Content area
Full Text
Abstract
This paper presents a spreadsheet project teaching business/stock valuation in a student-managed investment fund class. The Excel assignment involves several worksheets that show students step by step how to determine the fundamental value of a public-traded company's common stock. By providing students with a primer for forecasting the intrinsic value of a share of common stock that integrates financial models presented in other finance courses, students will gain a better understanding of how to link theories with practices and how to apply the valuation technique in practice.
Keywords: Business valuation; Stock valuation ; Spreadsheet project
JEL Classification: G32; G34
Introduction
Teaching business/stock valuation is no easy job. Teaching it in a student-managed investment fund class that manages $2.7 million of a university endowment is even more challenging. In addition to making day-to-day investing and monitoring decisions, how to teach students the core concept of valuation by linking theories with practices in a classroom setting has always been a challenge to the faculty who teach the class. The purpose of this paper is to share our classroom experiences by presenting a spreadsheet project that we have used. Through this spreadsheet assignment, we believe students can learn the subject of valuation in an effective and efficient manner.
There are a myriad of publications related to finance pedagogy. For example, Mukherji (2003)' uses a spreadsheet project for preparing an analyst's report on a company's common stock in which the valuation exercise is based on market multiples. Kalra and Weber (2004)2 adopt a comprehensive project in an investment course in which students use real data to analyze the performance of a stock by using multiple spreadsheet applications. Buchenroth and Pilotte (2004)3 demonstrate the process of obtaining consistent values with three valuation models by including corporate and personal taxes. The three valuation models illustrated in their paper are the adjusted discount rate model, the adjusted present value model, and the flows to equity model. Nunnally (2006)4 teaches students how to value a small, private firm from which students will learn the value determinants and be able to apply them in varying situations. Petty and Rose (2009)5 highlight the relationship between free cash flow within the cash flow identity and the accounting statement of cash flows that will...