Fayetteville State University

School of Business and Economics

Department of FEEM

Finance 675-D1 Security Analysis

Fall, 2013
I. Locator Information:
Instructor: Dr. Patrick Larkin
Course # and Name: FINC 675-D1 Security Analysis
Office hours: W 7:45-11:45 a.m. (online only)
Email address: plarkin@uncfsu.edu
Total Contact Hours for Class: 45

Course Location: Online

Office Location: SBE 322
Office Phone: 910-672-1067
Day and Time Class Meets: This is an online class

FSU Policy on Electronic Mail: Fayetteville State University provides to each student, free of charge, an electronic
mail account (username@uncfsu.edu) that is easily accessible via the Internet. The university has established FSU email as the
primary mode of correspondence between university officials and enrolled students. Inquiries and requests from students
pertaining to academic records, grades, bills, financial aid, and other matters of a confidential nature must be submitted via FSU
email. Inquiries or requests from personal email accounts are not assured a response. The university maintains open-use
computer laboratories throughout the campus that can be used to access electronic mail.
Rules and regulations governing the use of FSU email may be found at
http://www.uncfsu.edu/PDFs/EmailPolicyFinal.pdf
II. Course Description: This is a practical course in security and company analysis. Students will learn how to analyze and
evaluate companies and the securities that they issue using publicly available information.
Prerequisite: FINC 610
III. Disabled Student Services: In accordance with Section 504 of the 1973 Rehabilitation Act and the Americans with
Disabilities Act (ACA) of 1990, if you have a disability or think you have a disability to please contact the Center for
Personal Development in the Spaulding Building, Room 155 (1 st Floor); 910-672-1203.
Students who require accommodations for disabilities must contact the Center for Personal Development in the first week
of class. Students should request that the center inform the instructor of what specific accommodations are required.
Arrangements for special treatment must be made before the fact, not after. For example, if a student requires extra time to
complete an assignment, the instructor must be informed of this need before the assignment is due, not after.
IV. Books and Materials: The course is based around the instructor's own PowerPoint notes. As students go through the
notes, they should complete all practice exercises embedded in the notes and make sure that they understand all of the
terms, concepts, and techniques presented in the notes.
Students are required to read the following sections from Benjamin Graham's The Intelligent Investor: chapter 8, chapter
20, and Warren Buffett's essay The Superinvestors of Graham and Doddsville, which is included in the appendix of later
editions of the book. The book is available as an optional purchase title for the course through the university bookstore.
These readings can also often be found posted online, but the instructor won't provide links to copyrighted material that
might be posted illegally.
There is also a required book review (or "Little Book" Review). Students may choose one of several investment books to
review, and may purchase the book or borrow it. All of the books are available at the Chesnutt Library. Following are the
choices for the book review:
Browne, Christopher H., The Little Book of Value Investing, Hoboken, New Jersey.: Wiley, 2007.
Damodaran, Aswath, The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit, Hoboken, New
Jersey.: Wiley, 2011.
Greenblatt, Joel, The Little Book That Still Beats the Market, Hoboken, New Jersey.: Wiley, 2010.
(The earlier version, simply titled The Little Book That Beats the Market, is acceptable if you can't find this version)
Montier, James, The Little Book of Behavioral Investing, Hoboken, New Jersey. : Wiley, 2010.

Excel is or a financial calculator is needed for calculations. I recommend that you use Excel for calculations, because it is
the most commonly used tool for financial analysis in the professional world. I do give instructions to exam proctors to
allow you to open a blank Excel document while taking your exam.
Students are required to check their Fayetteville State e-mail accounts a least every three days and to make sure that those
accounts remain functional. Students should also check the class discussion board at least every three days. Students will
need a computer with internet access, an up do date browser, and Microsoft Word, Excel, and PowerPoint installed.
V.

Student Learning:

Upon completion of the course students will be able to:

1.

Analyze the economic competitiveness of a company and discriminate between permanent competitive
advantages and those that are likely to be temporary.

2.

Appraise the relative importance of return on equity, cost of equity, free cash flow, sales growth, profit
margins, investment rates, asset turnover and other commonly used financial metrics for evaluating companies
and securities.

3.

Break down the published financial reports of a company and summarize the relevant financial and operating
metrics for the firm.

4.

Relate ratios based valuation techniques to discounted cash flow techniques and explain the underlying links
between the two techniques.

5.

Describe the practical aspects of investing in stocks, including screening for potential investment
opportunities, minimizing taxes and transactions costs, identifying special situations, shorting stocks, and
avoiding common pitfalls.

6.

Deconstruct the links between the firms business strategy and operating environment and the financial drivers
of its intrinsic value.

7.

Interpret the meaning of market fluctuations, and contrast the views of market fluctuations derived from the
efficient markets hypothesis and the value investing approach, respectively.

8.

Value a firms common equity using discounted cash flow, multiples, and other appropriate techniques.

9.

Produce a competent written analyst's report valuing a common stock.

10. Demonstrate basic competence in Microsoft Excel and use it to manipulate and analyze financial data.

VI. Course Requirements and Evaluation Criteria:

a. Grading scale and interpretation of letter grades:
Grading symbols and numerical equivalents:
A
90 to 100%
B
70 to 89%
C
50 to 69%
F
Less than 50%
Final averages will be rounded to the nearest whole percentage point.
b. Attendance Requirements:
1. The class is online. There are no face to face meetings. Students are required to make regular posts to the
discussion board.
2. Note that mere non-participation in the class does not constitute withdrawal. It is your responsibility to
complete the necessary paperwork if you intend to withdraw from the class.

c. Graded Assignments:
1. Discussion Board Posts
A weekly discussion board post is required. Information about the requirement for each post appears below in
section VIII. For each weeks required discussion board post, please title your posts "Post 1," "Post 2," etc. For
other posts that you make to the board use a title that refers to your question or whatever your post is about.
2. Written Exam
There will be one exam in the course. The exam must be proctored at a location approved by the UNC proctoring
system. It is the policy of the SBE that at least 30% of the grade in all online courses should come from a
proctored exam. The exam will be more challenging than the exam given in the undergraduate security analysis
course. Practice exam questions are posted on the course's Blackboard site.
3. Written Analyst Reports
Students will choose a company and prepare a written analysts report on the company's stock. After receiving
feedback on the first report, students will prepare a second report on a stock that they believe to be undervalued.
Detailed instructions will be provided after the class begins. Submit the analyst reports to the instructor by e-mail
as a Word file by the due date. Also submit the Excel file that contains your valuation work. Only one Word file
and one Excel file should be submitted. A template for the report, an example report, and an Excel template for the
report are posted on the course's Blackboard site.
4. Little Book Review
Students will prepare a review of one of the "little books" listed above. The book review should be between onethousand and two-thousand words. Directions for choosing a book will be posted on the discussion board early in
the course. The finished book reviews will also be posted to the board for the benefit of the class. Submit the book
review to the instructor by e-mail as a Word file by the due date. An example book review is posted on the
course's Blackboard site.
d.

Value of Each Assignment:

Written Exam ..........................................30%
First Analyst Report.........................................15%
Book Review....................................................10%
Discussion Board Posts....................................30%
Second Analyst Report.............15% (2% for each of the 15 weekly posts)

e. Policy on Missed or Late Assignments: late assignments may only be made up if the student has a universityapproved excuse for missing the assignment.
f. Mid-term grades: the university requires that instructors post midterm grades for students. Midterm grades are
not part of a student's permanent record. Due to the structure of this course, it is possible that less than one fifth of
the possible points in this course will have been earned by the midterm. For that reason, midterm grades will not
necessarily have any relationship to final grades in the course.
Student Behavior Expectations: The instructor will respect all students and will make every effort to maintain an
environment that promotes learning for all students. Students must accept their responsibility for maintaining a positive
environment. Student/teacher relationships, as well as relationships among peers, must be respectful at all times.
Consequences for Failing to Meet Behavioral Expectations: If a student consistently acts in a way that makes it difficult
for other students to learn, then I will bring the problem to the students attention. If the problem continues, the student can
be reported to the Dean of Students for disciplinary action according to the FSU Code of Student Conduct.
VII.

Academic Support Resources: University College Learning Center

VIII.

Course Outline and Assignment Schedule:

Summary of Due Dates:

Discussion board posts are due every Tuesday, beginning on August 27th and ending on December 3rd.
Written Exam: must be taken between Wednesday, October 30th and Sunday, November 3rd.
First Analyst Report Due: Thursday, October 31st
"Little Book" Review Due: Thursday, November 21st
Second Analyst Report Due: Thursday, December 5th
Weekly Discussion Board Posts:
Week 1: Due August 27
- Introductory discussion board post giving a bit about your background, major, location, career goals, work
experience, investment experience (if any), and anything else you'd like to share.
Week 2: Due September 3
-Complete project check-up 1.
-Select your book for review. See the directions posted on the discussion board for selecting a book. Students who
have not selected a book by this date for any reason (including joining the course late) will be assigned a book by
the instructor.
Week 3: Due September 10
- Complete project check-up 2.
-Give me the time, date, and location of your appointment to take the proctored exam.
Week 4: Due September 17
-Complete project check-up 3
Week 5: Due September 24
- Complete project check-up 4.
Week 6: Due October 1
-Complete project check-up 5.
Week 7: Due October 8
- Complete project check-up 6.
Week 8: Due October 15
-Complete project check-up 7
Week 9: Due October 22
-Complete project check-up 8
Week 10: Due October 29
-Tell the class whether you are a Bull or a Bear, or if neither, what you plan to be for Halloween.
Week 11: Due November 5
-Identify a stock that you think might be undervalued or overvalued, and post a very brief one paragraph case for
why you think it is overvalued or undervalued.
Week 12: Due November 12
-Pick any post from a classmate from last week on mis-valued stocks and explain why you agree or disagree with
it in one brief paragraph. It's often more fun and educational to have disagreement, but be polite.
Week 13: Due November 19
-Answer the questions on the slide labelled "Discussion: Where to You Fit In?
Week 14: Due November 26
-You will be assigned a fellow student's book review to comment on. At minimum, your post should include one
thing you learned from the review or liked about the review and ask at least one question about the subject matter
of the book that you think that the reviewer left unanswered. The book review that you will be assigned to
comment on will not be a review of the same book that you reviewed.

Week 15: Due December 3

-Fully answer any questions that the reviewer of your review from last week had about your review. You may also
take this opportunity to make any other additions or clarifications to your review that you wish.
All dates and times refer to Eastern Standard Time.
Note: A suggested study schedule is also posted under the course documents tab on Blackboard that contains
suggested activities for every weekday of the semester except for holidays. You are not required to follow this
schedule, but if you choose to keep pace with it then you can be sure that you are not falling behind in the class.
IX.

Teaching Strategies:

The class is centered around the discussion board and customized materials developed by the instructor. Students are
expected to keep up and actively participate on the discussion board. If you have questions, please post them on the
discussion board so that all class members can benefit from reading my answers. Questions about private matters such as
grades may be handled by email. You are welcome to post to the board anytime, and you can post as often as you wish.
You should read all messages posted to the board, including those posted by your classmates.
X.

Bibliography:

The following resources might be helpful in the course. Instead of alphabetical order, they are listed here according to the
numbering system used in the class notes that are distributed to students:
1. Seeking Alpha Transcripts Center: http://seekingalpha.com/tag/transcripts. Provides access to searchable transcripts of
earnings conference calls for a very wide range of publicly traded firms.
2. Gitman, Lawrence J., and Chad. J. Zutter, Principles of Managerial Finance, 13th Edition, Pearson Prentice Hall (2012)
ISBN: 13: 978-0-13-255435-0
3. Chesnutt Library website http://library.uncfsu.edu/, or your local public or university library. Two resources to look for
are Value Line Investment Survey and Morningstar Investment Research Center.
4. Ross, S., Westerfield, R., and J. Jaffe. Corporate Finance, 7 th Edition, McGraw-Hill Book Co, (2005).
5. Brealey, Richard A., Stewart C. Myers, and Franklin Allen, Principles of Corporate Finance, 2011, McGraw-Hill Irwin,
New York, ISBN: 978-0-07-353073-4.
6. Damodaran, Aswath, Investment valuation : tools and techniques for determining the value of any asset, New York:
Wiley, 2002, 2nd ed.
7. Professor Aswath Damodarans website: www.pages.stern.nyu.edu~adamodar
8. Graham, Benjamin, The intelligent investor : a book of practical counsel, New York, N.Y. : Harper & Row, 1985, 4th
rev. ed., with a new pref. and appendix by Warren E. Buffett.
9. Cunningham, Lawrence A., (Editor) The Essays of Warren Buffett: Lessons for Corporate America, First Revised
Edition, Lawrence A. Cunningham, (2001).
10. The Scribd website has a lot of material relevant to the course. In the past I have seen the entire texts of The Intelligent
Investor and Common Stocks and Uncommon Profits posted there for free, but I can't vouch for the legality of all postings
on the site:
http://www.scribd.com/
11. Greenwald, Bruce C.N. ... [et al.], Value investing : from Graham to Buffett and beyond, New York : Wiley, 2001.
12. Fisher, Philip A., Common stocks and uncommon profits, New York, Harper [1960], Rev. ed. Foreword by Jeremy C.
Jenks.
13. Lynch, Peter, with John Rothchild, One up on Wall Street : how to use what you already know to make money in the
market, New York, N.Y., USA : Penguin Books, 1990.

14. Greenblatt, Joel, The little book that beats the market, Hoboken, NJ. : Wiley, 2006.
15. Greenblatt, Joel, You can be a stock market genius, New York, NY. : Simon and Schuster, 1997.
16. Haugen, Robert A., The New Finance: The Case Against Efficient Markets, Prentice-Hall, (1995).
17. The American Association of Individual Investors offers an excellent stock screener called Stock Investor Pro. The
software can be purchased at:
http://www.aaii.com/
18. Yahoo Finance: http://finance.yahoo.com/
19. SEC filings: http://www.sec.gov/idea/searchidea/companysearch_idea.html
20. Dorsey, Pat, The Little Book That Builds Wealth, Hoboken, N.J. : Wiley, 2008.
21. Kenneth Frenchs Data Library Website at Dartmouth:
http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html
22. Value Investing Retrospective, A Heilbrunn Center for Graham and Dodd Investing Research Project conducted by
Andrew Dubinsky, Walter Schloss Value Investing Archives. Available at:
http://www4.gsb.columbia.edu/valueinvesting/resources/articles
23. Porter, Michael, E., 1979, How Competitive Forces Shape Strategy, Harvard Business Review, Vol. 57, Issue 2, pgs.
137-145.
24. Maubaussin, Michael J., Death, Taxes, and Reversion to the Mean, Maubaussin on Strategy, December 14th, 2007.
Available online at: http://www.leggmason.com/individualinvestors/documents/insights/D4071Death_Taxes_and_Reversion_to_the_Mean.pdf
25. Maubaussin, Michael J., Common Errors in DCF Models, Maubaussin on Strategy, March 16th, 2006. Available online
at: http://www.lmcm.com/pdf/CommonErrors.pdf
26. Google Finance:
http://www.google.com/finance
27. The Magic Formula Investing Website:
https://www.magicformulainvesting.com/marketing/servlet/forms/MFI/Marketing/forms/WelcomeForm
28. Munger, Charlie, A Lesson on Elementary, Worldly Wisdom as it Relates to Investment Management & Business.,
Outstanding Investor Digest, May 1995.
(You can probably find a PDF posted online if you Google for it)
29. Montier, James, The Little Book of Behavioral Investing, Hoboken, N.J. : Wiley, 2010.
30. Microsoft Money Investing Website:
http://money.msn.com/investing
To find industry and market financial ratios, search for your stock, then under "fundamentals", click "key ratios."
31. ADVFN Website:
http://www.advfn.com/
This is the best site that I know of for efficiently cutting and pasting complete financial statement data to Excel.
32. Miller, Merton H. and Franco Modigliani, Dividend Policy, Growth, and the Valuation of Shares, The Journal of
Business, Vol. 34, No. 4, pp 411-433, October, 1961.
33. Greenwald, Bruce, with Judd Kahn, Competition Demystified: A Radically Simplified Approach to Business Strategy,
London, England, Penguin Books Ltd., 2003.