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Fundamental Equity Analysis

Suffolk University, Sawyer Graduate School of Management


MSF 887, Spring 2015, Mondays 4:30 7:10, Sawyer 522
__________________________________________________________________________________
Instructor: Chris Argyrople, CFA
Email: chris.argyrople@gmail.com

Phone:

617-970-7871

Course Description & Objectives


The Fundamental Equity Analysis skill-set involves utilizing a varied skill set. Analysts must combine
financial, accounting, and strategic analysis with detective work & experience. Although no University class
can provide students with all of these skills, this course offers students:

An Integrated Approach towards Value Creation & Value Destruction ( which is to be avoided )
Practice in communication & defending an argument
A business analysis framework that helps tie together Strategy & Finance
Opportunity to coordinate Model Building with Decision Making
Practical Approaches to Profiting in Public Markets

Students should be able to integrate business sense with financial techniques. Accordingly, each class will
have a significant participation component. Debate will be encouraged, as the highest grades will be
awarded to well defended arguments, not correct answers.
Class Participation is important for a number of reasons. First, you learn a lot more through active
participation in a process. Second, Equity Analysis is learned through practice mistakes must be made,
and recommendation risk must be taken. Third, even the best analysts must learn to effectively sell ideas.
One Final Note: if I have done my job properly, many students will, in a few years, become better at
Securities Analysis than the Instructor. If you are fortunate enough to someday become this proficient, be
humble and continue to respect your colleagues. Wall Street is littered with egos we will spend time on
how to set your goals high but be respectful of the markets & its participants.
ATTENDANCE TAKEN EACH CLASS.
NO LAPTOPS OPEN. NO MOBILE PHONES if you want to use your mobile device, then please leave the
room. STUDENTS WITH DISABILITES: PLEASE INFORM ME OF HOW TO ASSIST.

Readings & Cases


NO REQUIRED TEXTS Optional Texts are Helpful to Many.
Read as much as possible from www.damodaran.com
Unpublished Text: Securities Analysis: Fundamental Financial Analysis of Equities, Chris Argyrople, CFA
2000. Available for purchase from Instructor. Cost $40.
Investment Valuation: Tools & Techniques for Determining the Value of Any Asset, 2nd Edition, Aswath
Damodaran, ( over 900 pages ), ISBN #: 0471414883
Valuation: Measuring and Managing the Value of Companies, 4th Edition, McKinsey & Co., Koller Goedhart
& Wessels, 2005
In Class Readings Available on Blackboard

FIN 887, Fundamental Equity Analysis

Course Outline
Jan 26

Introduction. Model Building, Quarterly Forecasting, EDGAR. What Moves Stock Prices?
Introduction to Valuation using www.damodaran.com and all those tools.
Blackboard: Survey of Valuation Methods
NOTE: START READING FEB 23rd READINGS NOW

Feb 2

Enterprise Valuation & Cash Flow Analysis: EBITDA & Free Cash Flow

Feb 9

Enterprise Valuation & Cash Flow Analysis: Does Capital Structure Matter?
How to Slant your Valuation based on Cash Flows, Debt & Margins.
2 Blackboard: Dealing with Cash, Cross Holdings & NonOperating Assets; Leases
Debt & Value

Feb 16

Presidents Day Holiday: UNIVERSITY CLOSED NO CLASS

Fri Feb 20

Presidents Day Makeup: Overview of Industry Analysis

Feb 23
HW 1 Due

Valuation Models: Various Slants towards valuation and different modeling approaches.
6 Blackboard: Multiples in Valuation; Valuation with No Earnings, History and no
Comps; Valuing Companies with Intangible Assets; Valuing Young & Startups;
Valuing Declining & Distressed Firms; Valuing Cyclical & Commodity Firms

Mar 2

EVATM : Economic Value Added & Cost of Capital Analysis.


Integrating Capital Budgeting into Securities Analysis. Model Formatting Tips.
3 Blackboard: Measuring Return on Capital & ROE; Residual Income Example; Value
Creation & EVA

Mar 9

Spring Break: UNIVERSITY CLOSED -- No Class

Mar 16

Competitive Advantage Period, Growth Rate Analysis, Valuation Using Multiples.


Blackboard: Analyzing Growth

Mar 23
HW 2 Due

Corporate Strategy & Industry Analysis. Integrating a Strategic Assessment with


Valuation. Evaluating Management.

Mar 30

Acquisition Analysis
2 Blackboard: Acquisition Analysis; Value of Synergy

Apr 6

Asset Value Analysis


Blackboard: Valuing Multibusiness & Multinational Firms

Apr 13
HW3 Due

Case Study: Evaluating & Valuing a Firm with Multiple Business Lines & Sum of the
Parts Analysis. Analyst Conference Call How Management Presents the Numbers

Apr 17
Portfolio Positioning
FRIDAY AFTERNOON: Holiday Makeup for Patriots Day on 20Apr
Apr 20

Patriots Day Holiday: UNIVERSITY CLOSED No Class

Apr 27

Shorting Stocks how is Short Selling Different than the Long Side ?

May 4

Investment Strategy Is Now a Good Time to Invest ?


Final Projects Due in Class, Hardcopy OR Electronic Submission (due on 04May)

FIN 887, Fundamental Equity Analysis

Grading Criteria
Participation

20%

Homeworks

35%

Final Project

45%

Homework Submission Guidelines


HOMEWORKS SHOULD BE A MAXIMUM OF 5 PAGES ( single spaced ), NOT INCLUDING APPENDICES
( no limit on appendices ). Appendices & models should be extensive.
Groups of 2 People Max.
HW1:

Pick a company of your choice


Minimum 8 Quarters of Income Statement & Cash Flows
Most Recent Balance Sheet
5 Years of Annual Income Statements 4 Historical & 1 Current Year
3 Years of Historical Annual Cash Flow Statements
Complete Investment Thesis Do the Best You Can. Cover Financial Analysis, Business Analysis &
Valuation. Be sure to have a Buy, Sell, Hold Recommendation.

HW2:
Upgrade HW1
Grading more heavily weighted on the Investment Thesis
HW3:
I will pick a company & put Wall Street reports on the website you can comment on these & build
your reports using available data. Be sure to write a full report, including relevant appendices.
FINAL PROJECT:
Hand in Reports for 2 Companies
a) Your Original Company ( Update of HW1 & HW2 )
b) A New Company of Your Choice

Start thinking about your second company early in the term.

Suggested Extra Credit Exercise:


Each week, hand in a 2 or 3 page submission ( including basic model ) that outlines a bullet point
style investment thesis, backed up by some numbers
Focus on these bullet points:
o Valuation
o Business Trends ( first & second derivative )
o Balance Sheet
o Cash Flows & Any Accounting Specifics
o Management
o Potential Catalysts or Comparables
This will be a helpful exercise as you will have a number of short investment theses that you can
look at next year to determine your strengths & weaknesses.

FIN 887, Fundamental Equity Analysis

Course Goals & Learning Objectives


GOALS
Upon successful
completion of this course,
students should be able to
know/understand:
How to Build and Defend an
Investment Thesis

OBJECTIVES
Upon successful completion
of this course, students
should be able to:

ASSESSMENTS
How the student will be
assessed on these
learning objectives:

Summarize a lengthy Thesis


into Concise Elevator Pitch

How to Write a High Quality


Research Report

Write a Research Report


complete with Investment
Thesis, Business and Financial
Analysis
Use DCF, Multiples, Residual
Income, Private Market Value,
and Transaction valuation
methods in valuing a company
Build a complete Investment
Thesis backed up by Data and
Written Analysis
Use Sum of the Parts Valuation
and compare it to Income
Based Valuation Methods

Grading of each Report


has Specific Investment
Thesis Commentary
Detailed Written
Homeworks and Lengthy
Final Project

Evaluate a Stock using three


or more Valuation
methodologies
The Integration of
Quantitative and Qualitative
Investment Inputs
Differentiate between Asset
Based vs. Income Based
Valuation Methods
Identify Value Creation
Drivers and Value Destroyers

Integrate Analysis of NonFinancial Information


including Analyzing
Management and Corporate
Strategy
Understand Hedging and
Short Selling as it pertains to
Equities
How to Use Different Models
and Inputs in Different
Situations
Recognize Patterns of Value
Creation & Destruction that
may likely Recur

Understand how Value is


Created and Destroyed in any
Industry so Students can use in
any Career
Fluidly integrate an Analysis of
Management and Strategic
Position with a Financial
Analysis
Analyze losers as well as
Winners and Identify
Risks/Rewards of Short Selling
Evaluate Early Stage Firms,
Companies Losing Money,
Cyclicals, and Mature Firms
Identify Patterns and Behaviors
that Create Value and Destroy
Value, including Financial Ratio
Patterns and Management
Behaviors

FIN 887, Fundamental Equity Analysis

Grading of Valuation
Section in Each Report;
Class Discussions
Detailed Written
Homeworks and Lengthy
Final Project
Detailed Lecture followed
by Sum of the Parts
Assignment; Class
Discussions
Class Discussions,
Detailed Written
Homeworks, Lengthy Final
Project
Detailed Written Reports
and Comprehensive Final
Project; Examples in Class
Discussions
Detailed Written Reports
and Comprehensive Final
Project
Detailed Written Reports
and Comprehensive Final
Project; Examples and
Class Discussions
Class Discussions