22743 Business Valuation and Financial Analysis

Faculty of Business: Accounting
Credit points: 6 cp

Subject level: Postgraduate

Result Type: Grade and marks

Requisite(s): 25742 Financial Management OR 25746 Financial Management: Concepts and Applications
These requisites may not apply to students in certain courses.
There are also course requisites for this subject. See access conditions.

Handbook description

This subject introduces students to the latest techniques of financial statement analysis, and develops an appreciation for alternative financial modelling techniques in students. Topics include: credit rating systems; prediction of corporate failure; takeovers and financial statements; risk assessment and financial ratios; and corporate planning models and financial statements.

Subject objectives/outcomes

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

Understand the basic techniques of financial analysis and business valuation.
Understand the benefits and limitations of various different valuation models.
Recognise that the underlying rationale for discounted cash flow valuations can also be extended to create a 'direct' role for accounting numbers in the valuation of businesses.
Distinguish between high and low quality accounting data, so far as it represents the underlying business circumstances and is useful (or not) for valuation purposes.
Appreciate the linkage between industry analysis, strategic business analysis, accounting analysis, financial analysis and prospective analysis.
Be able to choose appropriate valuation models for a given business or situation.
Prepare a valuation and justify that figure in terms of the underlying business, accounting and financial considerations.
Work effectively in teams so developing interpersonal, leadership and communication skills as demonstrated by a formal presentation of the findings of the group case study.

Contribution to graduate profile

This course focuses on establishing a clear linkage between several skills normally acquired by MBA students so as to enable them to conduct rigorous business analysis and prepare sound business valuations. The course combines skills in business strategy, finance and accounting, so as to enable students to apply these methods of analysis in combination.

This course also contributes to the accounting major by demonstrating the analysis of accounting quality and its implications for financial analysis and valuation.

Teaching and learning strategies

The course will be taught as one three-hour class per week. In each class there will be a lecture session, which will contain the basic material and introduce key concepts, and case sessions that will demonstrate the application of skills.

These classes will be supplemented with both printed and electronic learning materials and resources. The UTS web-based communication tool (UTS Online) will be used to share information and encourage interaction between staff and students. Students will also use appropriate computer software such as spreadsheets and word processors to complete assigned tasks.

Content

Industry and strategy analysis: Understanding the strategic decisions businesses make to create/maximise shareholder value, as well as the constraints within which this occurs.
Valuation models: Understanding investment returns, and how valuation models are developed to anticipate abnormal returns.
Accounting analysis: Understanding the link between strategic considerations and the financial statements, including identification of the quality of accounting numbers.
Financial analysis: Assessing the financial performance and position of a business using ratio analysis, in light of the strategic direction and accounting quality identified.
Forecasting financial results.
Risk analysis: Analysis of equity risk and the cost of capital, and the analysis of credit risk.
Application: Using forecasted financial statements to develop a valuation, and the assessment of that value's sensitivity to strategic, accounting and financial considerations.

Assessment

Class preparation (Individual)	10%
Three weeks of homework will be randomly collected at the end of the seminar by the seminar leader and graded on the effort put into the work. The homework will allow students to demonstrate that they have met objective 1-7.
Assignment (Group)	30%
This will assess students understanding of the concepts of business valuation and their ability to consider the practical applications. It will also allow students to demonstrate that they can use both spreadsheets and word processing packages to tackle practical valuation problems. This assignment will allow students to demonstrate that they have met objectives 4-9.
Final Exam (Individual)	60%
This exam, consisting of practical and theory questions, will test students understanding of the theory and their ability to apply the theory to business valuation and financial analysis. This will enable students to demonstrate that they have met objectives 1-7.

Recommended text(s)

Penman, S., Financial Statement Analysis and Security Valuation, McGraw Hill, 2001.

Palepu, K., P. Healy and V. Bernard, Business Analysis and Valuation using Financial Statements: Text and cases, 2nd ed., Southwestern, 1999.

Indicative references

The following spreadsheet-based valuation software package is available and should help you in the preparation of your major case study.

Lundholm, R., and R. Sloan, E-val.