y austin smith bav syllabus fall 2015-3

7/26/2019 Y Austin Smith BAV Syllabus Fall 2015-3

1/9

Fall 2015

Business Analysis and Valuation

MGMT E-2620

Wednesdays 5:30

7:30 pm (EST) Web conferenceFirst Class: September 2, 2015

Professor: Yvette R. Austin Smith, Principal,

The Brattle Group (http://www.brattle.com/experts/yvette-austin-smith)

[email protected]

Telephone conferences: Please email for appointment

Course website: https://canvas.harvard.edu/courses/4494

Download Coursepack: https://cb.hbsp.harvard.edu/cbmp/access/38570738

Course Description:

Financial statements are important sources of insight as to the financial health, prospects, and value of a

company. But just how accurate and complete are these reports in reflecting economic reality? What

are the warnings of bias? This course introduces a framework for the analysis of financial statements

and financial plans, with particular focus on their usefulness in valuing and financing companies and in

the evaluation of corporate performance. Throughout the semester we will make extensive use of

readings and of case studies so that you can gain the knowledge of the relevant theory and techniques

and an ability to use them in actual situations.

Prerequisites:

This is an MBA-level course that assumes students have had prior academic or professional exposure to

basic corporate finance principles and introductory accounting. Students should also be able to

proficiently use Microsoft Excel and be able to access/read .pdf documents.

Cases and Readings:

The readings for this course consists of:

A coursepack that can be purchased and downloaded electronically. Registered students will receive

instructions to download the coursepack.

Textbook: Title: Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions

Authors: Joshua Rosenbaum and Joshua Pearl

Publisher: John Wiley & Sons

ISBN: 978-0-470-44220-3
http://www.brattle.com/experts/yvette-austin-smithhttp://www.brattle.com/experts/yvette-austin-smithhttp://www.brattle.com/experts/yvette-austin-smithhttps://canvas.harvard.edu/courses/4494https://canvas.harvard.edu/courses/4494https://cb.hbsp.harvard.edu/cbmp/access/38570738https://cb.hbsp.harvard.edu/cbmp/access/38570738https://canvas.harvard.edu/courses/4494http://www.brattle.com/experts/yvette-austin-smith


2/9

Please note that his class will not utilize the models and templates that may be available

electronically with this text. However, students are encouraged to download the

materials for self-study and additional reference.

A few additional readings will be posted to the course website during the semester.

Class Format

This course will combine traditional lecture and case method teaching. Traditional lectures will largely

be used to teach technical valuation material and expose students to theoretical valuation frameworks.

Case method teaching will be used to assist students in applying the theoretical frameworks and

technical skills to real world situations. Please note that the class format has been updated from

previous semesters based, in part, on prior and helpful student feedback.

The Extension School is committed to providing an accessible academic community. The Disability

Services Office offers a variety of accommodations and services to students with documented

disabilities. Please visitwww.extension.harvard.edu/resources-policies/resources/disability-services-accessibilityfor more information.

Class Assignments, Midterm, Final

All class assignments, the midterm and the final should be submitted via drop box. (Students will be

given specific instructions related to the drop box during the first session.) Specific due dates and times

are noted on the following pages. Please note that assignments are due 1 hour prior to the start of the

specified class. Late assignments cannot be accepted. If you are unable to submit your work due to a

technical difficulty, please alert me, via email, of the situation before the due date and time. The email

should explain the nature of the technical problem and your assignment should be attached (as a file) to

the email. Credit cannot be given for emails and/or assignment received after the due date and time.All assignments, additional materials, the mid-term and the final will be posted to the course website.

The mid-term will be a predominately quantitative assignment that will require students to value a

company using multiple methodologies. The final will require students to prepare both qualitative and

quantitative analyses to analyze and value a business opportunity under various scenarios.

As noted below, all homework assignments are group assignments. Students are strongly encouraged

to work in a group (of no more than four students). Students will be primarily responsible for forming

their own groups though I will lend what assistance I can. Please ensure that the submitted assignment

lists the names of all members in the group. The mid-term and final exams must be completed

individually and cannot be completed as a group.

All files of submitted work should be in either Word or Excel, depending on the nature of theassignment. Please use Excel for work that is primarily quantitative.

Grading:

Class Participation 15%

Assignments 25%

Mid-term 30%
http://www.extension.harvard.edu/resources-policies/resources/disability-services-accessibilityhttp://www.extension.harvard.edu/resources-policies/resources/disability-services-accessibilityhttp://www.extension.harvard.edu/resources-policies/resources/disability-services-accessibilityhttp://www.extension.harvard.edu/resources-policies/resources/disability-services-accessibilityhttp://www.extension.harvard.edu/resources-policies/resources/disability-services-accessibilityhttp://www.extension.harvard.edu/resources-policies/resources/disability-services-accessibility


3/9

Final 30%

Total 100%

Class Participation:

It is necessary and expected that students thoroughly read and analyze all readings before the start ofthe class to which those readings are assigned. It is estimated that each two hour class will require 3- 4

hours of preparation. The course is based on the premise that active engagement in the issues both

before and during class is essential for deep learning and to the development of the capacity to use the

theory and techniques in uncertain, messy situations. Class time will be largely devoted to discussion of

the case studies, general conceptual issues raised in the cases and readings, and quantitative tools.

Students should attend class prepared to discuss the Discussion Questions for each class. If you are

unable to attend a class, please notify me ahead of time by email. If you anticipate being unable to

attend three or more classes during the semester, you should strongly consider not taking the course

until your schedule allows for full engagement. Active class participation is required thus all students

should have a stable internet connection and be able to verbally participate in class discussions.

Academic Honesty:

You are responsible for understanding Harvard Extension School policies on academic integrity

(www.extension.harvard.edu/resources-policies/student-conduct/academic-integrity)and how to use

sources responsibly. Not knowing the rules, misunderstanding the rules, running out of time, submitting

"the wrong draft", or being overwhelmed with multiple demands are not acceptable excuses. There are

no excuses for failure to uphold academic integrity. To support your learning about academic citation

rules, please visit the Harvard Extension School Tips to Avoid Plagiarism

(www.extension.harvard.edu/resources-policies/resources/tips-avoid-plagiarism), where you'll find links

to the Harvard Guide to Using Sources and two, free, online 15-minute tutorials to test your knowledge

of academic citation policy. The tutorials are anonymous open-learning tools.
http://www.extension.harvard.edu/resources-policies/student-conduct/academic-integrityhttp://www.extension.harvard.edu/resources-policies/student-conduct/academic-integrityhttp://www.extension.harvard.edu/resources-policies/student-conduct/academic-integrityhttp://www.extension.harvard.edu/resources-policies/resources/tips-avoid-plagiarismhttp://www.extension.harvard.edu/resources-policies/resources/tips-avoid-plagiarismhttp://www.extension.harvard.edu/resources-policies/resources/tips-avoid-plagiarismhttp://www.extension.harvard.edu/resources-policies/resources/tips-avoid-plagiarismhttp://www.extension.harvard.edu/resources-policies/student-conduct/academic-integrity


4/9

Preliminary Schedule: Business Analysis and Valuation

Class 1: Sep 2 What is Value and How is it Measured?

Readings: Valuation: Measuring and Managing the Value of Companies (See course website.You dont need to focus on the review questions at the end of this reading)

Companies with Benefits, The New Yorker, August 4, 2014 (see course website)

Understanding Financial Statements: Making More Authoritative Decisions

(5238BC) (Note: This is an introductory level reading that will be most helpful to

those with a weaker accounting background. For students with a strong

accounting backgrounds, this reading is optional)

Cases: Harman International and KKR (A) (UV4260)

Assignments: N/A

Discussion

Questions:

What is shareholder value and why is it important?

What are the competing priorities to shareholder value?

What are the primary sources of information to measure or assess the value

of a company (or an economic interest in that company)?

What are the advantages and limitations of each primary source?

Class 2: Sep 9 Introduction to Valuation Frameworks

Readings: Business Valuation: Standard Approaches and Applications (UV6586-PDF-ENG)

Students should begin reading Chapters 13 of Investment Banking. These

chapters will provide greater depth to the material presented in Business

Valuation: Standard Approaches and Applications

Cases: N/A

Assignments: N/A

Discussion

Questions:

What are the three principal valuation approaches?

What are the primary inputs to each approach?

What are the typical sources for these inputs?

What are the key underlying assumptions behind these approaches to value?

Describe circumstances in which one valuation approach may tend to be more

or less accurate than other approaches

Class 3: Sep 16 Financial Statements, Stock Price and Value

Readings: Tescos Accounting Problems: Not So Funny, The Economist (course website)

What Went Wrong at Tesco?, Financial Times (course website)

Cases: Bristol-Myers Squibb Company - Managing Shareholders Expectations (905B08)

Assignments: N/A


5/9

Discussion

Questions:

How did BMS find itself in this situation?

How did BMS revenue recognition impact each of the three methods of

valuation?

Were all valuation methods equally impacted?

What role do qualitative public disclosures play in interpreting financial

statements? How do the situations at Tesco and BMS compare?

Class 4: Sep 23 Due Diligence, Financial Ratios and Financial Forecasting

Readings: Continue reading Chapters 13 of Investment Banking

Cases: Krispy Kreme Doughnuts (103018)

Assignments: Students will be assigned the Krispy Kreme forecast assignment (Class Assignment

1) in class. The assignment and an Excel Valuation Template Model will be posted

to the course website. Student will need to be familiar with this model to

complete several of the next assignments.

Discussion

Questions:

What is the outlook for the market in which Krispy Kreme operates?

What factors are driving the growth of Krispy Kreme?

How might the future mix of store types impact the company forecasts?

Do you think that certain aspects of Krispy Kremes business will grow

faster or be more profitable than others

How dependent is the companys growth on capital expenditures? On

working capital?

What additional information would be helpful to more accurately prepare

company projections?

Class 5: Sep 30 Financial Forecasting and Sustainable GrowthReadings: N/A

Cases: Krispy Kreme Doughnuts (103018)

Assignment: Class Assignment 1:

Prior to the start of class students will be required to hand-in the Krispy Kreme

forecast assignment.

All assignments must be turned in to the drop box by Tuesday, September 30,

2014, 4:30 PM EST.

Discussion

Questions:

Please come to class prepared to discuss your solution to Assignment 1 and

critique that of your classmates:

Class 6: Oct 7 Application of Discounted Cash Flow and Net Present Value AnalysisPart I

Readings: Students should have completed reading Chapters 1 - 3 of Investment Banking

Cases: Pacific Grove Spice (4366)


6/9

Assignment: Students should become familiar with the Pacific Grove Spice case. Pacific Grove

Spice will be the basis for discussion during this class and during future classes.

Students will be assigned the AirThread Connections NPV assignment (Class

Assignment 2) in class. The assignment will be posted to the course website. The

assignment should be completed using the Excel Valuation Template Model.

Discussion

Questions:

How accurately does DCF measure value?

Why might market value differ from a DCF-derived value?

Under what circumstances is DCF less likely to be accurate?

Class 7: Oct 14 Application of Discounted Cash Flow and Net Present Value AnalysisPart II


Cases: Valuation of AirThread Connections (4263)


Prior to the start of class, students will be required to hand-in the AirThread

Connections NPV assignment.

All assignments must be turned in to the drop box by Wednesday, October 14,

2014, 4:30 PM EST.

Discussion

Questions:


critique that of your classmates

Class 8: Oct 21 Application of Market Multiples


Pacific Grove Guideline Public Companies (will be posted to course website)

Cases: Review AirThread ConnectionsReview Pacific Grove Spice

Assignment: Students will be assigned the AirThread Connections Market Multiple assignment

(Class Assignment 3) in class. The assignment, along with supporting materials,

will be posted to the course website. The assignment should be completed using

the Excel Valuation Template Model.

Discussion

Questions:

What characteristics of a company are most important when selecting

guideline public companies?

How accurately do market multiples measure value?

When is a value based on market multiples likely to be less accurate?

Which valuation multiple(s) would you use to value Pacific Grove Spice?

Why? Assume there were no publicly-traded companies that sold cooking spices,

how would you select guideline public companies?


7/9

Class 9: Oct 28 Valuing AirThread Connections Using Market Multiples

Readings: N/A

Cases: Valuation of AirThread Connections (4263)


Prior to the start of class students will be required to hand-in the AirThread

Connections Market Multiple assignment.

All assignments must be turned in to the drop box by Wednesday, October 28,

2014, 4:30 PM EST.

Discussion

Questions:


critique that of your classmates

Class 10: Nov 4 Review and Comparison of Valuation Techniques

This will be a review class before the Midterm AssignmentReadings: Review prior readings

Cases: Review prior cases

Assignment: Midterm (Individual):

Students will be assigned an open-book midterm at the end of class (due the

following week). The midterm will consist of valuing a company based on all three

valuation techniques. The midterm should be completed using the Excel Valuation

Template Model.

All assignments must be turned in to the drop box by Wednesday, November 4,

2014, 4:30 PM EST.

Class 11: Nov 11 Survey of Additional Valuation Methods

Readings: Materials posted to course website

Cases: N/A

Discussion

Questions:

How do these methods relate to more traditional methods of valuation?

When might these methods provide additional accuracy in estimating

value?


8/9

Class 12: Nov 18 WACC Part II and Optimal Capital Structure

Readings: See course website

Cases: Hill County Snack Foods Co. (913517)

Assignments: N/A

DiscussionQuestions:

What are the components of WACC and how are they determined? How much business risk does Hill County face? How much financial risk

would the company face at each of the three alternative debt-to-equity

ratios presented in Exhibit 4?

What debt-to-equity capital structure would you recommend as optimal

for the company?

What methods could the company use to alter its capital structure?

Would a more leveraged capital structure create additional value for

shareholders? How?

Note: No class on Thursday, November 25, 2015 (due to Thanksgiving holiday)

Class 13: Dec 2 Valuing Companies in Transition and Intro to Leveraged Buy-Outs

Readings: Optional:

Dell Special Committee Investor Presentation (June 2013)

Southeastern: Presentation to ISS Opposing the Proposed Dell Take-Private

Transaction (June 24, 2013)

Cases: Taking Dell Private (714421)

Southeastern Asset Management Challenges Buyout at Dell (114015)

Assignments: Students will be assigned the Bain and Dollorama LBO assignment (Class

Assignment 4) in class. The assignment, along with supporting materials, will be

posted to the course website.

DiscussionQuestions:

When valuing Dell at the date of the transaction, what is the correct capitalstructure?

What methods of valuation will tend to me more (or less) accurate when

valuing Dell at the date of the transaction?

Does the going-private transaction result in a difference in received value

for long-term versus short-term shareholders?

Class 15: Dec 9 Valuation for Leveraged Buy-Outs

Readings: Valuation of Late Stage Companies and Buyouts (UV5637)

Cases: Bain and Dollorama (W12782)

Assignments: Student will NOT be required to hand-in Class Assignment 4. However, studentsshould be prepared to actively discuss the assignment in class and respond to

questions that will be posed at random. Grades for this homework assignment will

be based on class participation.

Discussion

Questions:

See homework assignment


9/9

Class 16: Dec 16 Reserved for Final Exam

Readings:

Cases:

Assignments: The final exam will be distributed immediately prior to the start of class and must

be completed and submitted to the drop box by the end of the scheduled class

time (7:30 pm EST).

OPTIONAL: TBD Long-Term versus Short-Term Shareholder Value

Readings: Air Products and Chemicals, Inc v. Airgas et al, Delaware Court of Chancery opinion,

February 15, 2011 (course website)

Letter from Larry Fink (Blackrock) to CEOs, March 31, 2015 (course website)

Focusing Capital on the Long Term, Harvard Business Review, Jan-Feb 2014

(coursepack)

Long-Term Effects of Hedge Fund Activism, L. Bebchuk, June 2015 (course website)

Cases: N/A

Discussion

Questions:

Is there a difference between long-term and short-term value?

Should the interests of long-term or short-term shareholders take

precedence?

From a valuation perspective, what do you think of the Chancery Court

opinion? Did the court get it right?

y austin smith bav syllabus fall 2015-3

Documents