INTRODUCTION TO RELATIVE SECURITIES VALUES
Professor: Alexander E. Aikens
Office Hours: By Appointment
Overview:
This course is designed to introduce students to the issues and analysis necessary for making the decision to purchase public securities. We will rely on fundamental analysis of issuer’s financial condition for decision making. We will not analyze technical trading patterns of public securities. Students should have completed international corporate finance and accounting and financial analysis or its equivalent. The principle focus will be on traded securities on major exchanges. Both debt and equity security values will be addressed.
Debt analysis will focus on how investors analyze the debt obligations of issuers, the impact of volatility of issuer cash flows on debt values and the role of rating agencies. We will review debt yields in an industry segment and attempt to learn why investors discriminate among issues.
Equity analysis will focus on two drivers of equity values: Expected future cash flows and the emotional component of valuation. Comparative analysis will be utilized to access investor’s views of these components by issuers. The role of security analysts and their impact on equity values will be discussed as well.
Finally, we will review methods investors use to determine optimal security value among multiple offerings by a single issuer.
Students should be extremely comfortable with fundamental analysis of balance sheets, cash flow and earnings, as the course requires substantial comparative analysis of corporate entities. In addition to the fundamental analysis review, we will explore emotional factors that effect securities values.
Prerequisites:
Finance 212A and 216F
Evaluation:
Based on three Components:
· Final Paper – 50%
· Weekly Homework – 30%
· In Class Participation – 20%
Attendance:
Mandatory. Unexcused Absence will result in deduction from class participation grade.
Course Pack:
Is available for download from Harvard Business School website: https://cb.hbsp.harvard.edu/cbmp/access/32379611
Disabilities:
If you are a student with a documented disability on record at Brandies University and wish to have a reasonable accommodation made for you in this class, please see me immediately.
Academic Integrity:
You are expected to be familiar with and to follow the University’s policies on academic integrity (see http://www.brandeis.edu/global/current_academic_integrity.php). Instances of alleged dishonesty will be forwarded to the Office of Campus Life for possible referral to the Student Judicial System. Potential sanctions include failure in the course and suspension from the University.
Course Plan:
Lively class participation is anticipated and it is expected that students will regularly read the financial press (e.g. Wall St. Journal Barrons, Institutional Investor). Finally, knowledge and ability to utilize financial databases such as Bloomberg will be a plus.
Class I – Jan 13 - Introduction and Financial Analysis Methods and Application
Course and professor introduction, general discussion of course objectives and financial analytic techniques. Discussion of financial markets, market participants, value drivers for debt and equity. Overview of securities portfolios and asset allocation.
The purpose of this class is to develop consistency of approach and strengthen financial analytic techniques. At completion, the students should have a common platform to discuss securities values.
HBS Case: Assessing a Firm’s Financial Health
Preparing and using cash flows.Financial Statement Analysis
Purpose of this class is to review fundamental financial analysis. Intense review of financial statement and conclusions that may result from financial review. We will focus on understanding funds flow statements, ratio analysis, and the Dupont model
Class II – Jan 20 – Financial Analysis continued and Industry Analysis
HBS Cases: Drivers of Industry Financial Structure
Be Our Guest
The purpose of this class is to review the financial characteristics of various industries. Students are exposed to the financial framework of an industrial sector in order to place and assess specific issuers’ performance.
Class III – Jan.27 - Comparative Analysis/Introduction to Debt Analysis
HBS Cases: Sears v. Walmart
Amazon-2000
The class will complete the development of financial analysis techniques and application and commence the review of fixed income securities from the investor perspective.
Class IV – Feb 3 - Bonds and Aggressive Debt Structures
HBS Cases: Metromedia
UST
We will review complex financial structures and the issues that surround stressed debt structures. We will also review hybrid securities e.g. convertibles.
Class V – Feb 10 - Equity Investors
HBS Cases: Maxwell Shoe
Boston Beer
The class will explore equity investor styles and approaches to valuation. We will also explore bubble valuations.
Class VI – Feb 24- Portfolio Management Decision Making
HBS Cases: Jupiter Management
Guest Lecturer: Chief Investment Officer
We will summarize the course and review of the portfolio decision-making process.
Learning Goals:
1. Students should fully understand fundamental investor analysis as distinguished from technical analysis.
2. Students should develop an understanding of the dual roles of quantitative analysis and qualitative analysis.
3. Students should become thoroughly conversant and competent in the use of analytic tools.
4. Students should develop and enhanced understanding of the role and importance of industry analysis.
5. Students should develop an appreciation of risk/return characteristics of different asset classes.
6. Students will be exposed to elements of IPO and debt offerings.
7. Students will be exposed to a practicing asset manager.
Exam week there is a two question homework assignment due. There is no midterm but there is a final paper due one week after the last class.