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  4. Financial Statement Analysis

Financial Statement Analysis

Objectives

The course has the following objectives for students:

  • Getting familiar with companies financial statements, including understanding the main statements, how they are connected and the meaning of their main captions;

  • Using the information on the financial statements for decision-making, both from a managerial point of view and from an investment point of view, with focus given to understanding value creation based on information from the financial statements;

  • Producing a valuation about the company using the information based on the financial statements (and other relevant sources) while applying fundamental analysis techniques.

General characterization

Code

2222

Credits

3.5

Responsible teacher

Francisco Martins

Hours

Weekly - Available soon

Total - Available soon

Teaching language

English

Prerequisites


Bibliography

Valuation: Measuring and Managing the Value of Companies, Koller, T., Goedhart, M., and Wessels, D., 5th Edition, 2010, McKinsey & Company Inc. (good introduction to valuation).

Financial Statement Analysis and Security Valuation, by Penman S. H., 5th edition, 2013, McGraw-Hill.

Business Analysis and Valuation: IFRS Edition, by Palepu K., Healy P., and Peek E., 3rd Edition, 2013, South-Western.

Financial Reporting, Financial Statement Analysis, and Valuation: A Strategic Perspective, by Wahlen, J., Baginski, S., and Bradshaw, M., 8th Edition, 2014, Southwestern Publishing.

The Analysis and Use of Financial Statements, by White G., Sondhi A., and Fried D., 3rd Edition, 2004, Wiley.

Resources

Relevant materials, such as PowerPoint slides and useful spreadsheets, will be posted on Moodle during the course.

Teaching method

Class attendance is optional but strongly recommended. Through a teaching approach that mixes lectures, class discussions, and assignments, you will be challenged to develop critical skills and build the knowledge required to analyze a company and conduct business valuation. Prompt arrival at class is expected.

Evaluation method

Final grade will comprise the following elements:

  • Final Exam: 50%

  • Weekly Assignments: 15%

  • Group Assignment: 35%

The final exam is mandatory and comprehensive. There is no minimum grade requirement.

Subject matter

The course has a practical content and will deal with a variety of topics pertaining to the analysis of financial statements and companies as a whole. These include: an overview of the financial statements themselves and how to read them; value creation metrics (return on invested capital and growth) as well as impacts of understanding value creation; discounted cash flow methodology with focus on reformulating the financial statements to better understand the company; and ratio analysis, both with the purpose of analyzing the current situation of the company with regards to decision making and to produce forecasts for a company’s valuation.