This course would like to equip you with the knowledge to read, interpret and analyse 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, but also for individual, unsophisticated investors. Financial statement analysis process consists of three main steps, which will be the object of the course: • Teasing out key information for financial statement analysis. The financial statement analysis results depend on the information the analyst is able to gather. The informational basis consists of financial and non-financial information. Thus, the first step consists in understanding where to look for that information, and how to assess its quality. • Adjusting financial information. Accounting data presented in the GAAP-based financial statements has to be reformulated to reflect business activities, i.e. how a company works and creates value. The reengineering regards all the statements, in particular the cash flow statement. • Elaborating financial information. To delve into the economic contents of the reformulated financial statements, an analyst has to zero in on a company’s profitability, liquidity and long-term solvency.
1. Financial statement analysis and fundamental analysis. 2. Key information for financial statement analysis. 3. Viewing the business through the financial statements. 4. Trend and cross-sectional analysis. 5. Assessing accounting quality: red flags and M-score models. 6. Reengineering of a GAAP-based balance sheet. 7. Cash cycle and net working capital. 8. Reengineering of a GAAP-based income statement: the earnings power. 8. At the core of earnings power: EBITDA, EBITA, EBIT. 9. The cash flow statement: a full picture. 10. Where cash flows should be produced: the operating cash flow. 11. Measuring free cash flow from operation. 12. Profitability analysis: the DuPont-like tree model. 13. Solvency analysis: delving into the cash flow statement. 14. Sum it all up: net profitability analysis.
P. M. Bergevin, Financial Statement Analysis: An Integrated Approach, Upper Saddle River (N.J.), Prentice Hall, 2002, Chs. 1-5, 8-14. or C.P. Stickney – P. R. Brown – J. M. Wahlen, Financial Reporting, Financial Statement Analysis, and Valuation, Thomson South-Western, 2007, Chs. 1, 3-6. or else R. Subramanyam – J. J. Wild, Financial Statement Analysis, McGraw Hill-Irwin, 2009, Chs. 1-2, 6-8, 10.
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