72920 - Financial Statement Analysis

Learning outcomes

The learning objectives for this course are: • To help students to further develop a thorough understanding of corporate external reporting practices; • To provide students an understanding of how to use financial statement information in analysing a firm’s performance and financial position; and • To help students to understand how to carry out business analysis and valuation through a comprehensive approach, in order to value the equity and debt securities of a firm.

Course contents

This course teaches you how to use financial statement information in analysing a firm’s performance and financial position and, ultimately, in valuing the firm’s equity and debt securities. Using real-life examples and cases, the course takes you through the four steps of business analysis and valuation, being (1) strategy analysis, (2) accounting analysis, (3) financial analysis, and (4) prospective analysis, in various contexts, including equity analysis. The course consists of lectures, interactive discussions and exercises and thus requires active participation.

Day 1

Today’s topics:

• Introduction to financial statement analysis;
• Business analysis and valuation framework;
• Conceptual introduction to valuation approaches;
• Accounting Analysis 1: Basics of accounting, accounting institutions, and financial markets and their implications for financial statement analysis; standardization of financial statements

Preparation for class:

• Individual preparation: Read the following chapters of Palepu/Healy/Peek: Chapters 1 and 3.
• Group work: Prepare Intermediate Assignment 1 (standardizing financial statements)

Day 2

Today’s topics:

• Accounting Analysis 2: Accounting adjustments

Preparation for class:

• Individual preparation: Read the following chapter of Palepu/Healy/Peek: Chapter 4.
• Group work: Review Intermediate Assignment 1 and prepare Intermediate Assignment 2 (accounting adjustments)

Day 3

Today’s topics:

• Financial analysis

Preparation for class:

• Individual preparation: Read the following chapter of Palepu/Healy/Peek: Chapter 5.
• Group work: Prepare Intermediate Assignment 3 (financial analysis)

Day 3

Today’s topics:

• Forecasting future financial statements
• Valuation: approaches, models and implementation

Preparation for class:

• Individual preparation: Read the following chapters of Palepu/Healy/Peek: Chapter 6 and 7.
• Group work: Prepare Intermediate Assignment 4 (forecasting and valuation)

Day 5

Today’s topics:

• Valuation continued
• Cost of capital
• Credit analysis (and its relevance to equity valuation)

Preparation for class:

• Individual preparation: Read the following chapter of Palepu/Healy/Peek: Chapter 8.

Slides and class notes

Will be sent to you via email (before each lesson).

Readings/Bibliography

Recommended reading

Preferably you would use the following book (which will be published in spring 2019):

Palepu, K., P. Healy, and E. Peek, Business Analysis and Valuation: IFRS Edition. 5^th edition, 2019, Cengage Learning. ISBN 978-1-4737-58421.

If not available, you can also use:

Palepu, K., P. Healy, and E. Peek, Business Analysis and Valuation: IFRS Edition. 4^th edition, 2016, Cengage Learning. ISBN 978-1-4737-22651.

Assessment methods

Assessment and examination

Type

Weighting

Exercises and participation

40%

Individual written exam

60%

Office hours

See the website of Erik Peek