Overview

This course might not be offered in Spring 2021 because classroom space might not be available as many summer and fall 2020 courses will be moved to spring 2021. If the course is offered, it will be Monday 6-9 PM in the spring semester.

MBA INTA-GB-2307 specializations:

Undergrad MULT-UB-0057 concentrations:

Undergrad minor: Entertainment, Media, and Technology (EMT)

Undergrad track: Management Consulting

I have a tech and business background. This course and the Business Drivers course use the same analytical framework (about 25% of the course). However, this course focuses only on tech companies. Some students have taken both courses and found them to be valuable.

We illustrate a streamlined and structured framework to analyze business drivers of forty tech companies. This helps us understand their narrative, drill into their financial statements, and assess competitive advantage.

The analysis proceeds as follows:

  1. We apply the Six-Pack Framework for a top-down and comprehensive analysis of financial statements to extract the six key inputs into valuation – Size, Growth, Margins, Asset intensity, Business risk, and Financial risk.
  2. We analyze how these inputs depend upon a company’s strategy by computing the Competitive Advantage Score that assigns weights to competitive drivers and scores the company’s strength on those drivers.

This broad exposure will expand your tech horizons and enable you to foresee challenges and opportunities due to changing competition, technology, and environment. The framework and the perspective will sharpen your ability to lead value creation as a tech entrepreneur or executive, or to understand value creation as an investor, banker, analyst, or consultant.

Takeaways

This course teaches the following skills to finance as well as non-finance majors:

  1. Understand the broad themes that drive value creation in the Tech Industry.
  2. Six-pack Analytical Framework (SPF): Identify and extract the six key valuation inputs – Size, Growth, Margins, Asset intensity, Business risk, and Financial risk.
  3. Competitive Advantage Score (CAS): Link these six key inputs to the choice and execution of a company’s strategy by identifying, weighing, and scoring competitive drivers.
  4. Broaden your tech business horizons and raise your Tech Business IQ: Expand your strategic horizons by examining how a wide range of tech companies create shareholder value so that you can grow your tech business in new dimensions.

Materials

Grading

Attendance

Prerequisites and expectations

Prerequisite: Any student who has taken the Core financial accounting course can take this course..

Do take this course if you expect the following:

Do NOT take this course if you expect the following:

System requirements

Help and Office

How this course differs from existing courses

Strategy

We will illustrate the application of frameworks you have learned in your strategy courses to a wide array of companies and industries.

Financial statement analysis (FSA)

The focus of my course is on a broad financial overview of industries, not on a detailed analysis of financial statements. The latter is reserved for the FSA course.

Modeling

We will not build any financial statement models in the course. However, you will use excel for certain assignments — basic knowledge of excel is sufficient. This course will help you understand how to extract inputs for valuation models by reading financial statements.

Valuation

We will discuss value drivers but we will not discuss valuation theory or build valuation models.

Six key drivers

The course highlights how and why businesses differ along the six key drivers listed below:

  1. Size
  2. Growth
  3. Margins
  4. Volume or net asset turnover
  5. Business risk
  6. Financial risk

1. Size

How do we measure size? Market cap, or sales, assets, or number of employees? What are the merits or demerits of each metric? Is the industry fragmented or do a few large firms dominate it? What are the reasons for such patterns? For example, how do economies of scale and scope affect the distribution of sizes? What role do network externalities play in industry consolidation? How do the bigger firms differ from the smaller firms in the industry? How does size affect risk and return?

2. Growth

What are the drivers of growth? How does growth affect the business model of a company? How does growth affect the financing of a company? What do we know about the rate at which an innovation is adopted by a wider market?

3. Margins

What are the major components of costs as a percentage of sales? What are the drivers of margins? For example, is the margin driven by pricing power, conversion efficiency, or purchasing power? Is the company primarily driven by the success of its R&D, the efficiency of its production, or the successful marketing of its products to customers? How do the margins change as a company matures? How do companies offset low margins with high volumes, and vice versa? How does that affect its hiring and management practices?

4. Volume or net asset turnover

How asset intensive is the business model? Does it create barriers to entry? What risks does it create? How does it affect the financing needs of the companies in that industry? Are the revenue-generating assets listed on the balance sheet?

5. Business risk

How does the extent of fixed costs, i.e., operating leverage, affect the business model of a company? Does it lead to ruinous price competition in a down cycle? Which costs are fixed in the short-run vs. the long run? How does a company mitigate the risks arising from fixed costs?

Is the business cyclical? What do we know about business cycles? What risks do they create? How does fiscal and budgetary policy change in response to business cycles? How does that affect the business we are trying to understand? Is its business model sustainable enough to survive the downturn of a business cycle? Can and how does a company mitigate the risk of down cycles? How does cyclicality affect the financing of a company?

Is the business regulated? Why? What aspects of regulation must it manage in order to be successful? How does that affect risk?

6. Financial risk

How much financial leverage do companies in the industry have? Is there a wide variation? How have the business risk, industry cycle, corporate performance, and the financial policy affected the leverage? What types of debt do the companies have? How does leverage change over the life cycle of a company? Why do industries differ in their borrowing costs? What is the company’s credit rating? How have the business risk and the extent of leverage affected the borrowing costs? How has debt structuring affected the interest rate?

Companies

The schedule depends on the number of teams, which depends on the number of students in class. The following list should give you an idea of what will be covered. The exact details will be provided via a spreadsheet on OneDrive.

# Industry Companies
1 Overview
  • How do tech companies differ from other commercial and industrial companies
2 Chips and components
  • Intel
  • Advanced Micro Devices
  • Broadcom (Avago)
  • Micron
  • Qualcomm
  • NVIDIA
  • Texas Instruments
  • Samsung
3 Personal hardware
  • Apple
  • [Samsung: Included above]
  • Panasonic
  • Motorola
  • Foxconn
  • HP
  • Lenovo
4

Enterprise hardware and cloud

  • Cisco
  • IBM
  • Canon
  • EMC
  • Amazon
  • Google
  • Microsoft
  • VMWare
5 Packaged software and gaming
  • Microsoft
  • Adobe
  • Intuit
  • Electronic Arts
  • Activision
6

Enterprise software

  • Oracle
  • SAP
  • IBM
  • Salesforce
7

Software consulting

  • Accenture
  • Infosys
  • Cap Gemini
  • Booz Allen Hamilton
  • Computer Sciences Corporation
8

Telecommunications

  • AT&T
  • Verizon
  • Sprint
  • T-Mobile
  • CenturyLink
  • China Mobile
  • Softbank
  • Level 3 Communications
9

Social media and

advertising-based revenues

  • Facebook
  • LinkedIn
  • Twitter
  • Tencent
  • Google
  • Baidu
10

Fintech

  • Visa
  • Mastercard
  • Paypal
  • ADP
  • Lending Club
11

E-Commerce

  • Amazon
  • EBay
  • Alibaba
  • Booking
12

Upcoming Companies

[This will change each semester.]

  • GoDaddy
  • Fitbit
  • Square
  • Match Group
  • GrubHub