Equity Valuation and Advanced Financial Statement Analysis

Course Description

Many lawyers routinely operate in a world that demands they understand the value and inner workings of the business organization. Whether working in a bank, a law firm, a prosecutor's office, an agency or an investment manager, lawyers must often get up to speed with scant information other than public information and financial statements. Unfortunately, very few lawyers are trained to undertake this important task, and those who do it well—very well—are highly valued. Not surprisingly, many of these lawyers end up running organizations, whether it be a law firm, a corporation or an agency.

This is a high-level course for those who have previously had experience in corporate finance and accounting. It is designed give the advanced law student a deeper dive into important concepts relating to equity valuation and financial statement analysis. Familiarity with numbers is essential.

The areas of focus include:

1. Equity Valuation Process
2. Discounted Dividend Valuation
3. Free Cash Flow Valuation
4. Market-Based Valuation: Price Multiples
5. Residual Income Valuation
6. Financial Reporting Mechanics
7. Financial Reporting Standards
8. Advanced Topics in Understanding the Income Statement
9. Advanced Topics in Understanding the Balance Sheet
10. Advanced Topics in Understanding the Cash Flow Statement
11. Financial Analysis Techniques
12. International Standards Convergence
13. Financial Statement Analysis: Applications
14. Inventories
15. Long-Lived Assets
16. Income Taxes
17. Long-Lived Liabilities and Leases
18. Employee Compensation: Postretirement and Share-Based
19. Intercorporate Investments
20. Multinational Operations
21. Evaluating Financial Reporting Quality

Course Materials

The two primary texts are Equity Asset Valuation (CFA Institute Investment Series), by Stowe, Robinson, Pinto and McLeavey (Wiley, 2007), and International Financial Statement Analysis (CFA Institute Investment Series), by Robinson, van Greuning, Henry and Broihahn (Wiley, 2009). Handouts and problem sets will be distributed in class. Problem sets will be graded.

Course Requirements

1. Class Attendance and Preparation.

Students are expected to attend all sessions. You should read appropriate materials prior to class.

2. Problem Sets.

Problem sets will be assigned throughout the class. Most of these will be graded. Some problems will not be graded and will be done in teams.

3. Examinations.

There will be a three-hour mid-term examination on the Equity Valuation section of the course and a three-hour final examination on the Financial Statement Analysis section.

4. Grading.

Final course grades will be determined by the following allocation:

25% Class Participation
25% Problem Sets
25% Mid-Term Exam
25% Final Exam

5. The Honor Code.

You are expected to follow the Duke University Honor Code. Specific issues concerning homework and the final examination will be discussed in the first class meeting.

6. Schedule.

Mondays for 1-1/2 hours and Wednesdays for 1-1/2 hours.

7. Prerequisites.

One of the following courses (or their equivalents): Corporate Finance, Financial Information or Fixed Income Markets and Quantitative Methods.
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