|The primary objective of this course is to provide you with conceptual understanding and practical tools to analyze and exploit information in corporate financial statements. The course will help you develop skills to use financial statement information for a variety of financial decisions, particularly firm valuation. The course will also help you understand and analyze the issues that corporate managers face as they design and implement financial reporting strategies, increasing your ability to assess earnings quality and detect and undo earnings management. The course develops and applies a six-step analytical framework that includes industry analysis, strategic analysis, accounting quality analysis, financial ratios analysis, forecasting, and valuation. The course is applied in nature, so we will work with real company financial statements and cases to apply the techniques and tools.
The course consists of three integrated parts:
I. Financial Statement Information: Upon entering the course, I assume that you have a solid working understanding of the accounting information contained in company annual reports. We will examine the many value relevant pieces of information that financial statements contain, as well as the accounting choices managers make in light of their business strategy, contractual constraints and incentives, and GAAP/IFRS. We will evaluate how faithfully the financial statements represent the underlying company, and recast the financial statements if we detect low accounting quality.
II. Financial Statement Analysis Tools: We will examine and apply a set of tools to analyze financial statement data in order to assess the past profitability, risk, growth, and operating capability of a firm.
III. Valuation Techniques: We will develop a set of prospective analysis techniques useful for forecasting future business activities, measured with pro forma financial statements. From these financial statement projections we will derive expectations for future free cash flows, abnormal earnings, and dividends. We will estimate firm value using these expectations, as well as several market-based valuation multiples, and we will test our firm value estimates across various scenarios and sensitivity factors. Ultimately, we will compare our value estimates to market share price for investment decision-making.