Financial Statement Analysis and Valuation

This course will provide students with hands-on experience analyzing financial statements. Students will learn about the general tools, theoretical concepts, and practical valuation issues of financial analysis. By the end of the course, students should be comfortable using firms' financial statements (along with other information) to assess firm performance and make reasonable valuation estimates. Course content and organization In the first half of the course, we will develop a valuation framework that integrates a firm’s strategy, its financial performance, and the credibility of its accounting. The framework consists of the following steps: 1. Understand the firm’s strategy. We will assess the firm’s value proposition and identify its key value drivers and risks. 2. Accounting Analysis. We will assess earnings quality and evaluate whether the firm's accounting policies capture the underlying business reality. If not, we will adjust the accounting to eliminate GAAP issues and management biases. 3. Financial Analysis. We will evaluate current performance with accounting data and financial ratios. 4. Prospective Analysis: Forecasting. We will assess whether current firm performance is sustainable, and we will forecast future performance. In our forecasts, we will consider growth, profitability, and future competitive advantage. 5. Prospective Analysis: Valuation. We will convert our forecasts of future earnings and book values into an estimate of the firm’s current value. In the second half of the course, we will apply the above framework to a variety of business valuation contexts, including IPOs, mergers, and equity-investment analyses.