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2020/2021  KAN-CCMVV1931U  Financial Statement Analysis

English Title
Financial Statement Analysis

Course information

Language English
Course ECTS 7.5 ECTS
Type Elective
Level Full Degree Master
Duration One Semester
Start time of the course Autumn
Timetable Course schedule will be posted at calendar.cbs.dk
Max. participants 80
Study board
Study Board for MSc in Economics and Business Administration
Course coordinator
  • Carsten Rohde - Department of Accounting (AA)
Main academic disciplines
  • Accounting
Teaching methods
  • Face-to-face teaching
Last updated on 20-01-2020

Relevant links

Learning objectives
The aim of the course is to enable the students to analyse a firm’s profitability, growth and risks, calculate and interpret financial ratios that describe a firm’s economic well being and demonstrate the ability to value firms using different valuation techniques. The students should also be able to perform a credit analysis and assess accounting-based bonus. Finally the student should be able to understand that it is possible that the quality of accounting information may limit the quality of the analyses and decision making tools. Upon completion of the course the student should therefore be able to:
  • read and understand a financial statement (annual report)
  • conduct a profitability analysis using financial ratios
  • conduct a growth analysis using financial ratios
  • conduct a liquidity risk analysis using financial ratios
  • prepare pro forma (budgetted) statements (income statement, balance sheet and cash flow statement) which articulate
  • estimate firm values
  • perform a credit analysis
  • assess accounting-based bonus plans
  • understand the concept of accounting quality
Course prerequisites
This elective is a part of the minor in Accounting and Finance.

Students have to sign up for the whole minor. In order to sign up for the minor, students must have prerequisite skills in Accounting and Finance. A minimum of 7.5 ECTS in Accounting and a minimum of 7.5 ECTS in Corporate Finance - both at bachelor level – is required.

The minor is closed for students studying Cand.Merc. in one of the following concentrations: ASC, FSM, FIN, AEF, IMM and FIR.

Note that it is not possible to write a termpaper in this elective.
Examination
Financial Statement Analysis:
Exam ECTS 7,5
Examination form Written sit-in exam on CBS' computers
Individual or group exam Individual exam
Assignment type Written assignment
Duration 4 hours
Grading scale 7-point grading scale
Examiner(s) One internal examiner
Exam period Winter
Aids Limited aids, see the list below:
The student is allowed to bring
  • USB key for uploading of notes, books and compendiums in a non-executable format (no applications, application fragments, IT tools etc.)
  • Any calculator
  • Books (including translation dictionaries), compendiums and notes in paper format
The student will have access to
  • Access to Canvas
  • Access to the personal drive (S-drive) on CBS´ network
  • Advanced IT application package
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, structure and pedagogical approach

The first part of the course focuses on refreshing the students’ knowledge of basic financial accounting and components of the financial statements including the income statement, balance sheet, statement of changes in owners’ equity and cash flow statement. The first part also addresses the conceptual differences between accrual and cash flow based accounting. After completing the first part the student should be able to read and understand the financial statements in the annual report of a company.
 
The second part of the course focuses on ways to measure profitability. Key financial ratios like return on invested capital (ROIC) and Economic Value Added (EVA) are defined and analysed. After completing the second part the student should be able to conduct a ratio analysis measuring the profitability of a firm. Further, the student should be able to compare similar firms’ profitability.
 
The third part of the course focuses on different ways to measure growth and particularly on the fact that growth in any parameter is not necessarily beneficial. After completing the third part the student should be able to analyse growth and understand which kind of growth is beneficial for company value.
 
The fourth part of the course concerns credit analysis. Different techniques including ratio analysis and forecasting are introduced with the purpose of assessing a firm’s credit worthiness and the risk of default. The advantages of each approach are highlighted. For example, ratio analysis is simple to apply and typically less costly than other approaches available for credit analysis. After completing the fourth part the student should be able to conduct a simple credit analysis using financial ratios.
 
The fifth part of the course focuses on forecasting. Forecasting is essential as it serves as the foundation for many business decisions including whether to give or extend loans to firms or estimating the value of a corporation. Two issues are addressed. The first issue is how to technically develop pro forma statements; i.e. to ensure that the forecasted income statement, balance sheet and cash flow statement articulate. The second issue concerns how to add realism in the projected earnings and cash flow measures. After completing the fifth part of the course the student should be able to develop pro forma statements which articulate and are based on achievable (realistic) assumptions.

The final part of the course focuses on firm valuation primarily through discounting the cash flows forecasted in the fifth part. Different valuation approaches are introduced and the strengths and weaknesses of each approach are discussed. After completing the fifth and final part the student should be able to estimate the value of a firm.

Description of the teaching methods
Lectures with exercises.
Feedback during the teaching period
Exercise classes entail feedback to students who have prepared solutions at home. Students will see the instructor's solution and are encouraged to speak up in case of deviations between the instructor solutions and their own solutions. This will form the basis of feedback to the students
Student workload
Lectures 33 hours
Preparation for lectures 66 hours
Exercise classes 14 hours
Preparation for exercise classes 70 hours
Exam 4 hours
Final preparation for exam 19 hours
Expected literature

Chapters 1-13 in Christian Petersen, Thomas Plenborg og Finn Kinserdal
Financial Statement Analysis, Fagbokforlaget, 2017, 1. udgave, ISBN: 9788245021028

Last updated on 20-01-2020