Acy6070a - Business Valuation and Analysis

ACY6070A Business Valuation and Analysis

Summer Term 2 2004-2005

Instructor and class information

Subject Leader: Oliver M. RUI

Office: K.K. Leung 222

Phone: 2609 7594 (office)

Fax: 2603-5114

E-mail: oliver@baf.msmail.cuhk.edu.hk

Lecture times Monday and Wednesday 6:45-9:45

Meeting places Emerald room

Office Hours: by appointment

Course Description and Scope

This course provides students with the conceptual background and analytical skills that are

necessary to identify, assess and apply information for purposes of analyzing and valuing

business activities and entities. The course allows students to appreciate critical issues of

determining the specific types of information, including accounting information, which are

significant in ex ante valuation and ex post analysis of business activities and entities. Students

are also expected to appreciate the limitations and costs of acquiring and using such

information. Emphasis is placed on integrating the use of financial and non-financial

information in business valuation and analysis with the application of the concepts of valuation,

business policy and financial analysis.

Course Objectives

* To learn a framework for making business decisions using financial statement information

* To learn how to evaluate Financial Statements using an industry and country specific

framework.

* To practice applying the framework in specific decision contexts (e.g., security valuation,

credit analysis)

* To practice written and oral communication skills

Course Structure and Teaching Methods

This course will emphasize the understanding of how accounting and financial statement

analysis is used in decision making and problem solving through the use of analytical, creative

and critical thinking. Therefore, students will be expected to demonstrate their knowledge of

accounting and financial reporting issues through written and oral analysis and presentations.

Since the course objectives are practical and technical in nature, computer assisted analysis

will also be used, therefore students will need good quantitative skills as well as strong

analytical skills for their class participation, projects and presentations.

The course will proceed in two parts. In Part 1 of the course we will develop a framework for

business analysis and valuation. The steps in the framework include: (1) business strategy

analysis (2) accounting analysis (3) financial analysis and (4) valuation, or prospective analysis.

1

The purpose of business strategy analys is is to assess the profit potential of the firm at a

qualitative level. This involves industry and competitive analysis. The purpose of accounting

analysis is to develop an understanding of whether a firm' accounting captures its true

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underlying economic condition. This involves identifying accounting flexibility and evaluating

the appropriateness of accounting policies and estimates. The purpose of financial analysis is

to form an assessment of the firm' performance in the context of its stated goals and strategy.

s

Tools used for financial analysis include ratio analysis, cash flow analysis, and common size

financial statements. The purpose of prospective analysis is to forecast the firm' future. Tools

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used for prospective analysis include forecasts of financial statements and valuation models.

In Part 2 of the course we will look at specific applications of the tools developed in the course

with a focus on valuation.

The course will be taught using a combination of the lecture and case methods. The lecture

method is well suited for helping you grasp new theories and concepts while the case method

allows you to practice making decisions in less structured environments. This approach will be

very useful to you since many of the decisions you will make in your careers will be in

unstructured environments. Therefore, the case method can add greatly to your development.

But class participation is essential for this class to be successful. I believe discussion is a vital

component to any learning experience and I hope we will have lively discussions, even during

the lecture sessions.

Course Materials

Required Material: Business Analysis and Valuation: Using Financial Statements 2 nd

Edition , by Palepu, Bernard and Healy (PBH), South Western.

Regular Readings: The Wall Street Journal,

The South China Morning Post Business Section

Assigned newspaper and journal articles

Suggested Book : Valuation