Understanding Valuation

UCLA Anderson corporate finance course teaches concepts for real-world situations

OCTober 27, 2023

by Paul Feinberg

Matthias Kahl is a Dean’s Distinguished Visitor in the Finance area at UCLA Anderson. He is also an instructor of one of Anderson’s most popular courses in the Fully Employed MBA program, Corporate Finance, which he also teaches in the full-time MBA program. The course, is also taught in the Executive MBA program under the name Advanced Financial Policy for Managers.
Kahl says the class is a natural continuation of the core course in finance, which serves as a prerequisite. He does not gear the course solely to students planning to specialize in finance during their careers, though it’s certainly essential for them. Rather, the class is designed to give all students strong skills and knowledge in finance and should enable students not working in finance to speak competently with their finance colleagues in the course of their daily work.
Kahl’s widely published research focuses on corporate finance, from both empirical and theoretical perspectives, and his main research areas are corporate restructuring, especially mergers and financial distress, and capital structure. He has also worked on the valuation of restricted stock and the regulation of corporate externalities.

Q: What are the goals of your corporate finance course?

We want our students to learn about many of the most important topics in corporate finance, and also how to apply those key concepts to real-world situations.

That includes a heavy emphasis on valuation because valuation is relevant in many areas of corporate finance. I would argue it’s the most important skill. So, we want to learn how to value projects and firms using discounted cash flow valuations, as well as multiples such as price-to-earnings multiples.

The second important goal is learning how firms should choose their financing sources, in particular, the mix of debt and equity, their capital structure. And related to that, how much they should pay out to their shareholders in the form of dividends and share repurchases.

We also want to learn under which conditions firms should engage in mergers and acquisitions or leveraged buyouts.

Q: How does the full-time MBA version of the course differ from the Fully Employed MBA version?

The courses are largely similar, but sometimes the format is quite different. I tend to teach the FEMBA course in a hybrid version in the summer. That means that roughly half the course material is in prerecorded videos and half is in very long weekend meetings.

The topics we cover are somewhat different, but the courses are largely the same. But the audience matters. The FEMBA students are more experienced, and that impacts the discussions during class.

The course is offered in the EMBA program under a different name: Advanced Financial Policy for Managers.

Q: What source material do you use for the class?

There is a textbook and, for some topics, we follow it relatively closely. For other topics, we don’t follow it much at all. We cover roughly four case studies in detail, and I also include newspaper articles from current or recent events or transactions to the extent that they’re relevant to the course material, as well as results from academic research papers.

Q: What are the course requirements?

The students take a midterm exam and a final exam, and a lot of the work is in the case write-ups. The students form groups to work on the case studies.

Q: Is there a difference between how a future entrepreneur might use the lessons taught here compared to someone whose ambition is to work at a large established company?

The key concepts in corporate finance are relevant for both situations. The way people use them in their jobs or in the future, of course, depends on whether they are in a more entrepreneurial organization or a large, established corporation. But the valuation approaches we look at are relevant for both. There is no difference in that regard.

Q: What do you hope each student can apply at the conclusion of the course?

All of the students should be able to perform all of the valuations that are common in practice. This means they should be able to put a dollar value on any project and hence decide whether they want to take it, and they should be able to do the calculations with all of the valuation methods that are common in practice.

In addition, they should be able to decide which mix of financing sources the firm they’re working for should pursue, in particular, how much debt and how much equity the firm should use. They should also be able to decide how much should be paid out to shareholders through dividends and share repurchases.

And, finally, they should also be able to think about under which conditions it might be beneficial for the firm to engage in a merger or acquisition or, for example, a leveraged buyout.

Q: How do you keep the course fresh over time?

The fundamental methods in corporate finance don’t change from year to year. But I update the data we use to estimate important variables useful in valuations and in corporate current or recent events and transactions to the extent that they are relevant.

I love teaching and research. I love being in the classroom and interacting with students and trying to help them in their future careers or, in the case of the FEMBA students, in their current careers.

And I love the material itself. I find corporate finance particularly exciting. I’m very interested in understanding whether a company like Tesla is overvalued and what that might mean for investment choices. I’m very interested in mergers and acquisitions, and that’s where some of my research is. So, I love to talk about these topics and share my excitement about them.