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Equity Valuation

ADM4350

Fall 2017 A, B

Professor Allan RIDING


Office DMS7122
Telephone 613-562-5800 Ext 4700
E-Mail riding@telfer.uottawa.ca (best way to reach me)
Office Hours Tuesdays 1600-1800 hrs
Class Location Section A: DMS4120;
Section B: DMS4170.
Class Hours Section A:
Monday 1600-1730; Wednesday 1430-1600
Section B:
Monday 1730-1900; Wednesday 1730-1900
Prerequisite(s) ADM2355
Program of study Mandatory course of option Finance

Course component Due dates Weight


Group Case Write-Ups
Case 1 September 18 5
Case 2 October 11 7
Case 3 October 30 5

Class contribution 8
Summative assignments
Preliminary Summative Assignment 1 October 2 10
Preliminary Summative Assignment 2 November 1 10
Final summative submission December 7 30
Live case assignment November 20 25
Total 100
Course Description
The objectives of this course are (a) to learn how to value financial assets and (b) to appreciate
better the complexities of applying finance theory. The course will use lectures, readings, and
case studies to deal with realistic examples of businesses that represent different settings where
valuation is an issue. In particular, the course will use case studies to bring theory and
application together.
The first part of the course will provide a review of applicable finance theory and an overview of
valuation principles. Theory is presented at a relatively nontechnical level, but there is still a
need to use formal models with algebraic expressions. Besides theory, there are heuristic
approaches to dealing with the practical aspects of valuing more complicated situations.
The second portion of the course is more applied and focuses on a more detailed examination of
the inputs to the valuation calculation. The final part of the course will focus on applications of
the principles of valuation to situations that may include valuation of private companies, venture
capital investments, and mergers and acquisitions.

Course Contribution to Program Learning Goals


This course contributes to understanding, applying and integrating the core management
discipline of finance, which includes the application of high standards of integrity, ethics and
social responsibility. The course requires that students demonstrate critical thinking and strategic
decision making skills as well as leadership, interpersonal and communications skills.

Course Learning Objectives


By the end of this course, students should:
be able to synthesize their knowledge of Finance in order to estimate the market value of
a business entity;
have a yet greater understanding of the linkages among the firms competitive
environment, business strategies and firm value; and,
be aware of the economic and political forces shaping the financial sector.

Methods Used to Evaluate Student Performance


Group Cases
Case studies are used extensively in this course because these give students insights into the
managerial decision context and the linkages between strategic management and valuation.
Usually, there are no right answers to case studies; rather, one learns by doing in a variety of
new situations. Much depends on the chain of reasoning behind decisions and students abilities
with respect to critical thinking and strategic decision making skills.
Students will analyze case studies in a group context and will submit the groups analyses of case
situations. The case studies used in the course also provide a Canadian context to the material
and provide examples of various settings in which valuation is important. The case study method
simulates and encapsulates this doing within the constraints of the classroom. See Guide to
Case Study, Live Case Grading Key, and Summative Grading Key, all posted online, for
more detail. Also, do not miss class lectures and discussions on guidelines for each case
submission.
Done in groups of four (please note that each group must be formed within the
section in which the students are registered).
Weight: 5% for cases 1 and 3; 7% for case 2.
Format: hard copy (print out) of a power point file
Submission in class at the beginning of the designated due date

Summative assignment
Each student has been assigned a company listed on the TSX, the valuation of which comprises
the final summative assignment for this course. The instructor assigns the company for the
summative project during the first class. However, if students have a specific company he or she
would like to work on, the student MUST request approval from the instructor no later than
September 2 2017 (note that the company chosen may not be approved). To assist with this
assignment, students will be required to submit two preliminary summative assignments.
Preliminary Summative Assignment 1
(10% of final grade; max: 2,000 words as pdf file plus salient tables):
Students are required to undertake a size-up of their assigned firm. This entails developing an
understanding of: the core business(es) of their assigned firm; the impact of the economy and the
firms competitive context; and a comparison of key financial ratios with those of its
competitors. From these analyses, students should be able to articulate a sense of the firms
strengths, weaknesses, future directions, needs, and the strategic challenges facing the firm. In
this assignment, students should understand:
a) How the company makes revenues? Explain in plain text, i.e., company xxx is an
integrated extractive service provider does not really explain how it generates revenues.
b) Who are customers?
c) Where are customers?
d) What are some key economic indicators for this company?
e) Will the macro economic environment favourable to this company in the future?
f) Who are competitors?
g) What are the companys SWOT relative to the competitors and what strategies
differentiate this firm from its competition?

Preliminary Summative Assignment 2


(10% of final grade; max: 750 words plus salient tables. Format: PowerPoint slide deck with

electronically by November 1 by 12 noon.


Students are required to:
a) develop a common size income statement and balance sheet based on their assigned
firms performance for the most recent 5-year period;
b) Generate pro-forma financial statements for the coming year. In doing so, assume that the
firm will encounter a 5% rate of sales growth in the next financial year, that the firms
working capital will reflect the growth in sales, that investment will exceed depreciation
by five per cent and that the firm will neither borrow nor lend in the coming year.

Final summative project.


(30% of final grade; submitted as a printout of a PowerPoint file).
The final summative project (which synthesizes and applies the course material) is the
valuation of the company you were assigned and worked on for the two above preliminary
assignments
Submission: December 7th, at the beginning of the live case presentation event.

NOTE: Students must obtain a passing grade on this submission in order to pass the course.

Capstone Live Case (25% of course grade).


Done in groups of two (please note that each group must be formed within the section in
which the students are registered), this course challenges students to address a real-time, real-
world issue and demands high standards of integrity, ethics and social responsibility. As
appropriate, management of a particular company and/or professionals related to the particular
topic will come to the class and talk about the issues. The project is to be done based only on
the information they provide, as well as publicly available information.
This year, the capstone project will be a valuation of the Ottawa Airport Authority, set in the
context of early discussions in government and the media regarding the possible privatization
of Canadian airports and related issues.
The course coordinator and the instructor will assess the live case submissions independently.
Each group will make either a PowerPoint* or poster presentation at the Capstone Live case
Award & Presentation event on Dec 7th, 13:30-17:00, in DMS4101. The best three submissions
will make a PowerPoint* presentation to a panel that may include the management of the
company; alumni; members of the Ottawa CFA Society; independent faculty member
colleagues; and the instructor. The best groups will receive cash awards. All other student
groups will make a compulsory poster presentation of their respective submissions in this
session, with the best presentation also receiving a cash award.
The Capstone Live case Award & Presentation is an important part of the learning
process in this course. Attendance is therefore mandatory, unless students can document
unavoidable conflicts. Unexcused absences from this event will result in the loss of all class
contribution marks. Students will have the opportunity to learn from the best submissions
from their classmates and from the comments of the judges.
The submission format is hard copy print out of a power point file.
Submission: November 20: 1400 hrs;
Presentations December 7: 1330 to 1700 hrs.

Class Contribution (8% of course grade)


Class contribution grade will be a combination of:
(i) individual student contributions during class,
(ii) class attendance,
(iii) Bloomberg certification (3% of course grade)
(iv) mandatory attendance at the live case presentation (possible 8 mark deduction for non-
attendance see above), and
(v) attendance at the scheduled group meeting (possible 2 mark deduction for non-
attendance see Meetings Week below).

Please note that class contribution mark is based on both the quality and quantity of
engagement in class discussions. A student who attended all the classes but did not contribute
to class discussions will receive 6/10.
Peer Evaluation: For many reasons, members of a group may not all contribute equally and
may contribute in different ways: some may contribute more than others and other members
may not contribute very much. To help ensure that each member of a group receives fair
recognition, please submit in confidence by e-mail to the instructor the Group Peer Evaluation
form found online. If the instructor does not receive the form from an individual student by
December 7, he will assume equal contributions among all group members.

Important notes.
1. It is your responsibility to check immediately if the company assigned to you is still
listed on TSX, as there is a chance that it has recently been acquired, inactive, and/or
delisted.
2. A pass in this course requires that you pass the summative project (your final
summative submission mark has to be 50% or better).
3. Please note that by the reading week, students will have been exposed to all the
knowledge necessary to complete the summative as well as the live case project.
4. Please note that it is not possible to submit extra course work in order to improve your
mark.
5. The purpose of this course is for each individual student to gain expertise in the entire
process of valuation. For this reason, the group size becomes smaller as the course
progresses. This is to avoid an individual in a group from specializing in one area of
valuation at the expense of not being fully knowledgeable about the overall process.
Meeting Weeks: The weeks of November 6th and 13th will be used for group meetings with the
instructor. During those weeks there will be no lectures. Instead, each case write-up group will
discuss with the instructor how to improve further their work in order to help them achieve
excellence in both the live case and summative submissions. A sign up sheet will be provided.
Note that every member of the group must participate in the meeting; failure to do so will result
in the loss of class contribution marks. It is also expected that this period will be used by
students to work on the summative and live case assignments.

Course Attendance
According to the academic regulations of the Telfer School of Management, attendance at
courses of instruction is mandatory and students who are absent for more than 9 hours of class
time may be excluded from the final examination.
Textbook/Course Package
The primary resources for this course are materials posted online and case studies, which
students order directly from Ivey Publishing for electronic delivery. Additional resources are
listed below. Other relevant texts available in the library or elsewhere include your current or
previous finance texts.
REQUIRED: Damodaran, A. (2011). The Little Book of Valuation: How to Value a
Company, Pick a Stock and Profit. Wiley, Hoboken, NJ, ISBN: 978-1-118-00477-7.
Highly recommended:
Damodaran, A. (2012). Investment Valuation: Tools and Techniques for Determining the Value
of Any Asset. 3rd Ed., Wiley, Hoboken, NJ, ISBN: 978-1-118-01152-2.
Aswath Damodaran website:
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/valuation/val.htm.
Ken French website:
http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html.
Marks, H. (2013). The Most Important Thing: Uncommon Sense for Thoughtful Investors.
Columbia University Press, New York, NY, ISBN: 978-0 -231- 15368 -3.
John D. Stowe, J. D., Robinson, T. R., Pinto, J. E., and McLeavey, D. W. (2010). Equity Asset
Valuation. Wiley, Hoboken, NJ, ISBN: 978-0-470-57143-9.
NOTE: Lecture materials are drawn from these and other resources. The lecturers role
includes explaining those aspects of these learning materials that may be difficult to
understand.

Other Information
The instructor would like to ensure his full accessibility to students. Please do not hesitate to
contact him; visit his office; make appointments outside of the official office hours, as
necessary.
Course Schedule

Week Monday Wednesday


Sep-04 No class Sep-06 Introduction to the course
Introduction to the Case Method

Sep-11 Review of finance theory 1 Sep-13 Review of finance theory 2

Sep-18 Case 1 due, discussion of Case Sep-20 The valuation process


1
Sep-25 Valuation and growth 1 Sep-27 Valuation and growth 2

Oct-02 Valuation and Growth 3 Oct-04 Special guest:


Preliminary Summative Mark Laroche, CEO
Assignment 1 due Ottawa Airport Authority

Oct-09 Thanksgiving Oct-11 Case 2 due, discussion of Case 2

Oct-16 Relative Valuation 1 Oct-18 Relative Valuation 1

Oct-23 to Review week


27

Oct-30 Telfer Management Library Nov-01 Case 3 due, discussion


Summative simulation Preliminary Summative Assignment 2
due
Nov-06 Meeting week Nov-08 Meeting week

Nov-13 Meeting week Nov-15 TBA

Nov-20 Live case assignment due Nov-22 Venture capital and valuation
M&A and valuation
Nov-27 TBA, catch-up Nov-29 TBA, catch-up

Dec-04 TBA, catch-up Dec-06 *Monday schedule

Dec-07 Live case presentations Final summative submission due


Beware of Academic Fraud
Academic Regulation 14 defines academic fraud as any act by a student that may result in a
distorted academic evaluation for that student or another student. Academic fraud includes but
is not limited to activities such as:
a) Plagiarism or cheating in any way;
b) Submitting work not partially or fully the students own, excluding properly cited
quotations and references. Such work includes assignments, essays, tests, exams,
research reports and theses, regardless of whether the work is written, oral or another
form;
c) Presenting research data that are forged, falsified or fabricated;
d) Attributing a statement of fact or reference to a fabricated source;
e) Submitting the same work or a large part of the same piece of work in more than one
course, or a thesis or any other piece of work submitted elsewhere without the prior
approval of the appropriate professors or academic units;
f) Falsifying or misrepresenting an academic evaluation, using a forged or altered
supporting document or facilitating the use of such a document;
g) Taking any action aimed at falsifying an academic evaluation.1

The Telfer School of Management does not tolerate academic fraud. Please familiarize yourself
with the guidance provided at: http://web5.uottawa.ca/mcs-smc/academicintegrity/home.php
Personal Ethics Statement Concerning Telfer School
Assignments
Group Assignment:

By signing this Statement, I am attesting to the fact that I have reviewed not only my own work,
but the work of my colleagues, in its entirety.

I attest to the fact that my own work in this project meets all of the rules of quotation and
referencing in use at the Telfer School of Management at the University of Ottawa, as well as
adheres to the fraud policies as outlined in the Academic Regulations in the Universitys
Undergraduate Studies Calendar. Academic Fraud Webpage

To the best of my knowledge, I also believe that each of my group colleagues has also met the
rules of quotation and referencing aforementioned in this Statement.

I understand that if my group assignment is submitted without a signed copy of this Personal
Ethics Statement from each group member, it will be interpreted by the Telfer School that the
missing student(s) signature is confirmation of non-participation of the aforementioned
student(s) in the required work.

______________________________ __________________________
Signature Date
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Last Name (print), First Name (print) Student Number
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Signature Date
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Last Name (print), First Name (print) Student Number
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Signature Date
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Last Name (print), First Name (print) Student Number
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Signature Date
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Last Name (print), First Name (print) Student Number
______________________________ __________________________
Signature Date
______________________________ __________________________
Last Name (print), First Name (print) Student Number
Personal Ethics Statement
Individual Assignment:

By signing this Statement, I am attesting to the fact that I have reviewed the entirety of my
attached work and that I have applied all the appropriate rules of quotation and referencing in use
at the Telfer School of Management at the University of Ottawa, as well as adhered to the fraud
policies outlined in the Academic Regulations in the Universitys Undergraduate Studies
Calendar. Academic Fraud Webpage

______________________________ __________________________
Signature Date
______________________________ __________________________
Last Name (print), First Name (print) Student Number
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