| Learning objectives |
The overall aim of this subject is to provide
students with sufficient skills and understanding to enable them to
use financial reports and other data to make investment and credit
decisions and to provide an analysis of the economic health of a
business.
At the end of the course the student should be able to:
- Explain the impact of the institutional framework and
regulatory forces which shape financial statements.
- Describe the impact that choices from among permissible
accounting methods may have on the figures reported in financial
statements.
- Identify and discuss the incentives facing preparers within
companies which may influence financial disclosures.
- Make appropriate adjustments to reported accounting data
depending on the purpose of the analysis
- Analyse financial statement information to assess the
performance of management and profitability
- Analyse financial statement information to assess the financial
position (solvency and liquidity), and make predictions about
corporate survival
- Use financial statement and other data to conduct in-depth
analyses of public companies for valuation and risk assessments by
creditors and investors
|
| Course prerequisites |
| No formal academic prerequisites |
| Prerequisites for registering for the
exam |
|
Number of mandatory
activities: 1
Compulsory assignments
(assessed approved/not approved)
Mid-term assignment: For this assignment, students working in
groups will prepare a written report of their initial findings from
a comparative company analysis (minimum of 6 companies) focusing on
the financing and investing activities of the companies taking a
range of factors into account.
|
| Examination |
|
4 hour written
exam:
|
| Exam
ECTS |
7,5 |
| Examination form |
Written sit-in exam |
| Individual or group exam |
Individual |
| Assignment type |
Written assignment |
| Duration |
4 hours |
| Grading scale |
7-step scale |
| Examiner(s) |
One internal examiner |
| Exam period |
Summer Term |
| Aids allowed to bring
to the exam |
Limited aids, see the list below and the exam
plan/guidelines for further information:
- Allowed calculators
- Allowed dictionaries
|
| Make-up exam/re-exam |
Same examination form as the ordinary exam
If the number of registered candidates for the make-up
examination/re-take examination warrants that it may most
appropriately be held as an oral examination, the programme office
will inform the students that the make-up examination/re-take
examination will be held as an oral examination
instead.
|
|
| Course content and structure |
|
Financial Statement Analysisseeks to introduce students
to the analysis and use of financial information for
decision-making purposes. The subject considers how the information
disclosed can be best utilised by stakeholders such as creditors
and investors in making their lending and investing decisions.
Students consider the environment in which financial reporting
exists, including the incentives faced by preparers of financial
reports. From their assessment, students learn to adjust raw,
reported data as is typically done by analysts. The outcome is that
financial data are made comparable and useful for investment
decisions.
Students will complete a Preliminary Assignment on an individual
basis. In this assignment, students will select a company listed on
an international securities exchange and explore the relevance of
the regulatory and business contexts for shaping the analysis of
the company’s financial performance and position. In doing so, the
assignment provides the basis for students to prepare the Mid-term
Assignment that will be done in groups.
For the Mid-term Assignmentsstudents will select an industry
sector for analysis. The sector must contain at least 6 companies
that are listed on an international securities exchange. The task
is to undertake a comparative analysis of the financing and
investing activities of the companies in that sector based on the
ratio analysis methods and other tools of comparison that are
discussed in class. Groups may decide the basis on which to compare
the companies in the chosen sector, but the analysis should include
consideration of the effect of regulation, particularly when
relevant accounting standards require the application of specific
valuation and measurement approaches. Groups should also consider
the recent share price of the companies as part of their analysis.
For the Mid-term Assignment each group will prepare a written
report on its initial findings drawing on the content from the
initial classes on the course. At the end of the course in Class 11
each group is will make a brief presentation to the rest of the
class to inform other students of their research, taking into
account the content of the full curriculum.
Class Schedule
|
Class
|
Topic
|
|
| Class 1 |
Introduction to Financial Statement
Analysis –
The context of a business. Components of business analysis; basis
of analytical tools and valuation models. |
S&W
Ch 1
|
| Class 2 |
Financial Reporting and Analysis -
IASB and IFRS objectives and issues. Relationship between
accounting information and share prices. Accrual accounting;
concept of income and expense. Cost and fair value accounting.
Implications for accounting analysis. |
S&W
Ch 2 |
| Class 3 |
Analyzing Financing
Activities –
Liabilities; leasing; post-retirement benefits; contingencies and
commitments; and off-balance sheet financing
Preliminary Assignment to be completed |
S&W
Ch 3 |
| Class 4 |
Analyzing Investing Activities –
Current assets; long-term assets; and intangible assets |
S&W
Ch 4 |
| Class 5 |
Cash Flow Analysis –
Statement of Cash Flows; analysis of cash flows; cash flow ratios.
Direct and indirect methods
Mandatory Mid-term Assignment to be
completed |
S&W
Ch 7 |
| Class 6 |
Analyzing Operating Activities –
Income measurement; non-recurring items; revenue recognition;
interest costs; and accounting for income taxes. Segment
reporting. |
S&W
Ch 6 |
| Class 7 |
Analyzing Investing Activities –
Inter-corporate investments; equity method accounting; business
combinations; fair value reporting. |
S&W
Ch 5 |
| Class 8 |
Credit Analysis –
Liquidity measures; capital structure and solvency issues |
S&W
Ch 10 |
| Class 9 |
Return on Invested Capital and
Profitability-
Importance of return on capital; components of returns; analyzing
return on net operating assets and common equity. Earnings
management. Corporate governance and Remuneration Report |
S&W
Ch 8 |
| Class 10 |
Statement of Shareholder’s Equity
Prospective Analysis and projecting financial statements. Earnings
persistence; earnings-based equity valuation; earning power and
forecasting for valuation |
S&W
Ch 9 & 11 |
| Class 11 |
Group Presentations and Comprehensive
Review |
|
|
| Teaching methods |
| The classes delivered in this course will be
seminar-based and will incorporate in-class exercises including
case studies. All sessions will be interactive. |
| Further Information |
| Preliminary Assignment: To help students get
maximum value from ISUP courses, instructors provide a reading or a
small number of readings or video clips to be read or viewed before
the start of classes with a related task scheduled for class 3 in
order to 'jump-start' the learning process. |
| Expected literature |
|
Subramanyam, K. R., and Wild, John, J. (2009), Financial
Statement Analysis, (11th edition ISBN:
978-0078110962), McGraw-Hill International
Edition.
Other support resources will be utilised during the course,
including:
Schilit, J. Perler, (2010), Financial Shenanigans: How to
Detect Accounting Gimmicks & Fraud in Financial Reports,
3rd Edition, McGraw-Hill.
Haskins, M.,(2007), The Secret Language of Financial Reports:
The Back Stories That Can Enhance Your Investment Decisions,
McGraw-Hill.
Various other resources will also be utilised during the course,
including newspaper clippings and research articles.
|
Permalink