FINANCIAL STATEMENT ANALYSIS

Aims and Objectives:

Financial analysis is the process of assessing a company’s performance in relation to its industry and economic environment in order to make a choice or make a recommendation. Overall, financial analysis focuses on determining the company’s potential to produce a return on its capital that is at least equivalent to the cost of that capital, to grow its activities profitably, and to create enough cash to satisfy obligations and pursue opportunities.

The course aims at introducing the students into the relationships among the income statement, balance sheet, statement of cash flows and statement of owners’ equity in assessing a company’s performance and financial position. At the end of this course students will be able to classify, calculate and interpret activity, liquidity, solvency, profitability and valuation ratios – apply the DuPont analysis of return on equity – understand the relationships among ratios and evaluate a company using ratio analysis – describe how ratio analysis and other techniques can be used to model and forecast earnings.

Finally, the course analyses companies from a fundamental perspective in order to derive an intrinsic value for stock. On successful completion of this course, students will be able to conduct valuations based on the discounted cash flow method, conduct a relative valuation for a company and critically analyse publically available information about what is occurring in financial markets.

Recommended readings:

1. Financial Statement Analysis, Subramanyam, 11E, McGraw-Hill
2. Financial Reporting, Financial Statement Analysis and Valuation, Wahlen, James M., Baginski, Stephen P., Bradshaw, 9^th edition.
3. Damodaran on Valuation, Damodaran Aswath, 2^nd edition, Wiley Finance

Session 1:

• Recap on previous lessons. The primary financial statements and their information content.
• Free cash flow statement. Impairment and accrual accounting.

Session 2:

• Links between financial statements. Key differences between primary financial statements.

Session 3:

• Overview of financial statement analysis. Business analysis, types of business analysis and component processes of business analysis.
• Financial statement analysis tools.
  • Comparative financial statement analysis
  • Common-size financial statement analysis

Session 4:

• Financial statement analysis tools. Ratio analysis Part I.
  • Risk Analysis (Ch. 10 Subramanyam & Ch. 5 Wahlen, James M., Baginski, Stephen P., Bradshaw)

Session 5: Bankruptcy risk, empirical models of fundamentals’ strength/weakness and financial reporting manipulation risk.

Session 6: 

• Financial statement analysis tools. Ratio analysis Part II.
  • Profitability Analysis (Ch. 8 Subramanyam & Ch. 4 Wahlen, James M., Baginski, Stephen P., Bradshaw)

Session 7:  Valuation- Introduction and overview. Cost of Capital.

Session 8:  Dividend Discount Model. Free cash flow to equity valuation.

Session 9: Free cash flow to firm valuation. Relative Valuation.

Session 10: Case study ΚΤΗΜΑ ΛΑΖΑΡΙΔΗ using the evalc