1 SYLLABUS – SPRING 2008 – DRAFT (Subject to minor changes) MIT Sloan School of Management 15.535 Business Analysis and Valuation Using Financial Statements Who? Part 1: Professor Peter Wysocki E-mail: [email protected], Office: E52-325b Part 2: Professor Ewa Sletten E-mail: [email protected], Office: E52-325c Course Administrative Assistant: TBA Teaching Assistant: Manuel Nunez Armas E-mail: [email protected] Course Administrative Assistant: TBA When? Section A: Mon & Wed, 1:00 - 2:30 pm (E51-325) Section B: Mon & Wed, 2:30 - 4:00 pm (E51-325) What? Primary Objective: Advance your understanding of how to use financial information to Analyze and Value firms. We will apply your economics/accounting/finance skills to problems from today’s business news to help us understand What is contained in financial reports, Why firms report certain information, and How to be a sophisticated user of this information for investment purposes. Why? Provide up-to-date applied knowledge of fundamental valuation techniques, the pitfalls of accounting reports, and how to “read between-the-lines” of financial statements. This will be very useful if you seek a career as a financial analyst, investment banker, equities trader, consultant, corporate director, etc. We will discuss both classic business situations as well as up-to-date and “hot” topics that companies face today. How? Coursepack: Available from MIT Copytech. Contains select chapters from a variety of financial statement analysis and valuation textbooks, business articles, and cases. We have extracted the best chapters from each textbook and created a customized text with the most up-to-date information for this course. In addition, we will provide handouts and lecture notes before each class. These notes will be accessible through the Stellar website prior to each class. Class Materials on the Web: Class slides and handouts (plus other supplemental materials) will be posted on Stellar - http://stellar.mit.edu [To find the listing for 15.535, just click on “Class sites” in the left column and then and look under “Management – (Course 15)”].2 “Suggested” Supplementary Textbooks: (to supplement coursepack): Business Analysis & Valuation: Using Financial Statements by Krishna G. Palepu, Paul M. Healy, and Victor L. Bernard Third Edition, South-Western College Publishing The Analysis and Use of Financial Statements By Gerald I. White, Ashwinpaul C. Sondhi, and Dov Fried Third edition, Wiley Financial Reporting and Analysis By Lawrence Revsine, Daniel Collins, and W. Bruce Johnson, Prentice Hall Investment Valuation: Tools & Techniques for Determining the Value of Any Asset, By Aswath Damodaran, Second Edition, Wiley Finance Valuation: Measuring and Managing the Value of Companies By Tom Copeland, Tim Koller, and Jack Murrin 3rd Edition, McKinsey & Company Inc. Grading: H1 Homework Assignments 10% H1 Class Contribution (Participation/other) 10% H1 Quiz (in class) 20% H2 Homework Assignments 10% H2 Class Contribution (Participation/other) 10% H2 Quiz (in class) 20% Analyst Report Project/Presentation (Team) 20% H1 Homework Assignments: There will be three homework assignments during H1. The first homework is an individual homework assignment on ratio analysis, due class #1.4. By individual, we mean the work you turn in must be your own. This does not mean you have to do the assignment in isolation – we expect that you will need to consult each other in order to understand, or better understand, the material, and may need assistance. Seeking and giving such assistance is encouraged. According to the teamwork guidelines distributed by Sloan this is Type 1 collaboration. The 2nd and 3rd assignments are team assignments related to a company that your team will be analyzing throughout the semester. These assignments will help you prepare for your final team project. Each team must submit a single solution to an assignment at the start of classes #1.6 and #1.10. Details on the assignments will be presented in class. H2 Homework Assignments: There will be 3 homework assignments during H2. The assignments will be evaluated based on group performance. Each group should consist of a maximum of 5 students. Group work is presumed to be collaborative, not distributive. All students should be familiar with the Sloan School’s Academic Honesty policy, a copy of which3 can be found on the course website. The first homework focuses on earnings quality and detecting red flags in financial statements. The second homework involves bankruptcy detection and the third homework deals with off-balance-sheet items. Each team must submit a single solution to the assignment at the beginning of classes #2.4, #2.6, and #2.10. Details on the assignments will be presented and discussed in class. Quizzes: This class has no final exam. There will be two in-class quizzes during the semester. These quizzes will assess your understanding of the core material. We will hold an informal and optional review shortly before each quiz (time and location will be announced). Valuation and Accounting Analysis Project: You are a sell-side analyst on Wall Street. Most of your clients are fund managers. For this project, choose a company, your Target. Prepare an analyst report (maximum 10 pages + supporting exhibits + a one-page executive summary) that summarizes the results of your financial analysis. The ultimate purpose of the report is to make an investment recommendation (sell, hold, speculative buy, long-term buy, etc.) to your clients. Therefore, value the shares of the Target using a range of valuation methods discussed throughout the course. Student teams (approx 5 students each) will complete the analyst projects. In addition, each team will be required to present their project results during a 10 minute presentation at the end of the semester. Similar to H2 Assignments, group work is presumed to be collaborative, not distributive. Examples of projects from previous years can be found on the Stellar class website for 15.535: http://stellar.mit.edu/S/course/15/fa07/15.535/4 15.535: Fall 2007 Schedule Class Date Topic Notes/Class Preparation 1.1