PREREQUISITES: Basic knowledge and skills in corporate finance and accounting are required. CORE COMPETENCES DEVEPOLED WITHIN THE COURSE

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1 National Research University Higher School of Economics Faculty of World Economy and International Affairs Department of World Economy Business Valuation Программа дисциплины Course Syllabus Оценка бизнеса Instructor: Ekaterina A. Makarova Phone: +7 (495) * COURSE DESCRIPTION: The course is devoted to learning the main valuation methods and techniques used to determine the real value of a firm; We shall also discuss key principles of valuation for insolvency proceedings, for IPO and M&A; Main failures and obstacles are analyzed to learn the lessons of the correct and effective valuation; Case studies will be main tool to learn practical application of the valuation theories and instruments. The course is based on materials and exercises provided by A. Damodaran (damodaran.com) and by ACCA course Business valuation ( PREREQUISITES: Basic knowledge and skills in corporate finance and accounting are required. COURSE OBJECTIVES: to provide theoretical overview of key methods applied to value different types of business and assets; to improve students skills to analyze financial statements of a company and to determine its price; to understand how to distinguish value creation from value destruction; to understand how to select the appropriate method of business valuation for any given situation CORE COMPETENCES DEVEPOLED WITHIN THE COURSE As a result of the course, the student should have: - Knowledge: valuating methods and approaches, financial and other criteria for using each instrument. - Ability: to use statistical data, to analyze companies financial statement and open market data to estimate its current and potential value. - Skills: to critically evaluate analytical and scientific materials on the given issues, use different instruments of financial analyses and modeling in practice. General (Common) Competences Competence Descriptors main features of learning Forms and methods of study. Evaluation methodology Ability to estimate and revise Able to choose the most Lectures

2 the existing theoretical and practical approaches to firms valuation and value creation Special (Subject-oriented) Competences Ability to utilize knowledge and skills concerning getting efficient results business valuation appropriate theories and concepts according to a particular research or practical purpose. Able to evaluate companies and its assets, make decisions on the most appropriate way to manage value Group discussions Case studies Discussions Case studies Company s valuation practice COURSE TOPICS: Topics 1 Business valuation: basic concepts Contact hours Homework Hours total Lectures Seminars Using financial statements for valuation and analysis Valuation approaches and methods Value creation Valuation law and standards: cross-country comparison Special valuation issues Case study analysis and valuating practice Total COURSE SCHEDULE: 1. Business valuation: basic concepts The purpose and resources for valuing businesses; Internal reasons and external reasons for valuation Standards (types) of firm value; Foundations of value: growth and value creation; Key methods and approaches to firm valuation. 1) Damodaran A. Investment Valuation: Tools and Techniques for determining the value of any asset, 2d edition, John Wiley&Sons, ) Valuation: The Art and Science of Corporate Investment Decisions, 2nd or 3rd Edition by Sheridan Titman, John D. Martin. Published by Prentice Hall. 3) IVS 104: Bases of value:

3 4) Online lectures on Valuation by A. Damodaran: 2. Using Financial Statements for valuation and analysis Financial statements: types, elements, principles; Financial statement analysis; Comparison of Generally Accepted Accounting Principles (U.S), Russian and International Financial Reporting Standards. 1) Cohen, Jacob, and David Young (2005) The Convergence of Global Accounting Standards, Working Paper, INSEAD. 2) Higgins, R.C. Analysis for Financial Management, 11th ed., Irvin, McGraw-Hill. 3) Online lectures on Valuation by A. Damodaran: 3. Valuation approaches and methods Income approach. Valuing companies by cash flow discounting: main steps, models, and problems; Market approach. Valuing companies using multiples. Industrial coefficients analysis method. Analogues deals method; The role of cost approach in business valuation. 1) Damodaran A. Investment Valuation: Tools and Techniques for determining the value of any asset, 2d edition, John Wiley&Sons, ) Fernandez P. Valuation Мethods and Shareholder Value Creation. Academic Press, ) Branch, M. A. Real Options in Practice. John Wiley & Sons, ) Estimation Issues in DCF Valuation: 5) Relative Valuation and Real Options: 4. Value creation Fundamentals of corporate capital valuation; Fundamentals of equities valuation: preferred and common stock; Risk and expected return: principles of portfolio analysis; Valuing corporate strategic opportunities and flexibility: corporate real options; Capital market benchmarking: corporate cost of capital. 1) Damodaran A. Value Enhancement: Back to Basic: shttp:// 2) Fiorentino, R. and Garzella, S. (2013) The Synergy Valuation Models: Towards the Real Value of Mergers and Acquisitions, International Research Journal of Finance and Economics, issue 124: 3) Damodaran, A. (2005) The Value of Synergy: 4) Devos, E., P.-R. Kadapakkam and S. Krishnamurthy (2009), How do mergers create value? A comparison of taxes, market power, and efficiency improvements as explanations for synergies, Review of Financial Studies, 22,

4 5. Valuation law and standards: cross-country comparison Legal implications International valuation standards European valuation standards American standard valuation law Russian valuation standards Company valuation: a comparison of economic and legal perspectives 1. Hemphill L., Lim J. Lay-Cheng, Adair A. Stanley McG. (2014) The Role of International and Local Valuation Standards in Influencing Valuation Practice in Emerging and Established Markets. Royal Institution of Chartered Surveyors. Royal Institution of Chartered Surveyors. aj.pdf 2. IVS 104: Bases of value: 3. National Codes and Laws 6. Special valuation issues Valuing a minority interest in a private company Value a company s goodwill and its intangible assets Valuing intellectual property Corporate taxes and valuation Inflation Foreign Currency Liquidation value Premiums and discounts in business valuation (control premium, discount for lack of control, discount for lack of marketability) 1 Damodaran A. (2009) Valuing Companies with intangible assets: 2 Creating value: An interactive tutorial: 3 Reilly, Robert F. (2014) Handbook of advanced business valuation / Robert F. Reilly and Robert P. Schweihs. 4 KPMG (2017) Football Clubs Valuation. The European Elite 2017: 5 Was Facebook's botched IPO a conspiracy?: 6 Uber is not worth $17 billion (Five Thirty Eight): 7 Making sense of Apple stock's roller coaster ride: 7. Case study analysis Valuation of start-ups, Sports team valuation Valuing banks Valuation in emerging markets Valuing high-growth companies Valuing cyclical companies

5 Special literature and materials will be provided for a particular study. PERFORMANCE EVALUATION: Requirement Grade Mini quiz cumulative grade 40 Midterm quiz 50 Case study analysis and presentation 30 Final exam 40 Mini quiz Before every topic/ or part of a topic student should read recommended chapters and listen or watch audio or video materials (parts pre-lecture readings ). 5 lectures will start with mini quiz (8 questions). It will be 40 questions through the course. Midterm quiz will be hold after the 4 th topic. It includes 10 multiple choice question and a problem set (students should choose the most appropriate method and provide valuation of a firm, its part or some assets). Students are not normally eligible to retake class participation and/or review (control) work in case they failed to pass them. Cumulative grade and final score: and less 1 3 BASIC MATERIALS: 1) Damodaran A. Investment Valuation: Tools and Techniques for determining the value of any asset, 2d edition, John Wiley&Sons 2) Online lectures on Valuation by A. Damodaran: SAMPLE QUESTIONS FOR A MIDTERM QUIZ AND FINAL EXAM 1) Sensitivity to market mispricing is typical for valuation approach income-based asset-based market -based 2) The company cost of capital for a firm with a 60/40 debt/equity split, 8% cost of debt, 15% cost of equity, and a 35% tax rate would be: 12%

6 13.80% 7,02% 3) Which of the following is a situation whereby it may be advantageous for a client if the agreed valuation of the company came out as low as possible? Select all that apply. Valuation for sale of a whole company to a competitor Valuation as part of a divorce settlement, with the shares still held after agreement Valuation as part of calculation of a tax liability in the event of gifts of shares to the owner's children Valuation of shares of an acquisition target 4) The enterprise to be valued is privately owned. The 3 directors all pay themselves a salary of $200,000 per year. Overall enterprise profit before tax and interest is $10,000 after these payments. A normal salary for a director of this kind would be $60,000. Corporation tax is 20%. CLASS EQUIPMENT AND SOFTWARE SUPPORT A computer, screen, projector, and white board are used for visual demonstration of lecture notes, seminar materials, and student presentations