Equity Valuation Models and Issues

Module description

This module involves developing and appraising critically a set of competing models of corporate valuation, including the dividend discount model (DDM), discounted free cash flows (FCFE) model, residual income model and their reconciliation. It covers forecasting of earnings and estimating of discount rate in valuation. It also establishes links between fundamental valuation models and value multiples. Finally, it discusses equity investment informed from firm’s fundamental analysis. 

Additional Information:

Research in Teaching

The whole module is informed by academic research, in particular by the module lead.

Full module specification

Module aims

Equity Valuation Models and Issues aims to take the accounting concepts and techniques developed and appraised in Financial Statement Analysis and to apply them to the valuation of equities in major industrial sectors. This involves developing and appraising critically a set of competing models of corporate valuation. These are applied in a variety of geographic, industrial and other specialised circumstances requiring careful selection of appropriate valuation methods and the interpretation of different standards of financial reporting and disclosure. Ultimately the aim is to give students the ability to produce equity research reports for industry sectors and individual companies of a standard specified by major investment firms.

ILO: Module-specific skills

• 1. apply selectively and critically 'new' value enhancement and valuation paradigms.
• 2. explain the complex issues which are the proper focus of investment analysis in the modern equity environment.
• 3. perform and respond creatively to cross-border financial analysis in industrial sectors, and apply selectively traditional risk measures.
• 4. identify and discuss ethical issues affecting corporate operations and reporting.

ILO: Discipline-specific skills

• 5. develop rigorous theoretical arguments based on mathematical and analytical reasoning.
• 6. analyse problems in finance rigorously.
• 7. interpret financial data and problems in the light of established theories.
• 8. access a wide body of empirical research literature and critically appraise it.
• 9. use relevant databases, existing research literature and techniques to conduct a detailed investigation of problems arising in financial markets and models.

ILO: Personal and key skills

• 10. demonstrate written communication skills.
• 11. make appropriate use of learning resources, including sophisticated computer datasets.
• 12. analyse critically problems arising in both academic and practical contexts.
• 13. plan and manage your own study.

Learning activities and teaching methods (given in hours of study time)

Details of learning activities and teaching methods

Formative assessment

Summative assessment (% of credit)

Details of summative assessment

Details of re-assessment (where required by referral or deferral)

Syllabus plan

• Equity valuation approaches and models, reconciliation of models, and contemporary methods of operationalising the FCF model,
• A guest investment practitioner’s talk on corporate valuation or some other flexible arrangement
• Forecasting and business environment analysis including the Ohlson model and forward earnings growth model
• On the implied cost of equity capital
• Links between fundamental valuation model and value multiples
• Equity investment informed from firm’s fundamental analysis
• Revision and mock exam

Indicative learning resources - Basic reading

CFA curriculum set plus

Supplementary reading:

Palepu, K, P. Healy, V. Bernard, and E. Peek (2015), Business Analysis and Valuation, IFRS edition (3rd edition).

Copeland T, T Koller, J Murrin, McKinsey & Co Inc, 2017, Valuation-Measuring and Managing Value of Companies, 6th edition, Wiley

Lundholm R. and R. Sloan, Equity Valuation and Analysis, 2nd ed. 2014, McGraw-Hill Irwin

Module has an active ELE page?

Yes

Origin date

01/09/2004

Last revision date

04/11/2021