Courses

A545

Introduction to Financial Statements Analysis and Valuation

  • 7-weeks
  • 1.5 credits
  • Prerequisite: MBA Core required; A504 recommended

The purpose of the course is to provide students with tools to analyze and exploit information in corporate financial statements. The course will emphasize how accounting numbers measure and reflect the economic consequences of firms’ strategies, and how students can analyze financial statements to gain insights into firms’ strategic decisions. The course will also introduce students to how the information in financial statements is used for valuation, credit risk assessment, management compensation, and other economic decisions. The course will also examine the issues that corporate managers face as they design and implement financial reporting strategies, increasing students’ awareness of potential earnings management. The framework developed in this course is intended to enhance analytical skills for all students that desire a solid foundation of understanding of the information in financial statements, especially those planning careers that will bring them in contact with financial statements.

The course will consist of the following three integrated parts:

  1. Basic Accounting Analysis – Students will be introduced to how financial statement information captures and reflects the critical factors of risk and success in the competitive environment and strategy of firms. This section will expose students to a variety of cases and lectures to illustrate how students should analyze accounting and earnings quality, and assess the likelihood of earnings management.
  2. Financial Analysis – Application and analysis of a wide range of financial statement analysis tools, such as ratios, common-size financials and rate-of-change financials. The emphasis will be on how to draw intelligent inferences about a firm’s critical risk and success factors from these computations.
  3. Economic Consequences of Financial Accounting Information – Students will be introduced to the role of accounting information in key economic decision contexts, such as valuation, credit and management compensation. Students will be introduced to and will apply the accounting earnings-based valuation techniques popular on Wall Street, including price-earnings ratios, market-to-book ratios, and the residual income valuation model.

The course will be conducted in a practical and applied format. Readings and lectures will provide important groundwork in establishing the analytical tools used throughout the course. Application of these tools will rely heavily on case analysis and discussion, which will comprise the major components of the course. Students will be encouraged to form study groups. Groups will be expected to meet outside of class each week throughout the course to prepare the cases and discuss the readings and lectures. It is hoped that group discussions will enable each student to more fully and efficiently understand the cases, readings and lectures. The textbook for this course will serve as a good professional reference on financial statements analysis for many years during your career.

  • Stickney, Brown and Wahlen, Financial Reporting, Financial Statement Analysis, and Valuation: A Strategic Perspective, 6th Edition, Thomson Southwestern.
  • Course packet at TIS Bookstore.
  • The Wall Street Journal and handouts of various articles.

Students will be evaluated as follows: Class Participation 40%, Final Exam 60%