Advanced Company Valuation

Study Guide: Spring 2016

Department of Business Administration

Uppsala University
 Advanced Company Valuation – Study Guide
Spring 2016

Introduction

Today, the theory of valuation has advanced from previous immature stages. Most finance
researchers and practitioners are well-acquainted with free cash flow models based on the
discounting of expected future performance. The theory of valuation is gradually closing the gap
between corporate finance, financial accounting and strategic analysis. These three areas are now
important cornerstones of modern valuation theory. Research, and teaching, related to valuation
theory is almost entirely occupied with discounting models (as opposed to relative valuation
models and technical analysis). This means that the investor needs to understand a company’s
past performance and try to model the future performance in response to potential changes in the
business environment and the company itself. Probably this is what investors always have done –
but today we have (or think we have) a better structure that can support the analysis and
investment decisions.

This is where our Master level valuation course begins. We teach how to construct a valuation
system that gives you decent chances of making insightful investment decisions. Our Master level
course is practical in the sense that it makes participants work with real-life data and use it to
derive estimates of the future. You will look at the key elements of financial statement analysis,
advances in valuation modeling, and the practical application of a strategic analysis. In the end,
you have a valuation system that is technically correct and the only thing left (?!) is the entering
of correct estimates of the future. But our Master course is not just about financial techniques.
We indulge in an analytical reasoning where course participants have to think beyond simple
numbers in a spreadsheet. Questions that arise are for example: For how long time can this
company outperform its competitors, and; Can the risk of an individual company be lower than its
industry (or the market) in eternity? As teachers, we have a strong belief that it is not in
understanding the techniques that an investor can make the correct investment decisions, but
rather in the understanding of the world we live in and how forecasts affect valuation model
parameters.

You are most welcome to be part of our course. We hope it will be a challenging and insightful
journey within the area of company valuation. In the rest of this text you find detailed
information about the course content.

See you in class!

Mattias Hamberg
Course coordinator

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 Advanced Company Valuation – Study Guide
Spring 2016

Structure and teaching mode

The course is taught using both lectures and seminars. In total, there are 16 lectures (a sum of 34
lecture hours) and one seminar (two seminar papers). The course is taught intensively during
April 2016. Lectures are provided during the first three weeks. They are followed with two weeks
with seminars and a final written examination. The reason for this is that we want to help you
understand the theory first and make sure you study it properly so that you can contribute to
everyone’s learning experience in the seminar part of the course. The workload is quite
substantial and our aim is that you definitely earn you grade in the course. However, the work
changes quite a bit due to the theoretical orientation of the first half, and the practical orientation
of the latter half.

Lectures
Lectures are used to highlight theory and guide you through the difficulties of valuation theory.
This is a Master level course and therefore lecturers do not always explain every example in the
textbook. Instead the focus is on topics that are discussed in the text and try to put the text in a
perspective. The pace is high but you should try to prepare yourself for the lectures.

Seminars
The purpose with the seminar papers is to ensure that students work practically with valuation
models. The written analyses are strengthened through a seminar meeting. At the meeting,
course participants present the state of their work. The teacher’s role is to provide a structure
which enables everyone to get the most benefit out of group discussions.

Teachers and administrators

Mattias Hamberg earned his Ph.D. in 2000 at Uppsala University. He is an associate professor at
Uppsala University (2012-16) and at the Norwegian School of Business and Economics (2001-16).
Mattias is the author of Strategic Financial Decisions (2001; 2004) and Determining Company
Value (forthcoming). His research concerns investment strategies, the relevance of accounting
information and corporate finance decisions.
Telephone: 018-471 6858. E-mail: mattias.hamberg@fek.uu.se

The course is also taught by Daniel Brännström (Ph.D.), Magnus Axén and Tord Andersson
(Ph.D.).

You can find all material that has been handed out as well as other useful information on the
course web site (on Studentportalen). The course coordinator is Mattias Hamberg. Golondrian
Janke (018-471 1356, golondrian.janke@fek.uu.se) takes care of most administrative matters.

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 Advanced Company Valuation – Study Guide
Spring 2016

Literature

The course is based on the textbook manuscript Determining Company Value authored by Mattias
Hamberg. The manuscript is provided free of charge (!) as a textbook and in a pdf-version. The
textbook is complete with more than 100 study questions, real-life cases, and Excel spreadsheet
exercises. Solutions to study questions and cases are provided in class.

In addition, two articles and various separate hand-outs are distributed in class.

Schedule
The schedule that is outlined here is preliminary. Changes are announced on Studentportalen
and at the lectures. You can also see changes on the course web site.

Day Date Time Place Teacher Topic

Tuesday 29/3 9-12 B153 MH Introduction, revenues and cost
Wednesday 30/3 10-12 B153 MH Operating assets
Wednesday 30/3 14-16 B153 MH Operating liabilities; Working capital
Thursday 31/3 13-15 B153 MH Shareholders’ equity
Friday 1/4 13-15 B153 MH Financial assets and liabilities
Monday 4/4 10-12 B153 MH Earnings and cash flows
Monday 4/4 13-15 B153 MA Earnings forecasts
Tuesday 5/4 13-16 B153 MH Integrated ratio analysis
Thursday 7/4 13-15 K320 ? Strategic analyses
Thursday 7/4 9-16 DB Tutoring upon appointment
Friday 8/4 13-15 B153 MH Value drivers and model parameters
Monday 11/4 13-15 B153 ? Valuation models
Monday 11/4 18 Deadline: Case company selection
Tuesday 12/4 13-15 B153 ? Capital costs and capital structure
Wednesday 13/4 13-15 B153 MH Modelling continuing value; Case intro
Friday 15/4 9-16 DB Tutoring upon appointment
Monday 18/4 9-16 DB Tutoring upon appointment
Monday 18/4 13-15 B153 MA Research on financial analyst activity
Tuesday 19/4 9-16 DB Tutoring upon appointment
Tuesday 19/4 13-15 B153 MH Pro forma financial statements
Wednesday 20/4 18 Deadline: Seminar paper 1
Thursday 21/4 DB Seminar – See separate schedule
Friday 22/4 9-16 DB Tutoring upon appointment
Monday 25/4 13-15 B153 MH Aligning valuation models
Tuesday 26/4 9-16 DB Tutoring upon appointment
Wednesday 27/4 Deadline: Seminar paper 2
Friday 29/4 Written examination
Wednesday 10/6 Re-exam

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 Advanced Company Valuation – Study Guide
Spring 2016

Details on the seminar

A team consists of 3 students (sometimes 2, but not 4!) that together analyze a company in two
seminar papers. A team is obliged to hand-in their material on time and to make a presentation of
their work at a seminar. Details on the seminar task are provided separately at the start of the
course. All information is found on Studentportalen (“Seminar instructions”).

All students must find friends to work with. The working language is supposed to be English.
After you have found friends to work with, you decide what company to analyze. There are three
seminars/industries to choose from. The first is trading (e.g. Unilever), the second is services (e.g.
Securitas), and the third industry category is manufacturing (e.g. BMW). If you are signed up at
the first seminar, you must analyze a company involved in trading. The company must employ
International Financial Reporting Standards. Two groups cannot analyze the same company and
they are allocated on a ‘first come, first serve’ basis.

By Monday the 11th of April, you must have signed up in Studentportalen.

There is only one seminar with obligatory attendance. Each team attends one seminar meeting
(two hours). The seminars times and locations are:

Trading: Thursday 21st of April, 8.15 – 10.00 (room: B105)

Services: Thursday 21st of April, 10.15 – 12.00 (room: B105)

Manufacturing: Thursday 21st of April, 13.15 – 15.00 (room: B105)

At the seminar, the historical analysis and the strategic position of the company is discussed.
Instructions are provided separately on Studentportalen. At the seminar all teams present their
company. The objective with the seminar is to make all teams aware of their company’s
performance relative to the companies. By the end of the seminar each team should know if their
company is better or worse than its competitors. Make sure that you have a PowerPoint
presentation with you to the seminar. The first paper and the presentation has to be uploaded to
Studentportalen by Wednesday 20th of April, 18.00.

The second paper is due on Wednesday the 27th of April, 18.00. The focus of the paper is a
complete valuation analysis of the chosen company. There is no presentation of the written
material.

During the second half of the course there are plenty of opportunities for each team to meet the
seminar leader (Daniel Brännström) for tutorials. A tutorial is booked in advance by sending an
e-mail to Daniel (daniel.brannstrom@fek.uu.se). Each team have the right to meet the seminar
leader three times – use that opportunity! When booking a meeting, you need to inform the tutor
what you want to discuss. Please note that the design of Excel spreadsheets is not discussed at
these meetings.

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 Advanced Company Valuation – Study Guide
Spring 2016

Examination
The course is examined using an individual written exam and group assignments. The maximum
score is 100 points. To pass the entire course, a student needs to obtain minimum 50 points. The
written exam accounts for 70% of the grade and the group assignment for 30% of the grade. But
irrespective of the group assignment, a student must pass the individual written exam to pass the
course. At the written examination the maximum score is 70 points. To pass the individual
written exam, a student needs 35 points.

The group assignments are given one joint grade where the maximum score is 30 points. It is not
possible to redo seminar papers and hence a student can obtain less than 50% of the maximum
points (i.e., fewer than 15 points out of a maximum of 30 points). The seminar presentation is
obligatory, and any absence must be discussed with the course administrator in advance. If you
are absent because of illness please let us know as soon as possible.

Sometimes the work within a team is very unevenly distributed. Our experience is that most
students are aware of who did the most/least work. We encourage all teams to take this into
consideration and report if it is unfair to distribute points for assignments evenly within the
team. A team cannot fail an individual student but it can suggest that he/she should have a
lower/higher mark. The method we use to give different grades within a group is described using
the following example:

Assume that a team is awarded 20 out of 30 points for the assignment. The team consists of three
members and so the total score for the team is 3 x 20 = 60 points. Everyone whose name is on the
front page of the seminar paper is awarded a pass: 15 points. The remaining 15 points (60 - 45)
can be divided by the group members. The team decides this by stating on the Seminar paper’s
front page the distribution of any excess points (in percentages). For example: Person A gets 40%,
persons B, C and D gets 20% each. Person A then gets 15+6, and the others 15+3. However, if this
team only got 10 points (out of 20) everyone will get 10 points regardless of how little/much the
individuals worked. Important: If you do not report the split on the front page of the second
written assignment, all team members will get the same score. The division cannot be made
retroactively.

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