SUMA PS Accounting, Finance, and Modeling of Sustainable Investments Professor: Brad Schwartz

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1 SUMA PS Accunting, Finance, and Mdeling f Sustainable Investments Prfessr: Brad Schwartz 1. Curse Cntext and Overview This curse is designed t prvide students with wrking knwledge n hw t make successful investments in sustainable cmpanies. It starts with a strng fundatin in accunting and crprate finance, then mves n t ESG ( Envirnmental, Scial & Gvernance )/Impact screening f ptential investments, alng with valuatin techniques used t arrive at a purchase price. It will explre financial mdels that can aggregate multiple variables used t drive investment decisins. Accunting & Business Fundamentals Crprate Finance & Sustainability Financial Mdeling Valuatin Inmpact Investing T understand and lead a transitin t a sustainability-aware business, managers must first be familiar with the terminlgy, practices and cnsequences f traditinal accunting and finance. Students will learn traditinal financial and accunting methds and tls. We will examine hw these methds and tls are changing t imprve prduct and service design, resurce efficiency and allcatin, emplyee prductivity and sustainability perfrmance utcmes. Thrughut, students will examine sustainability system framewrks. Students will learn hw value is created in a cmpany and the different methds emplyed t create that value, cnduct due diligence, discuss ptimal capital structure t finance a transactin, execute a transactin, and implement a Sustainability-based value added perating plan t the target cmpany. The

2 curse will cnclude with students preparing a persuasive investment mem and accmpanying financial mdel t the investment cmmittee f an impact investing asset management firm. The curse als prvides a practical intrductin t selected nn-financial accunting tpics including sustainability reprting standards, ESG crprate perfrmance indicatrs and crprate scial respnsibility. 2. Curse Objectives Students are assumed t have little-t-n previus expsure t accunting r finance. By the end f the curse, students shuld t be able t: Read traditinal financial reprts and be able t understand and critically interpret them with an emphasis n balance sheet, incme statement and cash flw statement financial infrmatin. Understand financial and sustainability reprting standards, as well as initiatives t imprve them. Calculate apprpriate perfrmance ratis and cmplement thse with nn-financial sustainability perfrmance measures. Becme familiar with crprate finance cncepts, valuatin, and risk management. Develp financially quantifiable and sustainability-aligned financial mdels and an investment thesis. Develp Basic t intermediate Excel Skills Understand the life-cycle and executin f an impact-riented investment. 3. Required Texts & Materials A. Financial Intelligence: A Manager s Guide t Knwing What the Numbers Really Mean, Karen Berman & Je Knight Numbers/dp/ /ref=sr_1_5?s=bks&ie=UTF8&qid= &sr=1-5&keywrds=financial+intelligence B. The New Sustainability Advantage, Bb Willard C. HBR Guide t buying a small business: Think Big, Buy Small, Own yur wn Cmpany, Richard S. Ruback Business/dp/ /ref=sr_1_1?s=bks&ie=UTF8&qid= &sr=1-1&keywrds=hbr+guide+t+buying+a+small+business Additinal articles and resurces will be prvided n the curse website. ***Please bring a laptp t class that has Excel s yu can wrk alng with the prfessr. *** 2

3 4. Tlbx The fllwing texts are nt required fr the curse but, in additin t the required texts abve, are a set f reference material yu might want t add t yur prfessinal tlbx. The gal: A prcess f nging imprvement ebk/dp/b002lhrm2o/ref=sr_1_1?s=bks&ie=utf8&qid= &sr=1-1&keywrds=the+gal Managing the Small t Mid-Sized Cmpany, Jim Cllins Cncept/dp/ /ref=lp_prduct_details?_encding=UTF8&me The CFO Guidebk, Steven M. Bragg Bragg/dp/ /ref=asap_bc?ie=UTF8 Building Financial Mdels, Jhn Tjia Investing/dp/ /ref=sr_1_2?s=bks&ie=UTF8&qid= &sr=1-2&keywrds=building+financial+mdels Due Diligence: Planning, Questins, Issues, Grdn Bing Issues/dp/ /ref=sr_1_2?s=bks&ie=UTF8&qid= &sr=1-2&keywrds=due+diligence+BING Investment Banking: Valuatin, Leveraged Buyuts, and Mergers and Acquisitins, Jshua Rsenbaum Acquisitins/dp/ /ref=sr_1_1?s=bks&ie=UTF8&qid= &s r=1-1&keywrds=investment+banking Valuatin, McKinsey & Cmpany, Tim Kller Finance/dp/ X/ref=sr_1_1?s=bks&ie=UTF8&qid= &sr=1-1&keywrds=mckinsey+valuatin Business Ratis and Frmulas Guide/dp/ /ref=sr_1_2?s=bks&ie=UTF8&qid= &sr=1-2&keywrds=business+ratis+and+frmulas+a+cmprehensive+guide Duble yur Prfits in 6 mnths r less, Bb Fifer Less/dp/ X/ref=sr_1_1?s=bks&ie=UTF8&qid= &sr=1-1&keywrds=duble+yur+prfits+in+six+mnths+r+less Investment Valuatin: Tls and Techniques fr Determining the Value f any Asset, Aswath Damdran University/dp/ /ref=sr_1_1?s=bks&ie=UTF8&qid= &sr= 1-1&keywrds=investment+valuatin+damdaran+3rd+editin 3

4 5. Curse Activities and Assignments Readings: Each week, befre the evening lectures, students are expected t cmplete readings frm cre texts and resurces psted t the curse website. Previewing the fundatinal cncepts is essential in helping t understand cre lecture materials, will enrich student participatin during class and will help with successfully cmpleting curse assignments. Prjects: There are three class prjects. The grade weighting n each prject is listed belw. Prject 1: Prblem Sets & Financial Statements Fr this prject yu will be asked t cmplete mathematical prblem sets and qualitatively discuss the results in shrt paragraph frm. Yu will als be given a sustainability-fcused private cmpany whse CFO has suddenly left the firm. Yu, playing the rle f Cntrller, will be respnsible fr clsing the bks, prducing a set f financial statements [balance sheet, incme statement, cash flw statement], and prviding the relevant key perfrmance indicatrs (KPIs) in a financial package t be submitted t the Bard f the Cmpany. This will als include a single page summary f the perfrmance fr the year. Prject 2: Prblem Sets & ESG Screened Public Cmpany Valuatin Fr this prject yu will answer prblem sets fcused n financial cncepts, (such as the time value f mney), sme f which will require a shrt paragraph f qualitative discussin. In additin, yu will be asked t value a public cmpany chsen by the prfessr that ranks high n the ESG scring criteria. Playing the rle f CFO, yu will make a recmmendatin t the CEO based n yur valuatin analysis t either use excess cash t buyback stck f the cmpany r return it t sharehlders in the frm f a dividend. Prject 3: Investment Cmmittee Recmmendatin & Financial Mdel Acting as an Investment Analyst, yu will chse a public cmpany screened fr sustainability and develp an investment mem fr an Impact Investing Private Equity firm t take that target cmpany private. Yu will develp a detailed sustainability-aligned financial mdel and dcument the assumptins made t prject future returns f the investment. Yu will als discuss the market, the pprtunity, the impact initiatives t drive value, and risks invlved in the investment, as well as frmulate an exit strategy. The investment mem shuld be between 5 and 10 pages lng and shuld entail a chesive investment thesis. 4

5 6. Evaluatin and Grading Specific grading criteria (rubrics) are psted n the curse site fr each prject assignment described abve. We will grade yur wrk with the stated criteria in mind, n a 100-pint scale. We strive t finish grading yur assignments in abut tw weeks after their due date. Website and annuncements are used t let yu knw when t check the website and/r gradebk. Prjects: Task: Grade% 1 Prblem Sets & Financial Statements 20% 2 Prblem Sets & ESG Screened Public Cmpany Valuatin 30% 3 Investment Cmmittee Recmmendatin & Financial Mdel 40% 4 Participatin 10% Grade Range: Grade Range: A C A C A C B D B F B Curse Plicies Attendance Regular attendance is required. Occasinal absences are granted fr wrk r persnal cnflicts with prir ntice when pssible r at the Prfessr s discretin if n ntice is given. Students are expected t have dne the readings and prject assignments fr each class prir t the start f the class. Participatin Participatin in class is required. Yur participatin matters and enhances the quality f the class experience fr yurself and thers. This invlves making relevant, useful and nnbvius cmments in class, r psing pertinent questins, in clear and succinct language. Late wrk All assignments must be submitted n the published due dates. Deadlines are imprtant! Withut a cmpelling excuse and pre-apprval frm the Prfessr befre the due date, 10 pints will be deducted frm prject assignment scres fr each week that yu are late in submitting it. 5

6 8. Schl Plicies Academic Integrity All wrk is expected t be riginal either frm team effrt r individual design; cheating and plagiarism will nt be tlerated. Clumbia University expects that its students will act with hnesty and prpriety at all times and will respect the rights f thers. It is fundamental University plicy that academic dishnesty in any guise r persnal cnduct f any srt that disrupts the life f the University r denigrates r endangers members f the University cmmunity is unacceptable and will be dealt with severely. It is essential t the academic integrity and vitality f this cmmunity that individuals d their wn wrk and prperly acknwledge the circumstances, ideas, surces and assistance upn which that wrk is based. Academic hnesty is expected f all students at all times. Clumbia University hlds each member f its cmmunity respnsible fr understanding and abiding by the Academic Integrity and Cmmunity Standards, which can be fund at Yu are required t read these standards within the first few days f class. Ignrance f the Schl's plicy cncerning academic dishnesty shall nt be a defense in any disciplinary prceedings. Accessibility Clumbia is cmmitted t prviding equal access t qualified students with dcumented disabilities. A student s disability status and reasnable accmmdatins are individually determined based upn disability dcumentatin and related infrmatin gathered thrugh the intake prcess. Fr mre infrmatin regarding this service, please visit the University's Health Services website: Cpyright Due t cpyright restrictins, nline access t this material is limited t instructrs and students currently registered fr this curse. Please be advised that by clicking the link t the electrnic materials in this curse, yu have read and accept the fllwing: "The cpyright law f the United States (Title 17, United States Cde) gverns the making f phtcpies r ther reprductins f cpyrighted materials. Under certain cnditins specified in the law, libraries and archives are authrized t furnish a phtcpy r ther reprductin. One f these specified cnditins is that the phtcpy r reprductin is nt t be "used fr any purpse ther than private study, schlarship, r research." If a user makes a request fr, r later uses, a phtcpy r reprductin fr purpses in excess f "fair use," that user may be liable fr cpyright infringement." 6

7 Class & Date Material Readings Due Deliverables 1. 9/5/18 Intrductin Fundamentals f Business Accunting & Finance Text A. Chapters 1-8 Watch: Ray Dali s Hw the Ecnmic Machine wrks atch?v=phe0bxaiuk0&t=37 3s Hw t Create Prfit Like Warren Buffett atch?v=qmx6neaye4g&t=7 57s 2. 9/12/18 Accunting Part I Accunting Thery Balance Sheet Text A. Chapters /19/18 Accunting Part II Incme Statement Cash Flw Statement Text A. Chapters /26/18 Financial Statement Analysis & Perfrmance Measurement Text A. Chapters /3/18 Crprate Finance Part I Time value f Mney Risk Management Capital Budgeting Text B. Intrductin and Benefit 1 Prject 1 Due 6. 10/10/18 Crprate Finance Part II Capital Structure Financing & Resurce allcatin Wrking Capital Text B. Benefit 2-3 7

8 7. 10/17/18 Sustainability Measurement Text B. Benefit 4-5 Read: ters.cm/cntent/dam/pen web/dcuments/pdf/financia l/esg-scresmethdlgy.pdf 8. 10/24/18 Valuatin Part I Fundamentals Frces driving value Text B. Benefit /31/18 Valuatin Part II Discunted Cash Flw Market Multiples Recent Transactins Text B. Benefit 7 & Cnclusin /7/18 Financial Mdeling Part I Excel Setup Mdeling Basics Assumptins Text C. Part I Prject 2 due /14/18 Financial Mdeling Part II Outputs Returns Analysis Text C. Part 2 ***11/21/18 N Class fr Thanksgiving Hliday*** /28/18 Mergers & Acquisitins Text C Parts 3 & /5/18 Impact Investing Text C. Part 5 & Cnclusin Prject 3 due 12/12/18 9. Curse Schedule (Schedule subject t adjustment during the semester.) 8