Level 6 • Accounting & Finance

FINANCIAL ANALYSIS

BAF 415 — Semester III
Course CodeBAF 415
TypeB
ECTS7.5
SemesterIII
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Course Description

Financial Analysis course provides comprehensive information on financial analysis in areas of planning and control. This course qualitatively and quantitatively defines, reviews, and illustrates the principles of corporate finance, including: profit/loss, asset and cash management, operational budgets, cost analysis, profitability, leverage, and decision and risk. It presents various industry approaches, cases, means and methods used to meet long-term and short-term corporate goals.

Course Objectives

This course aims to give students the necessary tools for solving complicated and concrete financial problems. These skills include choosing between alternative investments, selecting the optimal portfolio, measuring risk, price forecasting and option valuation.

Key Concepts
  1. Accounting profit: Income as reported on the income statement, in accordance with prevailing accounting standards, before the provisions for income tax expense. Also called income before taxes or pretax income.
  2. Asset utilization ratios: Ratios that measure how efficiently a company performs day-to-day tasks, such as the collection of receivables and management of inventory.
  3. Credit risk: The risk of loss caused by a counterparty’s or debtor’s failure to make a promised payment. Also called default risk.
  4. Debt-to-equity ratio: A solvency ratio calculated as total debt divided by total shareholders’ equity.
  5. Earnings per share: The amount of income earned during a period per share of common stock.
  6. Financial leverage: The extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income; also, short for the financial leverage ratio.
  7. Free cash flow: The actual cash that would be available to the company’s investors after making all investments necessary to maintain the company as an ongoing enterprise (also referred to as free cash flow to the firm); the internally generated funds that can be distributed to the company’s investors (e.g., shareholders and bondholders) without impairing the value of the company.
  8. Net profit margin: An indicator of profitability, calculated as net income divided by revenue; indicates how much of each dollar of revenues is left after all costs and expenses. Also called profit margin or return on sales.
  9. Profitability ratios: Ratios that measure a company’s ability to generate profitable sales from its resources (assets).
  10. Working capital: The difference between current assets and current liabilities.
Course Outline
WeekTopics
1Review of Syllabus: Introduction to the Course (This is an introductory lecture presenting students with the general rules, valuation methods, specific requirements, textbook, and other learning materials, and the main chapters to be taught in this course).
2Chapter 1. Financial Statement Analysis: An Introduction (This chapter is focused on: 1. Introduction 1, 2. Scope of Financial Statement Analysis 2, 3. Major Financial Statements and Other Information Sources 7, 4. Financial Statement Analysis Framework 28).
3Chapter 2. Financial Reporting Mechanics (This chapter is focused on: 1. Introduction 38, 2. The Classification of Business Activities 38, 3. Accounts and Financial Statements 39, 4. The Accounting Process 47, 5. Accruals and Valuation Adjustments 65, 6. Accounting Systems 67, 7. Using Financial Statements in Security Analysis 69).
4Chapter 3. Understanding Income Statements (This chapter is focused on: 1. Introduction 134, 2. Components and Format of the Income Statement 135, 3. Revenue Recognition 139, 4. Expense Recognition 152, 5. Non-Recurring Items and Non-Operating Items 162, 6. Earnings per Share 169, 7. Analysis of the Income Statement 178, 8. Comprehensive Income 183).
5Chapter 4. Understanding Balance Sheet (This chapter is focused on: 1. Introduction 193, 2. Components and Format of the Balance Sheet 194, 3. Current Assets and Current Liabilities 199, 4. Non-Current Assets 209, 5. Non-Current Liabilities 220, 6. Equity 223, 7. Analysis of the Balance Sheet 227).
6Chapter 5. Understanding cash flow statement (This chapter is focused on: 1. Introduction 243, 2. Components and Format of the Cash Flow Statement 244, 3. The Cash Flow Statement: Linkages and Preparation 258, 4. Cash Flow Statement Analysis 273).
7Review for Midterm
8Midterm
9Chapter 6. Financial Analysis Techniques (This chapter is focused on: 1. Introduction 291, 2. The Financial Analysis Process 292, 3. Analytical Tools and Techniques 296, 4. Common Ratios Used in Financial Analysis 313, 5. Equity Analysis 341, 6. Credit Analysis 347, 7. Business and Geographic Segments 350, 8. Model Building and Forecasting 353).
10Chapter 7. Profitability Analysis (This chapter is focused on: 1 Overview of Profitability Analysis Based on Various Measures of Income 190, 2 Return on Assets (ROA) 201, 3 Return on Common Shareholders’ Equity (ROCE) 207, 4. Economic and Strategic Determinants of ROA and ROCE 215, 5 Benefits and Limitations of Using Financial Statement Ratios 240).
11Chapter 8. Risk Analysis (This chapter is focused on; 5.1 Disclosures Regarding Risk and Risk Management 278, 5.2 Analyzing Financial Flexibility by Disaggregating ROCE 283, 5.3 Analyzing Short-Term Liquidity Risk 293, 5.4 Analyzing Long-Term Solvency Risk 301, 5.5 Analyzing Credit Risk 305, 5.6 Analyzing Bankruptcy Risk 309, 5.7 Measuring Systematic Risk 318).
12Chapter 9. Forecasting Financial Statements (This chapter is focused on: 1 Introduction to Forecasting 636, 2. Preparing Financial Statement Forecasts 637, 3. Step 1: Project Revenues 642, Step 2: Project Operating Expenses 654, Step 3: Project Operating Assets and Liabilities on the Balance Sheet 662, Step 4: Project Financial Leverage, Financial Assets, Common Equity Capital, and Financial Income and Expense Items 677, Step 5: Project Provisions for Taxes, Net Income, Dividends, Share Repurchases, and Retained Earnings 683, Step 6: Balance the Balance Sheet 687, Step 7: Project the Statement of Cash Flows 689, 4. Shortcut Approaches to Forecasting 695, 5. Test Forecast Validity by Analyzing Projected Financial Statements 698, 6. Sensitivity Analysis 699, 7. Reactions to Announcements 699).
13Financial Statement Analysis: Application – Assignments Presentation
14Final Exam Review
Learning Outcomes
  1. Learning a wide variety of real financial problems
  2. Analyzing financial problems
  3. Making sound financial decisions
  4. Working knowledge of Microsoft Excel
Assessment
MethodQty% Each
Midterm Exam(s)130
Case Study120
Final Exam140
Attendance10
Textbooks

Baginski, Stephen P., Bradshow, Mark T., Wahlen, James M - Financial Reporting, Financial Statement Analysis, and Valuation: A Strategic Perspective, 2018, Cengage Learning, 9th Edition.

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