BUSINESS ANALYSIS AND VALUATION (AC215)

Overall Course Duration: 54 hours lecture and class time - over three weeks,
equally divided between parts 1 & 2.

Delivery Method: Blended Learning (on-campus, in-person and online) and Remote
Learning (off-campus, all online)

LSE Teaching Department: Department of Accounting

Lead Faculty: Dr Xi Li (part 1) and Dr Kenneth Lee (part 2)
Pre-requisites: Introductory accounting and introductory finance.

Course Aims and Learning Outcomes:

This course aims to introduce students to business analysis and valuation. By the
end of the course, students should be able to apply an economic framework enabling
them to analyse a firm’s expected performance and value the firm’s shares. The
course is divided into a business analysis component (part 1) and a valuation
component (part 2).

Brief Course Outline:

This course first introduces and develops an economic framework for business
analysis and valuation. This framework covers key analysis components such as
business strategy analysis, accounting analysis, financial analysis, and prospective
analysis, with a strong emphasis on equity (stock) valuation. This framework is then
applied to a variety of decision contexts including merger and acquisition analysis.

Each of the topics introduced in this course covers both institutional details, results of
relevant academic research and practical application in capital markets. It is
furthermore supported by the use of case studies. This course should thus appeal to
students interested in corporate finance, equity research, fund management, and
strategy consulting.

Course content is subject to change. Last updated: February 2021

Core Texts:

Business analysis (Part 1): K. Palepu, P. Healy, and E. Peek, Business Analysis
and Valuation: Using Financial Statements, CENGAGE Learning (Fifth IFRS
edition, 2019).

Valuation (Part 2): Antill, N, Lee, K. and Taylor, D., Company valuation under IFRS,
Harriman House (3rd Edition, 2020).

Teaching Arrangements:

Teaching arrangements consist of both lectures (36 hours in total) and classes (18
hours in total).

Assessment:

Formative Assessment

This will not count towards the students’ final overall grade, but will prepare students
for the first summative assessment.

Format: Take-home exercise

Date: Friday of Week One
Feedback due: By Tuesday of week two

Summative Assessments

Format and weighting: Two hour mid-session examination (50%) Date: Wednesday
of week two
Results due: By Monday of week three

Format and weighting: Two hour final examination (50%) Date: Friday of week three
Results due: Within a week of the exam

The precise time and location of the exams will be circulated during the
programme.

Course content is subject to change. Last updated: February 2021

 Detailed Course Outline:

Business Analysis (Part 1)

Day Lecture topic Readings

Week 1: Day 1 Introduction to Business Analysis and Core Reading: Chapter 1 [Palepu, Bernard, and Healy]
Valuation Movie: Enron: The smartest guys in the room

Week 1: Day 2 Basics for Accounting Analysis Core Reading: Chapter 3 [Palepu, Bernard, and Healy]
Case Study: Fiat Group’s first-time adoption of IFRS (PHP, pp.
129-144)

Week 1: Day 3 Accounting Adjustments and Core Reading: Chapter 4 [Palepu, Bernard, and Healy]
Recasting Case Study: Marks and Spencer’s accounting choices (PHP, pp.
186-193)

Week 1: Day 4 Business Strategy Analysis and Core Reading: Chapters 2 & 5 [Palepu, Bernard, and Healy]
Financial Analysis Part I Case Study: Carrefour S.A. (PHP, pp. 243-257)

Week 1: Day 5 Financial Analysis Part II Core Reading: Chapter 5 [Palepu, Bernard, and Healy]

Day Lecture topic Readings

Week 2: Day 1 Forecasting Core Reading: Chapter 6 [Palepu, Bernard, and Healy]
Case Study: European oil and gas industry (PHP, pp. 287-300)

Week 2: Day 2 Exam review and preparation

Week 2: Day 3 Mid-term exam

Valuation (Part 2)

Note that the content below covers the lectures and backup readings. Additionally, the
small group class sessions will cover the application of these concepts with cases,
short examples and discussion topics.

A few further things to note:

- The coverage is designed to address critical valuation issues from both a

theoretical and practical perspective. Therefore, we will spend time exploring
the valuation practices of key capital market actors.

Course content is subject to change. Last updated: February 2021

 - The main source of materials will be your study pack which will include copies
of the relevant readings. This is supported by readings from the core text
although there is no requirement to purchase the text.
- Especially if you are unfamiliar with the concepts we will cover, it is worth going
through the pre-reading before each lecture. This will help you make sense of
the content and allow you to revisit it afterwards as part of the learning process.

Day Lecture Topic Readings

Week 2: Day 4 Fundamental concepts of Study pack – ‘Introduction to valuation concepts’

valuation
Indicative Readings:
The anatomy of an investment - Investment Valuation: Tools and Techniques for
banking model including modelling Determining the Value of any Asset, University Edition
best practice (Wiley Finance), Chapter 1 and 2, pp. 1-25
- Company valuation under IFRS, (2019), Antill, Lee and
Taylor, Chapter 1

Week 2: Day 5 Accounting based valuation models Study Pack – ‘Dividend and accounting based valuation models’
– methodology, problems and Indicative Readings:
applications
- Anchoring valuation in accounting fundamentals, Penman,
Accounting for Value

Week 3: Day 1 Discounted cashflow valuation – Study Pack – ‘DCF methodologies’

methodology, problems and Indicative Readings:
applications - Company valuation under IFRS, (2019), Antill, Lee and
Taylor, Chapter 5, pp.

Week 3: Day 2 Multiple based valuation – Study pack – ‘Equity and EV multiples – effective application’
underlying drivers and application Indicative Readings:
issues
- The right role for multiples in valuation, McKinsey
- Fundamental Equity Analytics: How to...analyse and talk
the language of multiples , UBS, March 2017

Week 3: Day 3 Applying valuation methodologies to Study pack – ‘Valuing diverse companies & M&A: valuation
specialised situations: analysis’
- Sum of the parts valuation
Indicative Readings:
(SOTP)
- Valuation of mergers and - Notes on sum of the parts valuation, Harvard Business
acquisitions Review, Villalonga
- M&A in the high tech industry: value and valuation,
Mchawrab, Strategic Direction, 2016.

Course content is subject to change. Last updated: February 2021

Week 3: Day 4 Overview of valuation in different Study pack – ‘Valuation - contemporary practice and future
sectors: developments’
Indicative Readings:
- High growth companies
- Financial services - Company valuation under IFRS, (2019), Antill, Lee and
- Cyclical companies Taylor, Chapter 6
- Does Valuation Model Choice Affect Target Price
Bringing it all together: Valuation best Accuracy? Demirakos et al, European Accounting Review,
practice and common pitfalls 2010
Exam review and preparation
Week 3: Day 5 Final Exam

Course content is subject to change. Last updated: February 2021