Valuation Tutor Overview

Valuation Tutor is an interactive and visual presentation of Financial Statement Analysis and Valuation.  It is designed to help you:

·         understand how to interpret and analyze the financial statements of a company

·         compare companies along various dimensions relating to efficiency, profitability, and risk, and

·         learn how different valuation models are used to derive the intrinsic value of a company

Valuation Tutor consists of four parts:

·         An online textbook

·         A detailed lesson plan

·         Software

·         Dataset

Combined, the four parts let you not only understand the concepts but also how to apply them to perform a comprehensive fundamental analysis of a company from the perspective of a financial analyst. The software gives you easy and immediate access to the recent interactive SEC filings of publicly traded companies. The dataset lets you compare (large numbers of) companies at the general market and industry levels, so you can develop the intuition and judgment required to interpret the numbers. The dataset covers both us stocks and ADR’s filing financial reports under US GAAP and under IFRS.  The lesson plan guides you through the understanding and application of the concepts so you develop a deep and practical understanding of each topic.

Here are some examples of what you can do.

Example 1: Accessing and Visualizing Financial Statements

Example 2: Understand Business Strategy

Example 3: Financial Statement Analysis: Comparisons

Example 4: Detailed Comparisons

Example 5: Decile Analysis

Example 6: Relationships and Outliers

The textbook contains the conceptual material. It is integrated with the software and data. The first volume covers financial statement analysis (business model, core strategy, SWOT, common size analysis, B/E and activity analysis, financial ratios, price ratios and reporting quality) and the second covers how to assess intrinsic value by covering the important concepts and models (cost of capital, dividend, discounted cash flow, free cash flow, residual income, abnormal earnings growth and Merton's distressed firm models). For each concept, we explain what it is, how it is used in evaluating a company, and what information is needed for any calculations including providing real world examples for each step.

We start by extracting information from these filings about the company’s business model and strategy to begin understanding what the company does. The subsequent chapters in the first volume explain common size analysis, business ratios and price ratios. The power of the software and dataset will be evident as you work through these chapters: not only will it show you how to analyze a company, but at every step, you can compare it to others, including its immediate competitors, companies in its sector or industry, or to groups of stocks in a broad market index.

The second volume describes and applies models used to determine an intrinsic value for a company. These include the dividend model, discounted cash flow models including free cash flow to equity, residual income valuation, the abnormal earnings growth model, and Merton's model for distressed firms.  The bottom line is to learn how to assess risk, profitability, expected return and forecast future stock prices from the current spot price.

All of this is brought together in the lessons and projects. These show you how to take the concepts you have learned and come up with an integrated report about a company. Each represents one step of what goes into such a report. For example, the first project focuses on business strategy and a SWOT analysis. The second performs a profitability analysis. In the third, you conduct a risk analysis. And so on. Once all are done, you will have completed a fundamental analysis of a company and will be able to make a formal recommendation about the company's stock.

We welcome comments and suggestions. The online textbook is free and if there are topics you would like to see covered or have suggested enhancements to the software, please let us know. You can submit these comments at the Valuation Tutor blog site.  The blog posts also introduce you to features of the software as well as applications of Valuation Tutor.

John O'Brien PhD (University of Minnesota) and Sanjay Srivastava PhD (MIT)