Transcript Corporate Finance II - Yale School of Management
Corporate Finance II
Professor Matthew Spiegel
Overview
• Cases and lectures.
• Case groups of two.
– Deadline is
this
Friday for the formation of groups!
• Case days.
– One group will be randomly selected to conduct a 45 to 60 minute presentation.
– Each group must turn in a four page write up of each case.
• Tables and graphs do not count.
• Syllabus on the web.
Cases
• Most will not be typical business school cases!
• Cases will ask you to examine a firm as it currently exists and to answer questions about it.
How Will You Know if You Made the Right Call?
• By waiting a few years to see what happened.
– Such is life.
• Too many cases rely on 20-20 hindsight. This is a luxury you do not have in real life. Here you are stuck making decisions based on arguments with the data at hand.
Then How Will We be Graded?
• Grades will depend on how well you defend your conclusions.
• Bad defense: It seemed to us a 3% growth in sales for five years was reasonable.
– Ad hoc. Why not assume 2% or 4%?
• Better defense: Sales growth has been 3% for the past several years so we are projecting that forward for the next five years.
– At least this is based on something. But why do you think the past growth rate is the appropriate one going forward?
• Much better defense: Sales growth has been 3% for the past several years. Furthermore, the firm’s market share has been fairly constant and unless that changes we should see a 3% growth rate into the future. As of today management has not presented a plan that would improve upon that. Thus we using that as our projection for the next five years.
– Uses past results for the projection’s basis, but also looks forward asking if there might be any changes in the works.
Questions Every Presentation Should Answer
• What does the firm do?
• How has it performed relative to its peers?
• What is its current and future financial policy?
• Have their been any recent changes in its product mix.
– Divisions purchased or sold.
• Does it plan to add or subtract product lines in the foreseeable future?
Lesson Specific Questions
• At least a week prior to each case’s discussion in class questions specific to that case will be posted on the web.
– Foamex is currently in financial distress.
• How did this happen?
• What should management do?
• What should the bond holders do?
• How much is the debt worth?
Class Discussion
• Do the presenters a favor and question what they say!
• If the class has nothing to say I will assume they find the case presentation to be so abysmal that it is not even worth commenting on!
• Do yourself a favor and question what the presentation.
– Class participation is part of your grade!
Discussion Goals
• The goal of each discussion is to analyze the elements that go into making a business decision.
– What data do you have?
– What do you need to just assume in order to go forward?
– What kind of additional analysis might you do if you had the resources and time?
Class Notation
• The value of a firm’s equity: E.
• The value of a firm’s debt: D.
• A firm’s marginal tax rate: T C .
• Risk free rate: r f .
• Expected return on the market: r m .
Information Sources
• Hoover’s – http://www.library.yale.edu/databases/ • Business Browser – http://www.library.yale.edu/socsci/databases/bbinfo.html
• Yahoo!
– http://www.yahoo.com
• WRDS – http://wrds.wharton.upenn.edu/ • SEC Free Edger – http://www.sec.gov
• Bloomberg – There is a Bloomberg terminal in a breakout room on level A.
Hoover’s
• Financial statement summaries.
– Warning: not as good as going to the 10-k’s.
• Financial and accounting ratios.
• Comparisons with competitors.
Business Browser
• Financial statements.
– As reported or standardized.
– Use as reported! Standardize them yourself!
• A few analyst reports.
– In the real world a
much
Thompson Financial.
• Create peer lists.
better source is • Industries by SIC code.
• Need to set up your own account.
Yahoo!
• Click on finance and then enter the ticker symbol of the firm you are interested in.
• Real time statistics.
• Historical prices.
WRDS
• CRSP stock price database.
– Daily stock returns through 2003.
– Extremely useful for testing theories you hope to develop.
– Web based, easy to use.
– Fast and easy source for data on E, r m , and r f .
• Compustat database – Accounting data going back several decades.
• Enter the firm.
• Click on the accounting items you want.
• Instant delivery of the spreadsheet data you want!
• Class account.
– Login name: xxxxx. Note all
small
letters!
– Password: xxxxxxx. Who can argue with that?
SEC Free Edger
• The place to get the company’s current and past financial filings.
Bloomberg
• Essential for getting bond data.
– Bond price quotes.
• Good for bonds that are not currently going up or down in price by large amounts.
• Quotes are likely to be stale for bonds seeing rapid price changes.
– Bond terms (covenants).
• Useful for stock data as well, but there are other sources.
• Extremely user hostile!
– Learning to use a Bloomberg terminal is a painful but, alas, essential experience. It is the standard data source on Wall Street.