Journal of
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Volume 29 CONTENTS Spring 2003 |
SPECIAL TOPICS
#1 - PEDAGOGICAL ISSUES CONCERNING ANALYSIS OF THE CASH FLOW STATEMENT
Shyam B. Bhandari
This paper discusses various pedagogical issues concerning cash flow statement (CFS). Both the authors of financial management textbooks and publishers of industry norms of financial statement based ratios have treated this very important statement with little respect. The issues discussed are: choice of common denominator to prepare a common sized CFS; lack of consensus among professionals and researchers in definition of CFS based ratios; complete absence of CFS based ratios in most managerial financial textbooks; need for published industry norms for common-sized CFS as well as CFS based ratios and the measurement of free cash flow (FCF). The paper suggests a small list of CFS based ratios which are suitable for inclusion in financial management textbooks – introductory as well as at an advanced level.
Pages 1-11
EDUCATIONAL RESEARCH
#2 - DECAF OR REGULAR? A LOOK AT THE TIME-COMPRESSED LEARNING IN THE MBA INVESTMENTS COURSE
Kam C. Chan and Joanne Li
This paper compares student performances in the MBA Investments course under two different learning modules: a regular semester and a time-compressed (intensive) semester. The first group of students was taught in a regular 16-week semester while the second group of students was taught in a 5-week intensive time-compressed semester. After controlling for student personal attributes, we find students in a regular semester perform better in the Investments course than those in a time-compressed module. In addition, graduate GPA, credit hours completed at graduate level, and undergraduate accounting preparation are found to be important on student performance.
Pages 12-25
#3 - A STOCHASTIC MODEL OF CITATION
Raymond A. K. Cox, Kee H. Chung and John B. Mitchell
Out of a total of 12,637 individuals whose works were ever cited in the leading finance journals over the 25 year period of 1974-98, the top 1% (10%) account for more than one third (three quarters) of the number of citations to articles published in these journals. In contrast, nearly one half of the authors have been cited only once. These results indicate that a few prominent researchers dominate citation in the top finance journals. We explain these empirical regularities using a stochastic model of citation.
Pages 26-36
FINANCE PEDAGOGY
#4 - A PRACTICAL APPROACH TO QUANTIFYING RISK AND RETURN: NPV ANALYSIS
Stuart Michelson and William Weaver
Risk, in a financial sense, is defined as variance about some forecasted value. Any time an analyst forecasts future cash flows of any sort, these future value estimates are actually means of all likely cash flows in that particular year. Several software products exist that allow an analyst to simulate variable future cash flows but they all require the forecasting of a mean figure, its standard deviation or variance, the shape of its distribution and the correlation coefficients between all variables involved. Usually, accurate estimation of much of these data are impossible. This article presents a simplified method of developing an actual risk measure (standard deviation) that may be used with discounted cash flow valuation models.
Pages 37-48
#5 - A REALITY-BASED METHOD FOR VALUING STOCKS
Scott A. Hoover and Frederic P. Sterbenz
We present a model that uses analyst earnings growth estimates and price-to-earnings ratios to project the expected cash flows to shareholders. Those cash flows can then be discounted to estimate the fundamental value of stocks. Our model specifically addresses growth estimates that cover finite periods of time. The primary use of our model is in comparing stocks in the same industry, but the model might also be used for industry selection or market timing. We also examine the implications for using the PEG ratio to identify potentially mispriced stocks.
Pages 49-65
#6 - THE RISK VERSUS RETURN GAME
Geoff Perry, Eion Jennings and Alina Zapalska
The "Risk Versus Return Game" has been developed at Auckland University of Technology in order to enhance students’ learning. The game provides an environment in which students have the opportunity to experiment with new concepts by placing them in market situations where both complexity and risk are present while students make lending decisions. The game involves four iterations or rounds, in which students working in teams, each representing a bank, have to decide on their lending strategy.
Pages 66-74
FINANCE CASES
#7 - CASE TEACHING AND THE INTEGRATIVE PROCESS
Bennie H. Nunnally, Jr. and Michael D. Evans
Case teaching accelerates the experience of students. In order for the acceleration to be even more effective, using the introductory financial management course as an example, the cases must include material from the business ‘core’. This integration will provide a richer learning environment for students as it permits/requires acknowledgement and exploration of the common aspects of the core courses. In that way, students will better understand the context in which business decisions are made. In addition, those important new developments that appear in finance are more efficiently transferred to students via case study. This paper illustrates how an integrative case can be used effectively in the introductory financial management course to enhance students’ understanding of the interrelationship between finance and the other business core courses and how the basic tools of finance can be used for decision-making.
Pages 75-87
#8 - BEN & JERRY'S (2000)
Nan S. Ellis and Lisa M. Fairchild
In April 2000, Ben & Jerry’s is faced with a tender offer of $43.60 per share from Unilever, PLC. This offer represents a significant premium relative to the firm’s current stock price of approximately $27.50 per share, and additionally, selling the firm to an international conglomerate like Unilever would solve the distribution problems that have limited Ben & Jerry’s growth. However, Ben & Jerry’s is a company with a unique social responsibility outlook and there are concerns that selling to Unilever would directly change the firm’s culture. In the deliberation of the Unilever offer, Ben & Jerry’s Board of Directors is faced with ethical considerations as well as the problem of determining the value of the firm.
Pages 88-102