Financial Statement Analysis and Valuation

BUS457 Financial Statement Analysis and Valuation

  • Topics

    Topics

    Whether and how accounting numbers relates to firm value are intriguing questions. On the one hand, accounting number helps managers within the firm to identify investment opportunities and to make better investment decisions, which leads to enhancement in firm value. In the capital market, investors constantly gather information for their portfolio investment decisions. In particular, financial analysts play an important role. One of the useful information sources is financial statements. Insight into these statements helps investors to dig out value-relevant information, from the business strategy to the prospective performance. Therefore, analysis of financial statements could not only help firm allocate fund to different investment project but also provide clues to investors to direct their money in the capital market.

    On the other hand, managers could exercise discretion over the accounting choice. In other words, the strategic application of accounting standard might distort the usefulness of accounting numbers. There could also be distortions induced by the accounting standards themselves. Therefore, it is essential to understand the process of preparing accounting numbers to undo the bias and form reasonable belief of the firm performance.

    Consequently, this course intends to equip the students with the skills of financial statement analysis, valuation and communication of the product of analysis in the form of an analyst report. Specifically, the course will first layout the framework for business analysis and valuation and then focus on the driving force of firm strategy and operating performance. Subsequently it will cover the analysis of financial statements, including how to identify red flags in the financial statements. Based on the analysis, the course will illustrate how to forecast financial statements and estimate the cost of capital, which develops the foundation for implementing valuation techniques. The last part of course will introduce the preparation of analyst report and its best practice.

     

    The course will cover the following topics.

    • Framework of Business Analysis and Equity Valuation
    • Business Strategy and Industry Analysis
    • Analysis of Financial Statements
    • Forecasting Financial Statements
    • Cost of Capital and the Required Rate of Return
    • Valuation Theory and Techniques (DCF and RIM, etc.)
    • Analyze the Uncertainty in the Value Estimate
    • Preparation of Analyst Report
    • Best Practice of Financial Analysts

  • Learning outcome

    Learning outcome

    The primary goal of the course it to introduce the students to the skill set of financial analysts. By the end of the course, the students will be able to:

     

    • Develop a Framework for Business Analysis and Equity Valuation
    • Conduct Strategic Analysis
    • Perform Financial Statement Analysis
    • Identify Potential Red Flags in Financial Statement and Their Implications
    • Prepare Forecasted Financial Statements
    • Develop the Cost of Capital and the Required Rate of Return
    • Understand the Valuation Theory and Concept
    • Implement Valuation Techniques
    • Make Robust Argument in Analyst Report and Analyze Uncertainty
    • Be Familiar with Several Best Practices by Financial Analysts.

  • Teaching

    Teaching

    Lectures, cases, and group work

  • Required prerequisites

    Required prerequisites

    No prerequisites are necessary. Yet students with background knowledge in financial accounting and corporate finance will find it easier to follow the lectures.

  • Credit reduction due to overlap

    Credit reduction due to overlap

    The course cannot be combined with BUS425/MRR413B Verdsettelse med regnskapsanalyse or BUS440/MRR413A Rekneskapsanalyse og verdivurdering.

    This is the same course as MRR413E

  • Requirements for course approval

    Requirements for course approval

    Group project

  • Assessment

    Assessment

    Four hour written exam

  • Grading Scale

    Grading Scale

    Grading scale A - F.

  • Computer tools

    Computer tools

    Itslearning, MS Excel

  • Semester

    Semester

    Vår. Tilbys ikke våren 2018

  • Literature

    Literature

    Main textbook

    Peek, E., K. G. Palepu, and P. Healy. 2013. Business Analysis & Valuation: Text and Cases. IFRS edition, 4th Edition. Cengage Learning.

     

    Supplemental Readings

    Penman, S. Financial Statement Analysis and Security Valuation 5th Edition. McGraw-Hill Higher Education.

    Valentine, J. J. 2011. Best Practices for Equity Research Analysts: Essentials for Buy-Side and Sell-Side Analysts 1st Edition. McGraw-Hill.

    Hooke, J.C. 2010. Security Analysis and Business Valuation on Wall Street: A Comprehensive Guide to Today's Valuation Methods, 2nd Edition. Wiley.

Overview

ECTS Credits
7.5
Teaching language
English
Semester
Spring

Course responsible

Assistant Professor Wei Shi, Department of Accounting, Auditing and Law