Course Name: Valuation and Financial Modeling FINC419/619
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Course Objective: To learn the tools of equity research and valuation. This course will cover valuation utilizing the body of knowledge administered by the CFA Institute.
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Expectations: Expect the course to help you think about and perform security valuation and portfolio management and provide the necessary background to enter the asset management industry. Students should be familiar with net present value and dividend discount models, accounting statements, and basic statistical methods (variance, correlation, and regression analysis). All students should have completed the appropriate prerequisites.
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Valuation: The Big Picture
We begin by examining the entire process of valuation at the highest level before we dive into the details and individual processes.
Using Excel for Valuation
Here are important settings and techniques you need to know when using excel for financial modeling.
Building Proforma Models
It all starts with forecasting the Income Statement, Balance Sheet, and Cash Flow Statement. Let’s begin by forecasting statements for a simple business, the Food Cart.
Advanced Proforma Models
Building proforma models gets more complex with publicly traded businesses. In this module the proforma statements for Apple are built.
Discount Rates
CAPM, Fama French, Multi-factor, and Build-up models are used to determine the correct interest rate to use when discounting future cash flows.
Slides and Spreadsheets
Developing Assumptions
Garbage in = Garbage out. Develop reasonable assumptions about future growth by first researching your company and the industry in which it operates.
DCF Modeling
Discounted Cash Flow Modeling or DCF uses forecasted free cash flows to estimate value.
DDM Modeling
Dividend Discount Modeling or DDM uses forecasted dividends to estimate value.
Relative Valuation
Relative Value or Comps Analysis uses the values of competitors to estimate the value of a firm.
Residual Income Modeling
Residual Income models rely on the current book value of equity to estimate value.
From Idea to Execution
Entering a trade order to buy a stock can add to or lower an investors alpha. Use this link to access the trading simulator.
Ethics
Ethics is a critical element of any profession and analysts will encounter conflicts of interest. How we navigate these conflicts defines our character and builds our reputation. The CFA Institute has developed a comprehensive Code of Ethics.
