AEM 5280 - Valuation of Capital Investment

Spring. 3 credits. Letter grades only (no audit).

Prerequisite: AEM 2240 or equivalent. An extra 10-page project is required for students who are enrolled in AEM 5280. Co-meets with AEM 4280.

D.T. Ng.

This course is about the analysis of financial information for making decisions to invest in businesses. The primary focus is on quantitative stock selection and equity (share) valuation. Various valuation models will be examined in detail and applied in cases and projects involving listed companies. First, the issue of market efficiency will be explored. Second, important quantitative stock selection methods will be examined. Third, discounted cash flow models will be examined. This include models of shareholder value, the analysis of profitability, growth and valuation generation in a firm, forecasting earnings and cash flows, pro-forma analysis for strategy and planning, analysis of risk, and the determination of price/earnings and market-to-book ratios. Advanced topics on valuation including valuation by multiples and earnings management will then be discussed.

Outcome 1: Students will learn how to detect market efficiency, stock screening, and the relevance of cash-flows, dividends, earnings, and book values.

Outcome 2: Students will be able to extract information from the financial statements for valuing equities.

Outcome 3: Students will survey some of the most important quantitative techniques and profitable strategies in equity markets.

Outcome 4: Students will identify the role of financial statements in calculating equity values.

Outcome 5: Students will be able to perform ratio analysis on companies.

Outcome 6: Students will determine whether a firm’s P/E and price-to-book ratio are justified, and detect some common earning management tricks.