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Business Valuation (FIN4043)

 

All relevant information on my UIC Business Valuation (FIN4043) will be posted on this website.

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UPDATES Back to top || Updates || Course Outline and Lecture Notes || Lecture Review || Course Details

Please check here for updates during the semester:

Course syllabus can be downloaded here.
   
February 16, 2017
Powerpoint for lecture 2 (chapter 2) for February 20, 2017 has been updated.
   
February 20, 2017
Please see Assessment section below for more detailed updated of the Assignment requirements.
 
Today, we did an in class business analysis using the various business analysis models (i.e. PESTEL, Porter's Five Forces, SWOT, value chain, product life cycle, BCG, Ansoff analysis, etc) on a company of your choice and the industry that the company is in. I believe that we had achieve something very important because several issues had arisen that can help us move forward with better understanding of what the course requires which is missing now. As a result, we will go back and answer some of the outstanding questions that I had found today in our class on February 27.
 
February 22, 2017
Powerpoint for lecture 3 (chapter 3) for February 27, 2017 has been updated.
   
February 22, 2017
Make up class on Saturday March 11, 2017 in the morning due to two missing classes in April. Will confirm time and classroom once booking confirmed.
   
February 23, 2017
Powerpoint for lecture 4, 5, and 6 (chapter 4 to 6) are now ready and available for download below.
   
March 6, 2017
The room has been confirmed as follows:
 
Make up class Sat March 11, 2017 from 9am to 12pm, Room D302
 
Midterm test Sat March 18, 2017 from 10am to 12pm, Room B201
 
March 6, 2017
As we did not have time in class today to go through the assignment, please bring your printed assignment analysis up to date on Saturday, May 11 and I can provide feedback on that date. On Saturday March 11 we will finish chapter 4 and go through chapter 5 ratios. On Monday March 13, we will finish chapter 5 ratios and then do practice questions in class.
   
March 11, 2017
We will finish the ratio calculations and have a midterm review in the Monday class.
   
March 13, 2017
Since we have just finished the ratios calculation but have not do the cash flow in Chapter 5, the midterm test will only cover the calculation of ratios only.
March 13, 2017
I have briefly reviewed the Part I of the assignment submitted. Happy to say that all submitted Part I are at least well done, making the remaining part of the assignment much much easier.
March 13, 2017
Midterm reminder: midterm test this coming Saturday March 18 from 10 am to 12 pm at Room B201. Please come early as we will start promptly at 10 am. Bring your own calculator as calculator cannot be shared and phones cannot be used as calculator. Bring pen as pencil cannot be used. No dictionary allowed.
 
April 8, 2017
This is the sample excel template for your assignment's projection. In additions to the basic financial statement project last week, I have also added (a) the automatic calculation of all ratios, (b) dividend discount valuation template, (c) discounted cash flow equity valuation template, (d) discounted cash flow asset valuation template, (e) abnormal earnings equity valuation template, and (f) abnormal earnings asset valuation template. We will start the other valuation approaches in additions to the multiple approach and these approach are build into this excel. Hence please download and review this excel before class so you know what and where the inputs are for class. excel template for projection including valuation approaches
   
April 8, 2017
I have prepared the ppt that we will use for Ch 7 and 8 for all the valuation models for the course. Please download and print for the next two classes. My valuation models supplementary ppt for Ch 7 and 8.
   
April 22, 2017
There is no optional class today as we have not teach all the valuation approaches yet. But we will go through the remaining valuation approaches in the coming Monday. The optional class will be held on May 6. The assignment due date will likely be moved back one week from May 8 to May 15 to allow more time for completion.
   
April 24, 2017
Assignment due date changed to May 13 so one more week to complete. Electronic submission only, please see below for directions and inclusions.
   
April 24, 2017
Optional class will be held on Saturday, May 6 from 9am to 12pm at D404 on questions on the assignment. If you plan to come to ask questions on your assignment, please let me know ahead of time so proper time can be allocated. Can also email me your material before Saturday so I can review what you have and you do not have to wait for me to read your details during class. If you have any questions on the assignment before then, just email me.
   
May 4, 2017
I will be available in Room D404 this coming Saturday May 6 from 9am to 12pm to answer any questions that you may have on the assignment. Currently, appointments have been made for 10:00 to 10:30am and 11:00 to 11:30am time slot. If you will come to ask any questions on the assignment or other parts of the course, please let me know so time can be allocated for your questions.
   
May 4, 2017
For next Monday May 8, we will continue with Chapter 11 and 12. The powerpoint material posted below will be used to cover these two chapters.
   
May 8, 2017
I will be available in Room D302 this coming Saturday May 13 from 9am to 12pm to answer any questions that you may have on the assignment. Then next Monday we will go through in more details the scope of the final exam and practice questions.
   
May 9, 2017
After last Saturday and discussions with various group, this is what I have observed so far. The analysis done by all students are very good; there were good analysis of the industry and potential things that might happen. The only final part would be to put your thoughts about your assumptions of the future and the reasons into your assignment. As a result, the emphasis should be more on your analysis rather than making all the numbers work but having no analysis.
   
May 9, 2017
For some groups, you might have heard of some recent news about some of the companies that were being analyzed by our groups. For example, Whole Foods of the US was potentially being acquired by a private equity due to their poor performance and lack of strategic directions recently. Kate Spade's acquisition was announced last night, the premium on its shares was 9% over its market price; however, the market price of Kate Spade had already gone up almost 30% over the last few months since Kate Spade announced publicly that it wants to be acquired. All these were what we were studying and you see these in real life action.
   
May 9, 2017

For your assignment: I have briefly reviewed several draft assignments and this feedback should apply to all groups. The macro and industry analysis at the very beginning of the report should be very summarized with no number support (number support to be used later) and very to be point. For example, the industry is growing very fast because of China's growing population and increased market penetration. All the work that you have done near the mid-term on PESTEL, 5 Forces, SWOT and all other qualitative AND all background information like market or population growth rate should all be used within your write up of your analysis on the excel projection and the support of your assumptions made (i.e. the part on the projection and future analysis of the next section). For example, you would explain in details why you use a sales growth rate of 10% from 2017 to 2020 in your projection using support from your PESTEL, 5 Forces, SWOT, etc and hard numbers. When you support your growth rate of 10% in 2017 to 2020, you take good reasons from all these various sources to come to your conclusion.

When you do this part, step back and do not assume that this is a school report for getting a grade. Think of this report as your way to sell me your insights, your ability to provide good in-depth, and most importantly, useful analysis of the firm's future. As Steve Job's quote from class, insights come from connecting the dots. By doing your analysis model by model, it means that all you can do is run the firm through the models one by one but cannot connect meanings between the models. By stating the various parts and output of the various models and hard facts that your have considered when you explain your assumptions, it would instead show that you have taken the dots and connect them and can see "the picture" and maybe even more.

Good report is written from the perpective of the reader.

   
May 9, 2017

For your assignment: all models should be used (unless cannot like cannot use dividend discount model for a no dividend firm). All models will (can) give very different answers and it is ok with that. Check to make sure there is no formula or other issues first. Then take the model that you think is the best and explain why that is the model you use and not the others. It is ok for the models to show very different results because of the length of time and the assumptions (what are too simple) that we are doing.

   
May 9, 2017

There will probably be places in the excel that you do not know what to do or do not seem to be correct. It is ok, just assume something reasonable and move on. Think of something reasonable and continue since these are all just assumptions of our view of the firm's future.

   
May 9, 2017
Final exam review notes for Monday May 15, 2017 can download here. Please submit assignment due on or before 10am May 15 electronically as discussed in class and above.
   
May 16, 2017
The exam review practice question that we have done for abnormal earning approach for equity value, all numbers are correct except for the total equity value and price per share which should be 994.251 and 9.94 respective.
   

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ASSESSMENT Back to top || Updates || Course Outline and Lecture Notes || Lecture Review || Course Details

Course syllabus can be downloaded here.

Participation rubrics can be downloaded here.

Mid-term test rubrics can be downloaded here.

Assignment rubrics can be downloaded here.

ALL in-class quizzes, assignments, mid-term test, and final and supplementary examinations are, unless specifically indicated, INDIVIDUAL effort, meaning that you should work on your own material and any unscholarly actions prohibited by the school must be avoided.

I will post ALL relevant course materials, updated information, correspondences, and relevant student questions in the UPDATES section on this page. Students are responsble to check the UPDATES section frequently on their own to ensure that they are up-to-date.

The final grade for this course is based on the following components:

Class participation 10%
Assignment 20%
Midterm test 20%
Final examination 50%
  100%

Below is a summary of the marking of each component.

Class participation, discussion and assignment (10% of total). Part of the evaluation is based on class attendance, class participation and discussions, and preparation for class. The other part is based on pop quiz, practice questions, or group work that is to be performed during class.

Mid-term test (20% of total). The mid-term test will cover Chapters 1 to 6 and it will be held on Saturday March 18, 2017 from 10am to 12pm at B201. Please see mid-term test rubrics for more details on the grading. Mid-term test rubrics can be downloaded here.

Assignment (20% of total). Assignment rubrics can be downloaded here. The assignment is to complete a valuation report for a company of your choice. The assignment is due on May 8, 2017 10am via email to my email account. The date stamp on the email will serve as verification of submittance.

The assignment are marked only based on the quality of analysis during the valuation process and the resulting conclusions. The assignment result will not be based on the quantity of the report.

The assignment can be completed by a group of not more than four students (i.e. one student up to four students per group maximum). Due to scheduling or personal reasons, the assignment can be completed by one student only and this one student will be considered as a group. For each group, the information required for me would be a group name, each group member's name and student number and UIC contact email, and the subject firm of the valuation report. For any communications to me regarding the assignment, please use your group name as identifier so I know which group the communication is from.

As the taught material for this course is progressive in nature and later material builds on the earlier material, there are milestones for the report in that you will submit the draft of selected parts of the report to me before the May 13 due date to ensure that earlier concepts were understood. The final valuation report is due Monday May 13, 2017 before 10am.

Final report submission is by electronic means only via email so a record of your submission can be maintained. All files should be zipped into one zip file with your group name. Files zipped for submission should include (a) final valuation report in pdf format, (b) original excel file for the valuation calcuations, (c) your firm's and its comps' financial information used, and (d) all other relevant information that was used for the valuation.

Final examination (50% of total). The final exam will cover all Chapters but more focus will be placed on the Chapters not covered in the mid-term test (i.e. Chapter 7 to 12. The final examination is to be held on Friday May 19, 2017.

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LECTURE REVIEW Back to top || Updates || Course Outline and Lecture Notes || Lecture Review || Course Details

A summary of our discussion during the lecture is provided here for your reivew

February 13, 2017
The following topics were discussed in class today:
 
  • value / worth versus price,
  • offered / listed price versus transaction price,
  • practice questions on sharing of income and losses between partners,
  • when business valuation used
  • basic finance and capital markets concepts,
  • business, operating, and finance risks,
  • transaction cost theory,
  • information asymmetry and lemon problem,
  • Theory of Agency,
  • conflict of interest and agency problem,
  • overview of capital markets and money flow,
  • financial intermediaries, information intermediaries, transaction facilitators,
  • role of accounting information within the capital market system, and
  • use of financial statements for business analysis.
   
February 20, 2017
The following topics were discussed in class today:
 
  • competitive advantage,
  • sustainability,
  • business analysis using various models including
  • PESTEL,
  • Porter's Five Forces,
  • SWOT,
  • Porter's firm and industry Value Chain analysis,
  • product life cycle analysis,
  • BCG matrix for product portfolio planning,
  • Ansoff matrix for organic growth strategies, and
  • acquisition alternatives.
   
February 27, 2017
The following topics were discussed in class today:
 
  • review of requirements for assignment,
  • overview of sections for assignment,
  • description of entrepreneur, partnership, private limited company, and public limited company,
  • valuation for what purpose and for whom,
  • review of business analysis models like PESTEL, five forces, etc,
  • chapter 3 accrual accounting converting to cash flow for valuation,
  • the need to use GAAP,
  • the need to use auditor as information facilitator,
  • reasons for management flexibility in financial reporting,
  • potential red flags for conflict of interest situations,
  • conservative accounting no equal to good accounting, and
  • not all unusual activity are questionable.
 
   
March 6, 2017
The following topics were discussed in class today:
 
  • six steps for accounting analysis,
  • three reasons for distortions,
  • recasting the financial information into a simplier and more standardized format,
  • definition of assets and liabilities,
  • why overstate assets, understate assets, understate liabilities,
  • how to overstate assets, understate assets, understate liabilities, and distort equity.
 
   
March 11, 2017
The following topics were discussed in class today:
 
  • review of overstated assets and journal entries to adjust,
  • review of understated liabilities and journal entries to adjust,
  • reasons and how to understat assets and journal entries to adjust, and
  • financial ratio analysis for company analysis.
 
 
   
March 13, 2017
The following topics were discussed in class today:
 
  • review of ratios and their use,
  • profitability ratios discussion,
  • calculation of gross profit margin, net profit margin, NOPAT margin, ROA, ROE,
  • leverage ratios discussion,
  • calculation of debt to equity, debt to total cap, interest coverage ratio,
  • liquidity ratios discussion,
  • calculation of current ratio and quick ratio,
  • working capital activities ratios discussion,
  • calculation of A/R, inventory, and A/P turnover times and turnover days,
  • market ratios discussion,
  • calculation of payout ratio, and
  • midterm scope review.
 
   
March 20, 2017
The following topics were discussed in class today:
 
  • review of midterm issues,
  • information asymmetry vs agency theory,
  • agency problem vs lemon problem
  • definition of cost leadership and differentiation under Porter's generic strategy,
  • outline of the course up to this point,
  • our planned progress for the assignment going forward,
  • our planned progress for the remainder of the course,
  • transaction cost theory,
  • efficient market theory,
  • risk and return, and
  • CAPM and assumptions.
 
   
April 4, 2017
The following topics were discussed in class today:
 
  • projection progression,
  • use of ratios for analysis,
  • use of cash flow statement for analysis,
  • free cash flow to firm,
  • free cash flow to equity,
  • calculation of WACC for the assignment,
  • review of excel provided for valuation,
  • enterprise value, debt value, equity value,
  • valuation of equity value in Appendix B,
  • valuation of asset value in Appendix D, and
  • multiple approach to valuation.
 
   
April 10, 2017
The following topics were discussed in class today:
 
  • review of macro level, industry level, and firm level analysis for assignment and projection,
  • review of multiple approaches included PE, PSales, and PBook,
  • how to determine and adjust for the multiple,
  • time value of money review of various kinds of cash flow pattern,
  • dividend discount approach, and
  • introduction to discounted cash flow approach.
 
   
April 24, 2017
The following topics were discussed in class today:
 
  • review of assignment requirements,
  • introduction to discounted cash flow approach,
  • discounted cash flow approach to value equity using FCFE,
  • discounted cash flow approach to value firm using FCFF,
  • introduction to abnormal earnings approach,
  • abnormal earnings approach to value equity using net income, and
  • abnormal earnings approach to value firm using NOPAT.
 
   
May 8, 2017
The following topics were discussed in class today:
 
  • introduction to mergers and acquisitions,
  • determining the benefits of mergers and acquisitions,
  • determining the cost for the purchase (or maximum offer price) with compariable premium paid, forward PE multiples, and abnormal earnings approaches,
  • using of cash or shares or combination to pay for the acquisition,
  • potential problem of leverage too high if debt is used to finance the cash purchase,
  • information asymmetry and dilution issues if new shares issed to finance the acquisition,
  • potential capital tax tax to be paid by the target company's shareholders if cash is paid,
  • potential transaction cost to sell the shares if the target company's shareholders prefer to have cash,
  • probability of success for the acquisition,
  • review of the valuation process for the assignment, and
  • a step by step go through of the valuation process for the assignment.
 
   
May 15, 2017
The following topics were discussed in class today:
 
  • more details of final exam logistics,
  • final exam review,
  • financial statement analysis,
  • multiple approach to valuation,
  • dividends discount approach to valuation,
  • discounted cash flow approach to value equity and firm value, and
  • abnormal earnings approach to value equity and firm value.
 
   

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COURSE OUTLINE AND LECTURE NOTES Back to top || Updates || Course Outline and Lecture Notes || Lecture Review || Course Details

This course outline is tentative and subject to change based on our progress. Please check the UPDATES section and table below for latest information.

Course syllabus can be downloaded here.

Lecture 1
Introduction and Business models and strategy analysis, Reading: Chapter 1 and 2
February 13, 2017
 
Lecture 2
Business models and strategy analysis, Reading: Chapter 2
February 20, 2017
 [Download: chapter 2 slides]
   
February 27, 2017
Due on or before 10am Monday February 27, 2017:
 
1. An email to me with your group information.
 
2. An email to me with a DRAFT result of your business analysis result from class work on Monday February 20 of applying the various business analysis models on your selected industry and company (if decided). See details above in the Assessment section.
 
3. An email to me informing me the selected firm of your choice for your valuation report. Not required if the information is included as part of #2 below.
   
Lecture 3
Overview and implementing of accounting analysis, Reading: Chapter 3 and 4
February 27, 2017
   
Lecture 4
Overview and implementing of accounting analysis, Reading: Chapter 3 and 4
March 6, 2017
   
Lecture 5
Business and financial forecasting, Reading: Chapter 5 and 6
March 11, 2017
 
Make up class for missing classes for April 17 and May 1 due to holidays.
 
Saturday March 11 from 9am to 12pm at D302.
   
Lecture 6
Valuation theory and concepts, Reading: Chapter 7
March 13, 2017
[Download: chapter 7 slides]
 
Assignment Part I due. See Assessment section.
   
March 18, 2017
Mid-term test Saturday March 18 from 10am to 12pm B201.
 
Chapters 1 to 6.
 
Mid-term test rubrics can be downloaded here.
   
Lecture 7
Valuation theory and concepts, Reading: Chapter 7
March 20, 2017
[Download: chapter 7 slides]
   
Lecture 8
Valuation theory and concepts, Reading: Chapter 7
March 27, 2017
 
Lecture 9
Valuation implementation, Reading: Chapter 8
April 3, 2017
 
Assignment Part II due. See Assessment section.
 
Lecture 10
Valuation theory and concepts, Valuation implementation, Reading: Chapter 7 and 8
April 10, 2017
Application of discounted cash flow approach and abnormal earnings approach
   
   
Lecture 11
Valuation theory and concepts, Valuation implementation, Reading: Chapter 7 and 8
April 24, 2017
Application of discounted cash flow approach and abnormal earnings approach
   
   
May 6, 2017
Discussion on assignment issues, 9am to 12pm at D404
 
Progress check for assignment valuation approaches and write up
 
Lecture 12
Mergers and acquisitions, Reading: Chapter 11
May 8, 2017
[Download: chapter 11 slides]
   
May 13, 2017
Discussion on assignment issues, 9am to 12pm at D302
 
Progress check for assignment valuation approaches and write up
   
May 15, 2017
Assignment due electronically Monday May 15 before 10am
 
Assignment rubrics can be downloaded here.
   
Lecture 13
Special topics, Equity security analysis, Credit analysis and distress prediction, Reading: Chapter 12, 9,10
May 15, 2017
 
Final examination review
 
Final exam review notes can be download here.
   
May 19, 2017
Final Examination , 9:30am to 12:30pm at B102

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COURSE DETAILS Back to top || Updates || Course Outline and Lecture Notes || Lecture Review || Course Details

Course
Business Valuation (FIN4043), Semester II (2016-2017)
 
Course syllabus can be downloaded here.
 
Prerequisites
FIN2003 Financial Management
 
Time and Location
Mondays Class 1: 10am to noon and 1pm to 2pm; Class 2: 2pm to 5pm; Room D406
 
Instructor
Dr. Thomas Wu
Office
C129
Office hours
By appointment only
Email
thomaswu@uic.edu.hk
Website
http://www.drthomaswu.com (all information for this course can be found here)
 
Teaching Assistant
Ms. Jenny Chen
Office
C119A
Email
jennywxchen@uic.edu.hk
 
Aims and Objectives
The objective of this course is to introduce essential business valuation concepts, and applications techniques for students to analyse dynamic business environments of a company, interpret companiesˇ¦ business models and financial statements, translate business logics and assumptions into financial forecast, and select appropriate valuation methods to ascertain corporate value. This course aims at helping students to be equipped with the essential techniques required by financial analysts.
 
Notes to Students
1. Students are advised to pre-read the assigned chapter before each lecture.
 
2. Students are expected to participate actively in class discussions, ask relevant questions, and share their views.
 
3. The use of the Chinese version and/or the photocopied version of the textbook in class is disallowed.
 
4. It is absolutely essential for students to complete the homework assignments according to schedule. Students are required to complete the assignments in teams of two and submit to the TAs hard copies of their work for marking. Suggested solutions for homework and self-practice exercises/problems will be available from iSpace.
 
5. It is the studentsˇ¦ responsibility to seek help from their respective instructors and teaching assistants. To ensure that your instructor is available for consultation during your desired date and time, please make an appointment with the instructor in advance via email or whilst in class. Teaching assistants are available to help students during their office hours on a first-come, first-served basis. It is advisable that you make an appointment with the TA in advance. Please donˇ¦t wait till the last minute to obtain clarification on what you do not understand.
   
Suggested Textbook
Palepu, K.G., Healy,M. (2013). Business Analysis and Valuation Using Financial Statements, 5th Edition. South-Western, Cengage Learning.
 
Reference Koller,T., Goedhart,M. & Wessels D. (2015) Valuation: Measuring and Managing the value of companies. 6th Edition. John Wiley & Sons.
   
Teaching Method
The course consists of class lectures and tutorials. Students should attend all lectures and tutorials. Attendence will be taken and there is a required minimum attendence level. Students should have read and be familiar with assigned readings and related materials before class. Students should also work through practice questions and be familiar with the use of a financial calculator.
 
Grading Policy
All university policies concerning acceptable student behavior apply for this course. In particular, unscholarly actions prohibited by the university should be avoided to prevent regretable results from these actions.
 
Calculator Policy

For this course, a general purpose non-financial calcuator can be used. Students who do not have ready access to a financial calculator should be able to perform all the required analysis and calculations using a general purpose non-financial calculator for the tutorials, assignments, mid-term test, and final examination.

You can also use a non-programmable financial calculator for the tutorials, assignment, mid-term test, and final examination. Common financial calculators are HP12c and TI BAII PLUS. User manual in simplified chinese and a tutorial for the HP12c can be found here and a simple tutorial for the HP12c can be found here. User manual for the TI BAII can be found here.

Regardless of the types of calculators used for this course, students are responsible for their own equipment and they cannot be shared in a quiz, test, or examination situation. As a result, students MUST bring their own calculators to each class. In addition, each student must be proficient in the use of their own equipment.

Electronic translators CANNOT be used for quiz, test, or examination situations, but they can be used during class (only with volume off) and your own study time.

 
Financial Terms

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