Advanced Financial Statements Analysis and Valuation

  • 7-weeks
  • 1.5 credits
  • Prerequisite: MBA Core and A545 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 the use of financial accounting information in equity valuation. The course will also examine the issues that corporate managers face as they design and implement financial reporting strategies, increasing students’ abilities to detect and undo the effects of earnings management. The framework developed in this course is intended to enhance analytical skills for all students planning careers that will involve them in using financial statements in valuation-related decision making.

The course will consist of the following two integrated parts:

  1. Advanced Accounting Analysis – This section of the course will deepen students’ abilities to analyze 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 advanced cases that will require students to analyze accounting and earnings quality, assess the likelihood of earnings management, and undo the effects of earnings management.
  2. Accounting-based Valuation – Students will apply a variety of state-of-the-art accounting-based valuation techniques used on Wall Street, including discounted free cash flows, residual income, and valuation multiples such as price-earnings ratios and market-to-book ratios. Students will also be introduced to stock price reverse engineering techniques. Students will apply these valuation models to a variety of advanced settings, including the valuation of so-called new economy companies. Students will also be exposed to the interplay between firms and analysts.

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: Case Analysis 60%

The capstone exercise of the course will be a full-blown valuation of a firm, applying all of the techniques of the course.