• Apply financial statements for decision making and discuss the relation to managerial accounting
• Detect pitfalls when using the financial statement for decision making and analysis
• Conduct a profitability analysis. This analysis likely includes the calculation and interpretation of financial ratios measuring profitability and risk.
• Prepare pro forma statements (budgets) which articulate (i.e. debit and credit match). This may include the identification of key value drivers as well as construction of pro forma statements.

Financial statement analysis / Accounting is the process of reviewing and analyzing a company's financial statements to make better economic decisions.

First, we introduce the components of the financial statements including the income statement, balance sheet, statement of changes in owners' equity and cash flow statement. We address how basic transactions are recorded (simple debit/credit entries), and how these transactions enter into the financial statements. We also discuss the conceptual differences between accrual-based and cash flow-based accounting. Further, we discuss management accounting and decision making within the firm.

Second, we show how profitability and liquidity risk can be measured. We introduce and analyze common financial ratios, and we discuss why it is crucial that accounting data are measured consistently across time and firms.

Third, forecasting is essential as it serves as the foundation for many business decisions including whether to extend loans to firms or estimating the value of a corporation. Thus, we address how to develop pro forma statements (i.e. income statement, balance sheet and cash flow statement). which articulate. 

Finally, we discuss different valuation approaches and their strengths and weaknesses. The concept of cost of capital is introduced and different techniques to estimating cost of capital are briefly discussed.

• Classic and basic theory

• Discussion, critical reflection, modelling