FA: Measuring,

capturing and
retaining Value

Gloria Batllori.
 Session 1

Gloria Batllori.
 3

Introduction to the course

Introduction to decision making

Financial Statements

Application to real life cases

Gloria Batllori.
Intro to the course
 Agenda
TOPICS FOCUS METHODOLOGY
DAY 1: Introduction to the course Concept discussion
Financial Statements Balance Sheet Application to real cases
DAY 2: Concept discussion
Income Statement Application to real case
Financial Statements Cash Flow Statement
DAY 3: Concept discussion
Financial Analysis Financial Position Walmart, Target and Carrefour
Financial Analysis
Profitability Analysis
Short term vs long term
Projecting Financial Statements Identifying value drivers Alpha and Aquatic Cases
DAY 6: Concept discussion
Project Presentation Application to real cases
DAY 7: Discounted Cash Flow Concept discussion
Valuation Techniques ABC Case
DAY 8: Multiple Valuation Concept discussion
Valuation Pink Case
DAY 9:
Exam EXAM
5
 Introduction
Credentials:
• Degree in Business Administration
• Master in International Management
• phD in art valuation
• CFA
Professional experience:
• Strategic consulting
• Valuation and M&A: consulting
• Business transformation and its financial impact: consulting
• Investment management: founder of a startup
• Platform business models: founder of a startup
Teaching experience:
• University and Executive education
• Global
• Financial analysis, corporate finance and corporate valuation

https://www.linkedin.com/in/gloriabatllori/

6
 Course Assessment

Class Contribution (individual) +

Final exam (individual): 30%

Project (groupwork) 70%

The exam will be based on a question about value creation,

an analyst observation about a particular company

Contact mail: [email protected]

7
 FA Objectives
• To understand how to link the economics of an industry, a
firm’s strategy, and its financial statements, gaining important
insights about the firm’s profitability and its risk.
• To analyse the financial information of a firm (financial
statements and other information) to make a recommendation
about the future potential, as a financial analyst.
• To understand how to use financial statement data to build
forecasts of future financial statements to estimate expected
future amounts of earnings, cash flows, and performance in
general.
• To use valuation techniques to price stocks
• To apply financial analysis and valuation techniques to a
comprehensive case
 FA Applications

• Assigning credit ratings or extending credit for a short-term period (for

example, a bank loan used to finance accounts receivable or inventories) or
a long-term period (for example, a bank loan or public bond issue used to
finance the acquisition of property, plant, or equipment)
• Assessing the operating performance and financial health of a supplier,
customer, competitor,or potential employer
• Managing a firm and communicating results to investors, creditors,
employees, and other stakeholders
• Consulting with a firm and offering helpful strategic advice
• Evaluating firms for potential acquisitions or mergers or divestitures
• Valuing a firm in the initial public offering of its stock
• Forming a judgment about damages sustained in a lawsuit
 FA Steps

• Identify economic characteristics and competitive dynamics in the industry

• Identify company strategies
• Assess the quality of the financial statements
• Analyze profitability ant financial risk
• Project future financial statements (proforma)
• Valuation and determining target price
• Make a recommendation to improve finance fundamentals and unlock the
value
 Activities

• Class Discussion: concept and application

• Exercises and minicases: practice with techniques
• Cases: application to a case
• Group Project: application to a company being under an activist
investor radar

11
Examples
Aim of activist investors: Unlocking the
value
• Operating performance: competitive strategy
• Strategic transactions: corporate strategy
• Capital allocation: competitive strategy
• Capital structure: financial strategy
• Governance: organizational structure

13
Intro to decision making
Let’s start a company

Role playing:

1.Founder
2.Banker
3.Investor

15
 Financing decision

Debt: Equity:
• Repayment of principal
• Interest • Return
• Collateral
• Dividends
• Seniority
• Capital appreciation

16
 Cost of funding

1. Cost of debt > expected return to

shareholders

2. Cost of debt < expected return to

shareholders

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Financial Statements:
The Balance Sheet
Resources needed to operate

Depends on the nature of the business

Depends on the business model

Capital Intensive
Asset light
 Consequences of business model

Capital Intensive Asset light

Consequences of business model

Capital intensive Asset light

More funding needed Less funding needed

Scalabilty is more Fast scalability
expensive
No entry barriers
Entry barriers (winner takes it all)
Types of resources

Asset structure
Resources/Investments/Assets:

Operating vs Financial
Current vs Non current
Tangible vs Intangible
Operating vs financial

Focus on the business

Deriving resources into non core
business activities
Cash holdings

Why would a company have high cash

holdings?
 Current vsRelated to liquidity
non current
Short term and liquid investments
Cash
Accounts receivable
Inventory
Long term and illiquid assets:
PP&E
Intangibles
Goodwill
 Operating cycle: current assets

Intended to be converted to cash (or consumed) in the near future: marketable

PAYMENT
securities, acc. Receivables, inventories, prepayments
CASHoperating cycle (whichever is
Near future: within one year or the company’s
MANUFACTURE
longer).
OR PURCHASE
SALE
ACCOUNTS INVENTORY
RECEIVABLE

BUSINESS MODEL DETERMINES THE OPERATING CYCLE

Tangible vs Intangible

TANGIBLE INTANGIBLE
 Tangible vs Intangible
TANGIBLE
INTANGIBLE and OFF BALANCE SHEET
PP&E Brand
Long term investments
Talent

Reputation

Potential
INTANGIBLE
Know how
Patents
Culture
Copyrights
Innovation
Licenses
Pipeline
Software development
…
 Equity
Fundingvs Liabilities
Liabilities:
short term and long term (current
and non current)
Interest bearing (financial
liabilities) and non-interest
bearing (operating liabilities)
Equity:
capital issued and retained
earnings
 Financing decision

Debt: Equity:
• Repayment of principal
• Interest • Return
• Collateral
• Dividends
• Seniority
• Capital appreciation

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 Cost of funding

1. Cost of debt > expected return to

shareholders

2. Cost of debt < expected return to

shareholders

30
 Consequences

Debt
31 Equity
 Consequences

Debt 32 Equity
Risk for the Risk for the
company: HIGH company: LOW
Cost: LOW Cost: HIGH
Tesla and Volkswagen
 Finding information

Annual Report to
Shareholders. FACTSET
Form 10-K Annual EIKON
Report. BLOOMBERG
Form 10-Q Quarterly AMADEUS, SABI, …
Report.
Form S-1 Initial Public
Offering
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 Balance Sheet Analysis

Common size balance. All captions expressed as a percentage over total

assets

What are the main assets? What is the asset base? What
are the Main trends?
How is the Company being funded? What is the capital
structure? What are the Main trends?
Techniques to analyze the BS:
Common size statement
Liquidity
Solvency
Cross sectional and time series analysis