Whether and how accounting numbers relates to firm value are intriguing questions. On the one hand, accounting numbers help 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 funds 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 accounting choices. In other words, the strategic application of accounting standards 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 lay out 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