Financial Statement Analysis and Valuation - MAN00144M

«Back to module search

Module will run

Occurrence	Teaching period
A	Semester 2 2023-24

Module aims

This module covers fundamental analysis which is an economic framework for business analysis and valuation, based primarily on financial accounting information. The focus is on integrating key concepts from Economics, Business Strategy, Accounting and Finance while evaluating the information content of financial statements to generate forecasts, informing capital markets, implementing investment strategies, and performing valuations of firms and securities. All lectures are backed by relevant discussions on cutting-edge research in the areas of Business Valuation and Market-based Accounting. Learners will also be encouraged to analyse financial statements and reports of real firms, and explore empirical studies using real financial databases like CSMAR, Datastream, I/B/E/S, Compustat, CRSP etc. These practices will also allow students to explore how the value of a stock or an operating asset in an efficient market reflects investors’ expectations of its future performance. This module further aims to equip students with key security analysis and valuation techniques commonly applied in trading rooms and investment firms of the financial industry. Throughout the module, a reasonable amount of time will also be spent on critical discussions pertaining to the role of theories and industry practices introduced, in promoting ethical and sustainable business practices.

Module learning outcomes

After successful completion of the module students will be able to:

• Critically understand the conceptual basis of financial reporting and financial statement analysis through the lens of investing and valuation.

• Calculate, apply, and interpret appropriate financial ratios using financial statements and data from financial databases like CSMAR, Datastream, Compustat, etc.

• Perform strategy analysis to identify firms’ profit drivers and key risks, and how businesses create value.

• Critically explain how firms’ assets, liability and earnings numbers may be affected by their accounting choices, opportunistic financial reporting, and differences in analysts’ information environment.

• Understand, explain, and apply accruals-based and cash flow-based models relevant to business forecasting and fundamental valuation.

• Apply forecasting techniques to business, and understand the foundation of relative valuation models such as cash and earnings-based models, P/E, book-to-market ratios etc.

• Demonstrate written communication skills in relation to the analysis of company financial statement information from a valuation and risk perspective.

• Critically integrate and apply concepts from Business Strategy, Accounting and Finance to analyse business plans and company valuation.

Academic and graduate skills

1. Advanced subject specific knowledge and understanding

2. Cognitive (thinking) skills: through self-study and assessments

3. Analytical skills required to undertake finance calculations and/or estimations.

4. Communication: via written assignments, online discussion boards, virtual study groups and tutorials;

5. Ability to conduct research into financial issues independently through data collection, analysis, synthesis and reporting.

Module content

Indicative content are as follows:

• Understanding financial statements through the lens of investment and valuation

• Financial Analysis Techniques and Applications

• Financial Reporting Quality

• Industry and Company Analysis

• Risk and Cost of Capital

• Discounted cash flow valuation

• Free Cash Flow Valuation

• Residual Income Valuation

• Relative valuation

• Private Company Valuation

• Analysts’ forecasts, recommendations, and information environment

Indicative assessment

Task	% of module mark
Essay/coursework	50
Groupwork	50

Special assessment rules

None

Indicative reassessment

Task	% of module mark
Essay/coursework	50
Essay/coursework	50

Module feedback

Feedback will be given in accordance with the University Policy on feedback in the Guide to Assessment as well as in line with the School policy.

Indicative reading

Essential Readings:

• Pinto, J. E. (2020). Equity Asset Valuation (4th ed.). John Wiley & Sons.

• Robinson, T. R. (2020). International Financial Statement Analysis (4th ed.). John Wiley & Sons.

Additional Readings:

• Valentine, J. (2011). Best Practices for Equity Research Analysts. McGraw-Hill Education.

• McKinsey & Company Inc. (2020). Valuation (7th ed.). John Wiley & Sons.

• Palepu, K. G., Healy, P. M., & Peek, E. (2022). Business Analysis and Valuation (6th ed.). Cengage.

• Penman, S. H. (2013). Financial Statement Analysis and Security Valuation (5th ed.). McGraw-Hill.

• Damodaran, A. (2012). Investment Valuation (3rd ed.). John Wiley & Sons.

Damodaran, A. (2018). The Dark Side of Valuation (3rd ed.). John Wiley & Sons.