GEMBA XII – Theme 2 LA
Evaluating Market Performance
21 to 28 June 2015, USC University Park Campus, Los Angeles
Professors Julia Plotts (JP), Mark DeFond (MD), Greg Patton (GP), Dawn Porter (DP)
Essential focus: understanding the syllabus, reading all materials and being prepared to discuss.
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Sunday, 21 June
16:00
Marshall IT / SharePoint Orientation (bring laptops)
Monday, 22 June
07:30
Breakfast
08:30
Finance Session 1 – Professor Plotts
Topic: Introduction to Corporate Finance
The objective of this session is to provide an introduction to the key ideas in
corporate finance. We will discuss basic concepts involved in time value of
money including present value, future value and net present value. The value of
most assets is determined by discounting the cash flows those assets are
expected to generate at an appropriate cost of capital. In this session we will
introduce and begin to explore this discounted-cash-flow approach to valuation.
Required Reading: Textbook: Ross, Westerfield, and Jaffe (RWJ), Chapters 1, 4 and 8.
09:45
Break
10:00
Finance Session 2 – Professor Plotts
Topic: Introduction to Corporate Finance – continued
11:15
Break
11:30
Finance Session 3 – Professor Plotts
Topic: Introduction to Corporate Finance – continued
12:45
Lunch
13:45
Statistics Session 1 – Professor Porter
Topic: Introduction to Statistics & Descriptive Statistics
Required Reading: Textbook: HOG, Chapters 1 and 2
15:00
Break
15:15
Statistics Session 2 – Professor Porter
Topic: Descriptive Statistics & Probability (random variables and distributions)
Required Reading: Textbook: HOG, Chapter 3 and 4.1 through 4.4
GEMBA XII, Theme 2A, Evaluating Market Performance Syllabus, 21 to 28 June, Page 1 of 8
16:30
Break
16:45
Beginner Excel class (optional)
Tuesday, 23 June
07:30
Breakfast
08:30
Finance Session 4 – Professor Plotts
Topic: Performance Measurement and Stock Valuation
What do the numbers mean? We will discuss tools for analyzing company strategy and financial
performance. We will focus on the following key areas:

Cash Flow: The difference between the amount of cash you end up with at the end of a certain
period of time versus how much you started with. More positive cash flow is good. Cash is King!
Decision-making rests on after-tax cash flows.

Ratios: Learning what the numbers are really telling you. The financial statements tell a story
through performance ratios such as profitability, leverage, liquidity, efficiency, return on
investment. We will interpret and analyze financial statements and ratios including market value
measures such as P/E ratio, market/book ratio and enterprise value multiples.

We will discuss how to utilize a DuPont approach in corporate and strategic analysis. This will
allow us to consider external financing and growth. We will calculate and interpret internal and
sustainable growth rates for firms and will discuss the determinants of growth.

We will discuss how to value stocks through the application of a discounted cash flow model.
We will consider both dividends paid and capital gains and the impact of growth opportunities:
net present value of growth opportunities (NPVGO).
Required Reading: Textbook: RWJ, Chapters 2, 3 and 9
09:45
Break
10:00
Finance Session 5 – Professor Plotts
Topic: Performance Measurement and Stock Valuation - continued
11:15
Break
11:30
Finance Session 6 – Professor Plotts
Topic: Performance Measurement and Stock Valuation - continued
12:45
Lunch
13:45
Statistics Session 3 – Professor Porter
Topic: Probability (normal distribution, expected value, standard deviation)
Required Reading: Textbook: HOG, Chapters 5.1, 5.2, 5.4, 5.5
15:00
Break
GEMBA XII, Theme 2A, Evaluating Market Performance Syllabus, 21 to 28 June, Page 2 of 8
15:15
Statistics Session 4 – Professor Porter
Topic: Sampling Distributions
Required Reading: Textbook: HOG, Chapter 6
Wednesday, 25 June
07:30
Breakfast
08:30
Finance Session 7 – Professor Plotts
Quiz: will cover material in Sessions 1 – 6. This counts for 1/2 of your Theme 2
Finance grade.
09:45
Break
10:00
Finance Session 8 – Professor Plotts
Topic: Using NPV in Corporate Investment Decisions
The purpose of this session is to learn how to apply the standard tools for
assessing the attractiveness of a proposed capital investment. Review the
Baldwin Company example in the text.
Required Reading: Textbook: RWJ, Chapters 5-6
11:15
Break
11:30
Joint Class – Professors Porter and Plotts
Topic: Correlation and Covariance
Required Reading: Textbook: HOG, Chapter 11.5
12:45
Lunch
13:45
Accounting Session 1 – Professor DeFond
Topic: Introduction to the Primary Financial Statements and the Balance Sheet
Purpose: The overarching objective of the first two sessions is to provide
students with a basic grounding in the fundamentals of financial reporting and
the process that generates financial reports. Our first session begins with a big
picture overview of the primary financial statements. We use Wal-Mart’s annual
report to make the big picture more concrete. We then go through a case that is
designed to “look under the hood” of the accounting model by demonstrating
how a balance sheet is constructed. In the process, we discuss some of the
concepts and principles that underlie the accounting model. Students are not
required to learn the formal system of “debits and credits” in this course
(although all of the details are presented in the text and I am happy to answer
any questions you may have about debits and credits). Instead, we will employ a
more user-friendly approach that uses a “financial statement effects template.”
This is an alternative to using debits and credits, and is introduced beginning on
page 49 of your text.
Required Readings:
GEMBA XII, Theme 2A, Evaluating Market Performance Syllabus, 21 to 28 June, Page 3 of 8

Textbook: Magee, Dyckman & Pfeiffer, Chapters 1 and 2

Case: The Big Picture: Starbucks; Chicken Feet Burgers
Suggested Homework Problems: M1 – 24; P1 – 36; M2 – 18; E2 – 42
The homework problem numbers refer to the problems at the end of each
chapter of Dyckman, Magee & Pfeiffer. Homework assignments do not have to
be turned in. They are assigned to help you get practice with the topics covered
in each chapter.
15:00
Break
15:15
Accounting Session 2 – Professor DeFond
Topic: Introduction to the Primary Financial Statements and the Balance Sheet –
continued
16:45
OIS Passport Verification (PPV) (required only for those notified)
Thursday, 25 June
07:30
Breakfast
08:30
Finance Session 9 – Professor Plotts
Topic: Using NPV in Corporate Investment Decisions - continued
09:45
Break
10:00
Finance Session 10 – Professor Plotts
Topic: Valuation of Risky Securities
The purpose of this session is to develop an understanding of the basic
techniques for valuing securities when the cash flows accruing to those
securities are risky. This session lays out the basic foundations of this important
topic in finance. This session focuses on how to measure risk, how diversification
influences total risk, how to determine the cost of capital and how to use the cost
of capital to value risky investments.
Required Readings:

Textbook: RWJ, Chapters 10 and 11
11:15
Break
11:30
Finance Session 11 – Professor Plotts
Topic: Valuation of Risky Securities– continued
12:45
Lunch
13:45
Accounting Session 3 – Professor DeFond
Topic: Measuring Performance: The Income Statement
Purpose: This session focuses on understanding the Income Statement and
introduces the concepts that govern revenue and expense recognition and
GEMBA XII, Theme 2A, Evaluating Market Performance Syllabus, 21 to 28 June, Page 4 of 8
measurement. This session builds on the basic principles and concepts that
were laid down in the first session and, importantly, formally introduces the
notion of “accrual-basis” accounting, a very old but very ingenious method of
measuring the flow of wealth over time. We also discuss some of the differences
and similarities between financial reporting in the U.S. and financial reporting in
other countries around the world.
Required Readings:

Textbook: Magee, Dyckman & Pfeiffer, Chapters 2 and 3

Case: Chicken Feet Mania
Suggested Homework Problems: Q3-10: Q3-12; Q3-14; Q3-16; P3-42 (part A only)
Just do the “financial statement effects template” portion of part A only. You are
NOT required to make the journal entries.
15:00
Break
15:15
Accounting Session 4 – Professor DeFond
Topic: Measuring Performance: The Income Statement – continued
18:00
GEMBA/IBEAR Mixer at The Lab
Friday, 26 June
07:30
Breakfast
08:30
Statistics Session 5 – Professor Porter
Topic: Inference: Confidence Intervals
Required Reading: Textbook: HOG, Chapter 7
09:45
Break
10:00
Statistics Session 6 – Professor Porter
Topic: Inference: Significance Tests for the Mean (In-class quiz)
Required Reading: Textbook: HOG, Chapter 8
11:15
Break
11:30
Statistics Session 7 – Professor Porter
Topic: Complete Significance Tests – Discussion of Assignment (Due July 18)
Reading: Catch-up and Inter-session Assignment instructions
12:45
Lunch
12:45
Box Lunch (JKP foyer)
13:30
Bus departs from Radisson
GEMBA XII, Theme 2A, Evaluating Market Performance Syllabus, 21 to 28 June, Page 5 of 8
13:45
Site Visit: FedEx, LAX
Saturday, 27 June
07:30
Breakfast
08:30
Finance Session 12 – Professor Plotts
Topic: Valuation - Case Study: Spyder Active Sports
David Jacobs founded a high-end ski apparel company in 1978. He successfully
built and grew the company, establishing a major international brand that
appealed to ski racers and other active skiers. In 1995, he sought external
financing to support further growth of the company and structured a financial
deal with CHB Capital Partners, a private equity firm in Denver. By 2004, Jacobs
was ready to consider alternative types of equity transactions that would provide
a source of liquidity to him and his family, including sale of Spyder to another
apparel company and sale of a large block of stock to a private equity firm.
Discussion Questions:

There are many approaches to determine fair market value (FMV) of a firm. We will
discuss discounted cash flow and the market multiples approach.

Identify the different “exit” options that are feasible for Spyder in 2004, and analyze
the benefits and costs of each alternative. Consider the interests and needs of the
owner(s), the current state and future prospects of the company, and the current
state of the financial markets.

Perform a discounted cash flow valuation analysis to determine the value of Spyder.
What are the risks to the valuation?

Spyder is not publicly traded; but we can still apply the market approach (price
multiples) to estimate the company’s implied value. Evaluate the financial data
provided for Spyder and also the comparable publicly-traded company price
multiples (Exhibit 11) and comparable past merger and acquisition multiples (Exhibit
9) to determine an estimated “implied” value for the company in 2004.

Compare the alternative transactions described on the last page of the case. Which
one would you choose if you were: 1) David Jacobs; 2) a general partner in CHB
Capital; 3) Shimokubo? Who else is affected by this choice?
Required Reading: Case: Spyder Active Sports - 2004, HBS# 9-206-027
09:45
Break
10:00
Finance Session 13 – Professor Plotts
Topic: Valuation and Spyder Case – continued
11:15
Break
11:30
Finance Session 14 – Professor Plotts
Topic: Valuation and Spyder Case – continued
12:45
Lunch
GEMBA XII, Theme 2A, Evaluating Market Performance Syllabus, 21 to 28 June, Page 6 of 8
13:45
Strategic Communication Session 1 - Professor Greg Patton
Topic: Preparing and Excelling at Executive Presentations (Discussion)
A clear and articulate discussion of business issues and the persuasive
presentation of recommendations is a key skill for executives. Yet, business
presentations can be quite difficult for many executives. We will examine key
success factors, discuss techniques to make speakers more successful and
teach how to prepare a formal presentation in less than an hour.
Required Readings:

Barnes, E. (2003, July) “What’s Your Story?” Harvard Management
Communication Letter.

Denning, S. (2004, May). Telling Tales. Harvard Business Review.

Heath, C., & Heath, Dan (2007). Sticking to It. Associations Now.
15:00
Break
15:15
Strategic Communication Session 2 - Professor Greg Patton
Topic: Delivering an Executive Presentation (Practice)
18:00
Bus departs to Fogo de Chao
18:30
Dinner at Fogo de Chao
Sunday, 28 June
07:30
Breakfast
08:30
Finance Session 15 – Professor Plotts
Quiz: Quiz will cover material in Sessions 8 – 14. This counts for 1/2 of your
Theme 2 Finance grade
09:45
Break
10:00
Joint Class Finance and Accounting – Professors Plotts and DeFond
Topic: Reporting Cash Flow Information
Purpose: The Cash Flow Statement is a critical tool in evaluating management’s
investing and financing strategies and in understanding issues of financial health.
In this session we first compare and contrast earnings and cash flows as
measures of performance, then spend time attempting to understand the
mechanics of the cash flow statement. We conclude with Cases where cash
flows can be used as a diagnostic tool to gain deeper insights into the firm and
how it is managed. We also compare how U.S.-GAAP reporting compares with
International Financial Reporting Standards in terms of reporting Cash Flow
information.
Required Readings:

Textbook: Magee, Dyckman & Pfeiffer, Chapter 4

Case: Return of Chicken Feet
GEMBA XII, Theme 2A, Evaluating Market Performance Syllabus, 21 to 28 June, Page 7 of 8
Suggested Homework Problems: M4 – 22; P4 – 46
11:15
Break
11:30
Accounting Session 5 – Professor DeFond
Topic: Reporting Cash Flow Information - continued
12:45
Lunch
13:45
Accounting Session 6 – Professor DeFond
Topic: Reporting Cash Flow Information- continued
15:00
Break
15:15
Accounting Session 7 – Professor DeFond
Quiz: Will cover sessions 1 – 4. The score will represent 25% of your Theme 2
Accounting grade.
16:30
Summary and evaluations
GEMBA XII, Theme 2A, Evaluating Market Performance Syllabus, 21 to 28 June, Page 8 of 8