Financial Modelling - Lecture 1

Only available on StudyMode
  • Download(s) : 185
  • Published : November 28, 2010
Open Document
Text Preview
Session 1 Page 1

9/29/10

Material presented in four sections.

  Analytical and ratio techniques for understanding

business performance, liquidity, and financial structure.
  Cash flow forecasting techniques are then applied to to produce a cash flow (and earnings-based) financial valuation model.   Special topics include taxes, compensation, pensions, financial institutions (time permitting)   Multiples valuation analysis, lawsuits and false information, regulatory environment.

Session 1 Page 2

9/29/10

Two projects account for 80% of course.

  The first group project is to develop a cash flow






financial valuation model of a company of your choice (50%) As a second group project, you should examine a shareholder class action lawsuit (30%) One individual effort assignment (10%) Class attendance and participation (10%) Next slide – last year’s project portfolio performance (relative to S&P 500 index).

Session 1 Page 3

9/29/10

Mgp272 portfolio: 4 Dec. 2009 to 20 Sep. 2010

Buy: RELL, CMG, IMAX Sell: SPWRA

Session 1 Page 4

9/29/10

Mgp272 portfolio: 17 Feb. 2009 to 22 Sep. 2009
1.7 Portfolio Index (2/17/09=1) 1.6 1.5 1.4 1.3 1.2 1.1 1 0.9 0.8 2/17/09 3/17/09 4/17/09 5/17/09 6/17/09 7/17/09 8/17/09 9/17/09 Excess Return

1.58

0.2 0.18 0.16 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 6/2/09 2/17/09 3/10/09 3/31/09 4/21/09 5/12/09 6/23/09 7/14/09 8/4/09 8/25/09 9/15/09

16%

1.37

MBA 272 Portfolio

S&P 500

GenentechBUY, BestBuyBUY, CoachBUY, GoogleBUY, McDonaldsBUY, YahooBUY

Session 1 Page 5

9/29/10

Innovator article

Session 1 Page 6

9/29/10

Mgt/Mgp 272 should have high “valueadded” content.

  Financial modeling based on sound financial






concepts and empirical literature. Develop expertise with high applications content. Integrates accounting, finance, economics, statistics, and strategy. Modeling intensive. Information intensive. Complex information environment

Session 1 Page 7

9/29/10

From business activities to financial reporting

Business Environment

Business Activities

Business Strategy

Accounting Environment

Accounting System

Accounting Strategy

Financial Reporting
Reverse engineering?

Session 1 Page 8

9/29/10

Financial analysis using financial reporting
Other Information and Knowledge Business Strategy & Activities Business Application Context

Financial Reporting

Accounting Analysis

Financial Analysis

Prospective Analysis and Valuation

Session 1 Page 9

9/29/10

Role of financial analyst

  Buy-side versus sell-side
  Conflicts of interest  Wall Street’s Biggist Con?   Public information versus private information
  Regulation FD  Enforcement of Regulation FD  Griffin et al. paper   Comparative advantage  Accounting modeling, Conservative?  Future financial consequences modeled  Financial securities, Distribution and buybacks Session 1 Page 10 9/29/10

Prospective Analysis and Valuation
Forecast (Numerator) Assumptions Pro-forma Financial Statements

Valuation Ratios

Future Plans & Strategy

DCF, RIM PEG models

Cost of capital (Denominator) Assumptions

Valuation & Decision Making

Session 1 Page 11

9/29/10

Traditional Financial Analysis: Value Drivers

ROE=NI÷SE

ROA=NI÷TA Taxes=NI÷PTNI Margin=PTNI÷Rev Turnover= Rev÷TA Working Capital and Fixed Assets

Leverage=TA÷SE Financing Decisions Distribution/Payout Strategy

Revenues & Expenses

Liabilities & Equity

Managing Distribution

See, also, Figure 5.3 text
Session 1 Page 12 9/29/10

Preferred Approach: Value Drivers (Ch. 5)
5.6 Return on Net Op. Assets (RNOA)
Pretax Return on Core Net Assets (RNOA*) Return on Cost of Financial Non-Core Net Assets Liabilities & Equity

5.7 Operating Margin

5.8 Turnover Ratios

Non-operating returns

5.9 Leverage, Distribution

Margins, exp. taxes, R&D

Receivables,...
tracking img