policies and procedures on scholastic dishonesty as well as further
elaboration on what constitutes scholastic dishonesty.”
II. Class Web Sites and Student Privacy: Please know that I use Blackboard to post your
course packet and relevant course documents and I use egradebook to post grades where
each student in the class is able to check his or her grade privately. I also use the email
list provided me in Blackboard to send out occasional class emails. From the Fall 2001
Course Schedule the following paragraph may help you determine any related privacy
issues. It states, “Password-protected class sites will be available for all accredited
courses taught at the University. Syllabi, handouts, assignments, and other resources are
types of information that may be available within these sites. Site activities could include
exchanging email, engaging in class discussion and chats, and exchanging files. In
addition, class e-mail rosters will be a component of the sites. Students who do not want
their names included in these electronic class rosters must restrict their directory
information in the Office of the Registrar, Main Building, Room 1. For information on
restricting directory information, see
http://www.utexas.edu/student/registrar/catlalogs/gi02-03/app/appc09.html.”
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