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2014/2015  KAN-CCMVI2008U  Financial statement analysis

English Title
Financial statement analysis

Course information

Language English
Course ECTS 7.5 ECTS
Type Elective
Level Full Degree Master
Duration Summer
Course period Summer
Timetable Course schedule will be posted at calendar.cbs.dk
Study board
Study Board for MSc in Economics and Business Administration
Course coordinator
  • Course instructor - Dr. Brad Potter, University of Melbourne
    Patricia Plackett - MPP
Main academic disciplines
  • Financial and management accounting
Last updated on 12-02-2014
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.
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.
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.
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
Ch 3
Class 4 Analyzing Investing Activities –
Current assets; long-term assets; and intangible assets
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
Ch 7
Class 6 Analyzing Operating Activities –
Income measurement; non-recurring items; revenue recognition; interest costs; and accounting for income taxes. Segment reporting.
Ch 6
Class 7 Analyzing Investing Activities –
Inter-corporate investments; equity method accounting; business combinations; fair value reporting.
Ch 5
Class 8 Credit Analysis –
Liquidity measures; capital structure and solvency issues
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
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
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.

Last updated on 12-02-2014