This class exists in these courses :
• IÉSEG > MSc in Finance > Semestre 2 > 2,00 ECTS

Prerequisites

1. Introduction to financial data services (Thomson Reuters Eikon)
2. Key concepts in corporate finance and financial markets (time value of money, NPV, IRR, stock and bond valuation, capital structure, cost of funding)

Learning outcomes

At the end of the course, the student should be able to:
- Critically describe standard valuation techniques
- Use Thomson Reuters Eikon to extract data and analytics for valuing equity or a firm
- Estimate the cost of different sources of funding
- Estimate future free cash flows generated by the firm
- Examine how the structure of capital affects the value of the firm
- Describe the determinants of firm value and perform the sensitivity analysis of the model to different assumptions
- Build the spreadsheet valuation model in Microsoft Excel and dynamically link it to Thomson Reuters Eikon data
- Solve professional dilemmas using concepts of CSR and ethics
- Breakdown complex organizational problems using the appropriate methodology
- Construct expert knowledge from cutting-edge information
- Make effectual organizational decisions
- Demonstrate an expertise on key concepts, techniques and trends in their professional field
- Formulate strategically-appropriate solutions to complex and unfamiliar challenges in their professional field

Course description

1. Introductory thoughts on valuation, analysis of the asset, overview of the main valuation techniques (relative valuation, discounted cash flow method; firm value vs equity value)
2. Estimating the cost of capital: equity risk and cost of equity (detailed analysis and calculation of the CAPM components: risk-free rate; historical and implied equity risk premium; historical, fundamental and accounting beta).
3. Estimating the cost of capital: cost of debt and cost of preferred stock
4. FCFF and FCFE models, calculation of cash flows, building growth forecast
5. Advanced topics in valuation: adjustments, accounting for country risk in valuations in emerging markets
6. Concluding remarks (sensitivity analysis; scenario analysis; Monte-Carlo simulation

Class type

Class structure

Teaching methods

• Interactive class
• Presentation
• Project work

Assessment

The final grade is composed of test on key concepts and valuation techniques (10%), the group project (70%) and oral presentation (20%). The group project consists in building a valuation model for a listed company and preparing analytical and technical reports. The oral presentation is about discussing the valuation models assumptions. The test accounting for 10% of the final grade is also used to assess the learning objective "Demonstrate an expertise on key concepts, techniques and trends in their professional field".

Recommended reading

• Damodaran, A.: 2012, Investment Valuation: Tools and Techniques for Determining the Value of Any Asset, 3rd Edition, John Wiley and Sons, Inc. (main reference) -

• Titman, S. and Martin, J. D.: 2007, Valuation: The Art and Science of Corporate Investment Deci-sions, Addison-Wesley -

• Koller, T., Goedhart, M. and Wessels, D.: 2005, Valuation: Measuring and Managing the Value of Companies, John Wiley and Sons, Inc. -

Internet resources

• IESEG ONLINE

• Aswath Damodaran's website

• Thomson Reuters Eikon data lab