Business Analysis and Valuation (AC215)

The aim of this course is to help students become sophisticated users of financial information from a fundamental analysis perspective. Knowledge of fundamental analysis and security valuation is essential to assess the information content of financial statements, isolate the long-term value drivers of a business, and successfully implement trading strategies. 

Investment bankers, asset managers, financial analysts, and private equity investors use fundamental analysis techniques to critically evaluate financial data and design complex valuation models to guide their strategic decisions.

The course consists of four integrated parts:

• Strategy analysis
• Accounting analysis
• Financial analysis
• Forecasting and valuation

Students are expected to develop security analysis and valuation skills to support the interpretation, evaluation, and use of financial information from the viewpoint of major users of financial statements (i.e. equity investors, corporate lenders, etc.). 

Ultimately, students will be able to analyse a wide variety of financial reporting issues and discuss their valuation implications drawing on cutting-edge academic research and real-world case studies, including Apple, Ferrari, Netflix, and Tesco.

Moreover, as recent trends in big data and predictive analytics are disrupting the way in which security analysts, portfolio managers, credit-rating agencies, and regulators collect and analyse companies’ financial disclosures, students will also learn state-of-the-art financial modelling strategies to perform meaningful analyses on real-world data.

Prerequisites: 

• Introductory accounting (to the level of AC110) and introductory finance are required.

Is this course right for you?

• This course is aimed at students who, at some point in their careers, expect to use financial reporting information to evaluate past and current performance, assess future prospects, and estimate the intrinsic value of a business. The primary focus of the course is on the analysis of public corporations, but many tools and techniques that students will learn are also relevant to private company fundamental analysis.
• This course will be particularly valuable to students who are contemplating careers in investment banking, security analysis, asset management, private equity, strategy consulting, and auditing. The course should also prove useful to those students currently undertaking interviews and assessments for careers in the finance, accounting, and consultancy sectors.

Outcomes

• Understand how business strategy and financial performance affect equity values
• Conduct fundamental analysis using real-world financial data
• Detect the overall quality of financial reporting information provided by firms
• Analyse credit risk and equity risk using financial statements
• Use accounting information to assess past and current firm financial performance
• Implement prospective analysis to forecast future earnings growth
• Apply discounted cash flow and residual income valuation models to estimate equity and enterprise values
• Apply relative valuation techniques
• Exploit accounting information signals to identify mispriced securities
• Value publicly traded equity securities and private equity investment opportunities
• Make sense of sales pitches in equity research reports
• Understand the critical valuation challenges of IPOs and M&As deals

Key topics

• Introduction to fundamental analysis
• Strategy analysis
• Accounting analysis: core concepts and applications
• Financial analysis: ratio analysis and cash flow analysis
• Forecasting
• Cashflow-based valuation models
• Accounting-based valuation models
• Price multiples-based valuation
• Equity security analysis in the context of IPOs and M&As

Course structure and assessments

• This course is delivered through a combination of lectures, class discussions, and readings. A key feature of the course is the rigorous application of cutting-edge theory to real-world business cases.
• This course is assessed through two examinations: a mid-session examination (50%) and a final examination (50%). Take-home problem sets and case studies will be discussed in class to provide real-time feedback and aid students with exam preparation.