Business Valuation (AIM 4337)

Department of Accounting and Information Management

School of Management
The University of Texas at Dallas
Fall 2005
I. Instructor
Surya N. Janakiraman
Office: SM 4.806
Phone: 972 883 6370
E-mail: suryaj@utdallas.edu
Office hours: Tuesdays 5:30 – 6:30 PM. Other times by appointment.

II. Teaching Assistant

Haeyoung Shin
Office: SM 4.425
E-mail: shy2001@utdallas.edu
Phone: 972 883 4452

II. Course objectives and description

The objective of this course is to provide a simple framework for “fundamental” valuation
analysis . We will study the process of projecting financial statements and cash flows so that we can
understand a company’s fundamental value drivers.

To attain our objective, we will rely on ‘fundamental analysis’, which implies the use of financial
reports and other relevant information to produce pro-forma financial statements and then use them to
estimate a value for the business.

This course will help you to find answers to the following questions:

1. What is meant by firm value? What information is needed to calculate the

firm value?
2. What are the drivers of firm value?
3. How can one get the necessary information on the drivers of firm value
from the financial statements?
4. What are cash flow, free cash flow and cash flow to equity? How are they
related to value of the enterprise?
5. What is the role of accounting earnings in valuation of firms?
6. What are price to book and price to earning ratios?
7. How does risk affect firm value?

This course should be of use to you if you are contemplating a career in investment banking,
equity research and security analysis, management consulting, public accounting, corporate finance or
venture capital.

III. Course administration

The course will have 14 meetings – on every Tuesday from 7:00 – 9:45 PM. The course content
will be delivered to you primarily in the form of lectures and class discussions. All students are expected to
actively take part in class dis cussions. Grades are based on 2 individual assignments, two exams and a
group project.
 Individual assignments will be based on the class discussions. These will be in the form of
exercises, problems and mini cases. Even though, you can discuss the assignments with others in the class,
you should submit only your own work. I will not accept late assignments. If you will not be attending
the class on the day an assignment is due (for example, you are out of town in connection with your job), it
is your responsibility to make sure that I receive your completed assignment before the due data. You can
send it through a friend or email it to me. Your assignments will be graded and returned to you within a
week. If you disagree with the grading of an assignment, state the problem in writing and submit the
assignment for re-grading. Assignments account for 20% of the final grade.

All of you should form a group of about 5 or 6 students. Each group will be assigned a unique
firm for analysis . Group formation is to be completed by 20th of September. You should submit a project
report at the end of the semester. The project will be graded on creativity, demonstration of in depth
knowledge and clarity of communication. Your project work should reflect your understanding of the
principal concepts in the detailed analysis of financial data and the tools and concepts developed in the
course. More details about the project will be supplied later. Group project will be worth 30% of your final
grade.

Both the exams will test you on the concepts that you learnt in the course and be primarily
oriented towards solving problems . Both the exams will be worth 25% each of your final grade.

IV. Text book

The required textbook for the course is “Corporate Valuation: A guide for managers and
investors” published by Thomson and authored by Daves, Ehrhardt and Shrieves.

I will make my lecture notes and other handouts available to you through the course home page.
You should download a copy of the lecture notes, print it and bring it to class.
 Course schedule

Date Topic Textbook reference /

Assignment

August 23rd Introduction to the course. Chapter 1

August 30th Time value of money. Appendix 2 of chapter 2

Valuation of terminal investments.

September 6th Overview of financial statements Chapter 2

Calculating free cash flows

September 13th Financial statements and free cash flow Chapter 3

Assignment 1 due

September 20th Introduction to estimating the value of a firm using DCF Chapter 4
model

September 27th Method of multiples Assignment 2 due

October 4h Exam I

October 11th How to project free cash flows Chapter 5

October 18th Projecting consistent financial statements Chapter 6

October 25th Multi-year projections and valuation Chapter 7

November 1st A valuation template: Example of Home-depot Chapter 9

Assignment 3 due

November 8th Ratio analysis required to project financials Chapter 10

November 15th Review and project work

November 22rd Exam II