The pivotal concept of Financial Statement Analysis Class is represented by the Cash
Flow Statement: our focus is on how to prepare it and interpret its contents.
Other related topics are:
• earnings management;
• balance sheet statement and income statement “reformulation”;
• accounting data quality and earnings management;
• profitability analysis;
• solvency analysis;
• risk analysis
The main topics the class deals with are analyzed in several very good international
handbooks. Four of them are particularly interesting:
– S.H. Penman, Financial Statement Analysis and Securities Valuation, McGraw
Hill International Edition, 2010.
– C.P. Stickney – P. R. Brown – J. M. Wahlen, Financial Reporting, Financial
Statement Analysis, and Valuation, Thomson South-Western, 2007.
– K. R. Subramanyam – J. J. Wild, Financial Statement Analysis, McGraw Hill-
Irwin, 2009.
– G. I. White – A. C. Sondhi – D. Fried, The Analysis and Use of Financial Statements,
John Wiley, 2003.
Students are free to choose the source to draw from. Once your choice made, only a few
selected chapters should be studied. The chapters that are the most related to the class
contents are:
• Penman: 3, 7-11, 17-19;
• Stickney: 1, 3-6;
• Subramanyam: 1, 2, 6-8, 10
• White: 2-4, 17-18
Clearly, a student is free to shape his/her personal booklet, by gathering chapters selected
from the recommended handbooks.
Learning Objectives
This course would like to equip you with the knowledge to read, interpret and analyze financial statement data in order to make informed business decisions regarding investment, credit, or resource allocation. Such skills are required for equity and credit analysts, executives, bankers, auditors, consultants and other users of financial information.
Financial statement analysis will be presented as a part of fundamental analysis. Fundamental analysis (FA) aims at determining the intrinsic value of a company, which is the basis for determining the target price of a company’s stock, i.e. «an estimate of a stock's future price based upon an earnings forecast and assumed valuation multiples».
Prerequisites
The course assumes you have a solid grasp of financial accounting concepts and principles. You should also have some notions of finance.
Teaching Methods
The course is based on lectures and tutorials.
Lectures will systematically deal with concepts and analytical tools you are requested to use. In align with an international master class approach, lectures aim at offering you a conceptual framework to manage the different phases of your analysis and draw your attention to some significant issues.
Each tutorial is conceived to give students a practical application of previously studied theoretical notions; thus, we will apply analytical tools to conduct an extensive analysis of a real company, by using its current financial statements. We will spend a third of our class time working on tutorials. You are encouraged to prepare for tutorials in teams. Team discussions will enable each of you to better understand assignments, readings, and lectures.
A mix of theoretical lectures, tutorials, and discussions provides an interactive learning environment, allowing you to achieve a better understanding of the economic meaning of the financial statement contents.
Type of Assessment
The final exam is a written test.
Students have to analyze the financial statements of a real company. They have to work out two separate documents:
a) accounting report;
b) narrative report.