The Lee Kong Chian School of Business

Academic Year 2022/23

Term 2

FNCE203 ANALYSIS OF EQUITY SECURITIES

Instructor: Dr. Jun Tu
Title: Associate Professor of Finance
Tel: 6828-0764
Email: tujun@smu.edu.sg
Office: LKCSB #4057
Office Hours: TBA

COURSE DESCRIPTION
This course seeks to provide the student with a comprehensive and in-depth understanding of the main aspects
of valuing equity securities. The first portion of the course lays a foundation for equity valuation by discussing in
detail equity return concepts and factors driving firm performance. Then, we cover discounted cash flow (DCF)
valuation, which derives the price of equity as the discounted value of future cash flows. In addition, the course
describes relative valuation methods, which uses appropriate characteristics (such as the price-to-earnings ratio)
to identify over-valued and under-valued stocks. Besides traditional approaches, this course also discusses how
unstructured data such as news can be associated with stock valuation.

LEARNING OBJECTIVES
By the end of this course, students will be able to:
• Explain the fundamental factors that affect equity valuation
• Analyse a firm’s growth prospects based on its current and future fundamentals
• Apply appropriate pricing formulae to estimate the value of equity
• Evaluate whether a particular stock is over-valued or under-valued relative to other stocks
• Create a comprehensive report combining analysis, valuation, and a recommendation

PRE-REQUISITE/ CO-REQUISITE/ MUTUALLY EXCLUSIVE COURSE(S)

Please refer to the Course Catalogue on OASIS for the most updated list of pre-requisites / co-requisites for
this particular course. Do note that if this course has a co-requisite, it means that the course has to be taken
together with another course. Dropping one course during BOSS bidding would result in both courses being
dropped at the same time.

ASSESSMENT METHODS
Your grade will be determined using the following components:
Course Participation 15%
Quizzes 20%
Group Project 15%
Final Examination 50%
Total: 100%

INSTRUCTIONAL METHODS AND EXPECTATIONS

Students are expected to read the lecture notes before coming to each class. Lessons will be fast paced
with the assumption that some background knowledge has already been acquired. (The relevant
chapters in the textbook can be helpful.)

Course Participation
Participation is a central part of the learning process for both you and your classmates. This includes attendance,
full preparation prior to class including reading assigned materials, and active participation in class discussions.
More details are provided in a separate file.

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Quizzes
The quizzes are close book (one A4 size (two sided) cheat sheet is allowed). Calculators should be used in the
quizzes. This will provide the opportunity for the students to monitor their learning progress.
More details are provided in a separate file.

Group Project
The objective of the project is to allow you to conduct research into a particular area which is relevant to
derivative financial market. The potential topics are very wide. You should choose a topic that you are keen to
know more about and delve into it. Please provide me with a soft copy of the slides for your group presentation.
More details are provided in a separate file.

Final Examination
There will be a final exam. The final exam is close book (one A4 size (two sided) cheat sheet is allowed). The
final exam includes several short answer questions and multiple choice questions. Calculators should be used in
the final exam. Final Examination will be scheduled by the Office of the Registrar. No make-up exams will be
allowed without prior permission.

I expect all of you to follow the school’s examination policy. Among other things, you need to bring your own
calculator(s) to the exams; you are not allowed to share calculator(s) with one another; you also need to silence
your cell phone and keep it away from the desk during the entire duration of the exams.

Practice Questions
There will be multiple sets of individual practice questions throughout the semester. The practice questions
focus on problem solving. The practice questions are designed to help students have a better grasp of the course
materials. Although you are NOT required to submit your solutions to those practice questions, it’s important
that you work hard and understand all of the practice questions.

CONSULTATIONS AND TEACHING ASSISTANTS

I will provide consultation hours and I expect some minimum work efforts from you before you come to me for
consultation. In addition, I will provide you TAs and inform you the contact details of the TAs and their
availability.

CLASS TIMINGS
This course will be taught in one 3-hour session. The exact CLASS TIMINGS and venues will be available later.
I will hold regular office hours which will be announced. If you need to see me at any other times, please contact
me to make an appointment. My office and contact information are listed at the top of this course outline. I am
also readily available by email.

RECOMMENDED TEXT AND READINGS

#1: Jerald E. Pinto, Elaine Henry, Thomas R. Robinson, & John D. Stowe
Equity Asset Valuation, 3rd Edition
John Wiley & Sons, 2015.

Supplementary Texts
#2: Aswath Damodaran
Investment Valuation: Tools and Techniques for Determining the Value of Any Asset, 3rd Edition
John Wiley & Sons, 2012.

Additional readings may be assigned. Students are expected to keep abreast of current developments in the
region by reading leading business dailies/weeklies like the Wall Street Journal, Business Times, and Business
Week.

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UNIVERSITY POLICIES

Academic Integrity
All acts of academic dishonesty (including, but not limited to, plagiarism, cheating, fabrication, facilitation of acts
of academic dishonesty by others, unauthorized possession of exam questions, or tampering with the academic
work of other students) are serious offences.

All work (whether oral or written) submitted for purposes of assessment must be the student’s own work.
Penalties for violation of the policy range from zero marks for the component assessment to expulsion,
depending on the nature of the offense.

When in doubt, students should consult the instructors of the course. Details on the SMU Code of Academic
Integrity may be accessed at https://oasis.smu.edu.sg/Pages/DOS-WKLSWC/UCSC.aspx.

Copyright Notice
Please note that all course materials are meant for personal use only, namely, for the purposes of teaching,
studying and research. You are strictly not permitted to make copies of or print additional copies or distribute
such copies of the course materials or any parts thereof, for commercial gain or exchange.
For the full copyright notice, please visit: https://smu.sg/Copyright-notice or OASIS -> CAMPUS LIFE &
EXCHANGE -> CONDUCT & DISCIPLINE -> UNIVERSITY COUNCIL OF STUDENT DISCIPLINE

Accessibility
SMU strives to make learning experiences accessible for all. If you anticipate or experience physical or
academic barriers due to disability, please let me know immediately. You are also welcome to contact the
university's disability services team if you have questions or concerns about academic provisions:
included@smu.edu.sg. Please be aware that the accessible tables in our seminar room should remain available
for students who require them.

Digital Readiness for Teaching and Learning (DRTL)

As part of emergency preparedness, instructors may conduct lessons online via the Zoom platform during the
term, to prepare students for online learning. During an actual emergency, students will be notified to access
the Zoom platform for their online lessons. The class schedule will mirror the current face-to-face class
timetable unless otherwise stated.

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WEEKLY LESSON PLANS*

Week Topics Optional Readings

(Equity Asset
Valuation)
1 Course introduction and administration Ch 1
2 Understanding Equity Return Concepts Ch 2
3 Understanding What Drives Firm Performances Ch 3 & 4
4-5 Approaches to Valuation. Ch 5
Discounted Dividend Valuation.
Case Study and Group Project.
6 Free Cash Flow Valuation Ch 6
7 Residual Income Valuation Ch 7
8 Recess
9 Relative Valuation Ch 8
10 Private Company Valuation Ch 9
11 Other Relevant Topics
Unstructured data (e.g., news and analyst report text) and stock valuation
12-13 Project Presentation
14 Study Break
15 Final Exam
* The schedule indicated above is tentative; changes may be made as the semester progresses.