Financial Statement Analysis and Valuation

The purpose of this course is to learn about fundamental drivers of value and risk by analyzing financial statements of businesses in different industries. Every public company provides a lot of financial and operational information in its filings. How can this information be used to evaluate its prospects and its risks? The course is organized around two themes (1) how to identify relevant information in the financial information reported by firms, and (2) how to draw inferences using sound analytical methodology. To this end, we will review techniques for valuation and risk analysis used by banks and asset management firms. The valuation models you will study in this course are all fundamental models – models that use financial information and review the fundamental operating characteristics of the company. We will learn to build simple financial models, perform risk analysis and fine tune value drivers. Much of the data comes from the financial statements – but it requires a careful study of arcane footnotes to unearth the information provided by the companies. This is an advanced course that goes into the details of footnote analysis, accounting rules, and financial presentations. This course builds on what you learned in Financial Accounting and Corporate Finance. These courses are pre‐requisites for taking this course. It is assumed that you have already taken these courses. If you have not taken these courses you should first talk with me before you register. This course will build significantly on your knowledge from those courses. If your basics are solid and you are interested in learning to read financial statements; if you wish to learn to apply financial analysis; this course is for you. We will use excel to build some of the models – but this is not a course in excel. But, it is highly recommended that you have a good working knowledge of how to build formulas in excel before you come to this class. By the end of the course, you should be able to perform a thorough, credible investment or credit analysis that meets a high standard. Students should have the ability to estimate fundamental values, and pull apart the information in the financial statements to get relevant information. This course should be of interest to those contemplating careers in investment banking, security analysis, private equity, hedge funds, and corporate finance.