Business Analysis and Valuation

Course code: SB01FIN607

Credits: 3
Program: FSB-Yr 2/ Term 5 2022
Course status: Core Elective

Objective of the course

Understanding what determines the value of a firm and how to obtain that value is a
prerequisite for making rational business decisions. Investment banking, securities
analysis, and consulting is a growing industry and skills of modelling and valuing
business is critical. This course provides both a sound theoretical framework for
various corporate valuation approaches and a thorough discussion of how these
approaches are applied to the real world examples. Specifically, the course:

• Builds links between underlying business events and the information in financial
statements;
• Provides a framework for financial analysis of firms;
• Develops a comprehensive understanding of various corporate valuation
methods and their applicability; and
• Discusses various strategies for creation and measurement of Shareholders’
value.

Expected learning outcomes:

Upon successful completion of this course, participants are expected to be able to:

• See clearly how industry fundamentals and competitive forces directly impact
financial results and, in the process, drive firm’s value.
• Pull apart the financial statements to get at the relevant information for valuation
of firms.
• Determine the valuation for any kind of firm including the atypical firms.
• Understand the factors that drive the firm value.
Assess whether a company is creating or destroying its shareholders’ value.

Details of the course syllabus

Introduction to Valuation
Framework for Business Analysis and Valuation Using Financial Statements
Financial Analysis and Forecasting of Cash Flows
DCF Valuation Approach – Variants of DCF Approach: DDM, Capitalization of
Earnings Approach, FCFF, APV Approach; Measuring Cash Flows; Measuring Cost
of Capital; Estimating growth; Finding the terminal value correctly.
Relative Valuation Approach – Fundamental principles of Relative Valuation; Major
Types of Multiples: Sales, Profit and Asset Based Multiples; Limitations.
Calculating Equity value through enterprise value after corporate adjustments.
Indicative reading list - Key Texts and Sources
Following books would cover the course:

1. Valuation measuring and managing the value, 3rd Ed., Copeland, Wiley
publication.
2. Business Analysis and Valuation Using Financial Statements: Text and Cases,
Paul M. Healy and Krishna G. Palepu

Article

1. https://hbr.org/2016/08/why-are-we-still-classifying-companies-by-industry

Reference

1. Financial Modeling - Simon Benninga, MIT Press

2. Financial Modeling & Valuation , Paul Pignataro, Wiley
3. Investment Valuation: Tools and Techniques for determining the
Value of Any Asset- Damodaran
4. Financial management using excel spreadsheets, R J Bodhanwala,
Taxmann Publication

Students should carry Laptops in all the classes, students would be asked to leave if
they do not carry their laptops as the course involves building financial model.
All are expected to download balance sheets of Ingersoll-Rand, Reliance, Infosys and
companies allocated to them for project work.

Evaluation plan (in % adding up to 100%)

Evaluation Instrument Date Weight

Group Project/ Individual End of 28 Session 20%

Project presentation 29-30 10%

Case studies 20%

End Term- Case based As per academic 50%

calendar in Lab
Pedagogy/ Summary of Teaching and Learning
A mix of lecture, case and exercise would be used.

Session plan

Session Topics
Introduction to Valuation - An Overview of Business Situations
1 requiring Valuation of a Firm
2-4 Determination of Cash flow to firm in practice
3 Harnishfeger case
Determination of Cash Flows
5-8 Agra Tour case- FCFF, FCFE approach
Relevant Income
Revenue recognition
Expense recognition
9-12 Calculating Equity Value And Enterprise Value(EV)
Valuation of company and schedules
-Working Capital Schedule
-Depreciation Schedule
-Amortization Schedule
-Deferred tax modelling
12-19 Income Statement normalization
Shareholder’s Equity Statement
How does everything Balance and adjustment to ratios
20-28 Equity Valuation
Building model of Ingersoll-Rand India Limited
DCF Model For Valuation
PE Based Modelling
Relative Valuation Approach – Fundamental principles of Relative
Valuation; Major Types of Multiples: Sales, Profit and Asset Based
Multiples; Limitations
Weighted Pricing
Cost of capital for Equity analyst
29-30 Presentation of Equity Valuation Reports
 Project work : companies can be selected and informed to the faculty. Before
selecting company for valuation make sure that the latest annual report is
available. Group size of 4-6 students per group should be formed. Detailed
financial report and model should be submitted through Email at the end of 28
session. Naming convention for all files “Course Code, Group code, Company
name” Example- FSB-Group 01-Ingersoll Rand

Equity research report should have the following computation:

• Assumption sheet
• Cost sheet
• Revenue drivers, with industry and peer number as benchmark
• Pie chart of sales and market capitalization of peers
• P&L
• Balance sheet
• Cash flow statement
• Sensitivity analysis on equity valuation using Growth in sales, discount rate or
any other component which effect the share price substantially.
• Monte-Carlo simulation using the terminal growth
• Trend analysis-Last 3 years and projected 5 years
• Recommendation on the stock

Case Studies

You are given a list of case studies for this course which would be uploaded on
Moodle / or to be collected from program office. You will be required to have a
discussion and prepare a possible solution to the problem. Any group or any
student will be asked to present it in the class. The evaluation will be done on the
bases of group performance and individual performance.
Groups needs to prepare anywhere between 5 to 8 slides (Arial, font-18). These
slides should suffice for 10 minutes presentation. All groups need to submit the
slides through EMAIL to the course instructor before 9AM on the day class is
scheduled.
Any submission post 9AM will not be evaluated, if there are some technical issues
please submit hard copies of all the slides in my office cabin.
Subject of the Mail and Power point file naming convention should be “Program
name Group name followed by first two words of case study” example case study
/ assignment name “Sun city developer” and if group-1, is submitting the file should
be named as “FSB-01 suncity.ppt”. In all the emails addressed to the faculty,
please follow the same naming convention in the SUBJECT box. Also ensure that
the file size is no more than 500KB.
Make up Policy
Given the nature of the course, students who miss an evaluation component will
not be given any make-up test.
Evaluation Details

Group losses 25% of marks for delayed submission with every passing day.

Dr. Ruzbeh J Bodhanwala, Cabin -209 Amrita Shergill,020-67906124,

[email protected]
Mapping of course outcomes to program outcomes

Sr.
Program Out-comes None Low High
No.
Basic understanding of Social sciences,
a) Humanities, Fine and performing arts √
to connect with the society at large.
Promoting competitiveness and
b) √
ability to work in teams.
Ability to scan and critically analyze
c) √
economic, legal and business environment
Ability to synthesize business situations
d) √
to make sound business decisions
Understanding of basic tools of management
such as quantitative analysis, financial
e) √
accounting, research methods and application
of information technology.
Understanding of functional areas such as
f) Finance, Marketing, Operations and √
Human resource management
Expertise and advanced knowledge
g) √
in the chosen area of specialization
h) Ability to analyze and identify business √
opportunities and to develop business models
in global environment.

i) Ability to interact professionally with various √

stakeholders from diverse cultures in a global
environment.

j) Leadership and team building skills. √

k) Knowledge, skills and attitude for employability √

to succeed in global business environment.

l) Commitment to professional and ethical √

responsibilities in career as also in personal life.

m) Recognition of the need for continuous self √

development to be able to adapt to and excel in
the dynamic global environment.
Mapping of course outcomes to program outcomes

Sr.
Program Out-comes None Low High
No.
Basic understanding of Social sciences,
a) Humanities, Fine and performing arts √
to connect with the society at large.
Promoting competitiveness and
b) √
ability to work in teams.
Ability to scan and critically analyze
c) √
economic, legal and business environment
Ability to synthesize business situations
d) √
to make sound business decisions
Understanding of basic tools of management
such as quantitative analysis, financial
e) √
accounting, research methods and application
of information technology.
Understanding of functional areas such as
f) Finance, Marketing, Operations and √
Human resource management
Expertise and advanced knowledge
g) √
in the chosen area of specialization
h) Ability to analyze and identify business √
opportunities and to develop business models
in global environment.

i) Ability to interact professionally with various √

stakeholders from diverse cultures in a global
environment.

j) Leadership and team building skills. √

k) Knowledge, skills and attitude for employability √

to succeed in global business environment.

l) Commitment to professional and ethical √

responsibilities in career as also in personal life.

m) Recognition of the need for continuous self √

development to be able to adapt to and excel in
the dynamic global environment.