This course is designed for students to develop an advanced financial analysis skill set. Throughout this course, students will be exposed to various quantitative tools and qualitative methods to determine the financial health and risk of selected U.S. public companies. The skills developed in this course will have direct application to credit analysis, financial analysis, and investment analysis.
Pre-Requisites: N/A
Required Textbook: International Financial Statements Analysis (4th Edition)
Software Requirements: Word, Excel, PowerPoint
Overview
Syllabus
- Module 1: Course Introduction and U.S. GAAP Framework
- Welcome to Financial Statement Applications! This module allows students to build a foundational understanding of basic accounting concepts essential for financial analysis, delve into the accrual process under U.S. GAAP, and learn the steps of the accounting transaction process. Furthermore, the course clarifies how journal entries are effectively posted to the chart of accounts and subsequently reflected in financial statements, establishing a solid base for more advanced financial studies.
- Module 2: Overview of Primary Financial Statements
- This module provides an in-depth understanding of the fundamental financial statements, starting with the purpose and classifications of the balance sheet, including the application of the balance sheet equation. Students will explore the connectivity of the balance sheet with other financial statements and delve into the multi-step income statement, identifying crucial elements for financial analysis and its interrelation with other statements. A comprehensive overview of the statement of cash flows is also provided, detailing its layout, the three primary sections, and how it differs from and connects with the balance sheet and income statement. After this module, students will be equipped with the knowledge to analyze and interpret these key financial statements effectively.
- Module 3: Ratios and Financial Analysis Tools
- This module is designed to provide students with a comprehensive understanding of the various financial analysis tools available and the context in which each is most effectively utilized. It delves into the definition, categories, and interpretation of key financial ratios, teaching students how to extract and analyze relevant account information from primary financial statements. This module also addresses the limitations of financial ratio analysis and strategies to mitigate these shortcomings. Furthermore, students will learn to decipher the wealth of information contained in annual reports (10-K), equipping them with the skills to navigate financial reports for conducting trend analysis and applying other critical financial analysis techniques.
- Module 4: Inventory Valuation and Other Balance Sheet Topics
- This module offers a deep dive into the four inventory methods recognized under U.S. GAAP, elucidating their distinct impacts on financial statements. Students will learn to apply the general inventory valuation formula for analyzing a company's inventory and cost of goods sold, including understanding the implications of a LIFO liquidation. This module examines how FIFO, LIFO, and Average Cost methods influence a company's profitability, asset values, and after-tax cash flows, and how the choice between FIFO and LIFO affects financial ratios in different economic conditions. Additionally, it covers Non-GAAP inventory valuation adjustments for cross-company comparisons and explores the financial statement impacts of holding fixed assets versus intangible assets, including the differentiation between limited life and indefinite life intangibles.
- Module 5: Cash Flow Analysis
- This module emphasizes the crucial role of cash flow analysis in financial management, delineating how it fundamentally differs from profitability analysis. Students will gain the ability to determine the effects of various transactions on operating, investing, and financing cash flows, and identify significant non-cash transactions often disclosed in company footnotes. This module also teaches how to calculate and interpret different free cash flow metrics, understanding their relevance in various contexts. It also covers the derivation of EBITDA as an operating cash flow proxy and guides students through performing a comprehensive cash flow analysis on a chosen company. Finally, this module explores key cash flow financial ratios, equipping students with the analytical tools to assess the financial health and stability of businesses.
- Module 6: Profitability Analysis
- This module equips students with financial tools to effectively analyze a firm's profitability, including the significance of dissecting business segments in this context. Learners will explore key qualitative factors that influence periodic trends in a firm's profitability, gaining a comprehensive understanding of profitability assessment. This module also delves into U.S. GAAP requirements for capitalizing versus expensing costs, exploring how these accounting decisions are perceived by analysts and their impact on financial statements. Students will learn the concept and purpose of normalizing a firm's earnings, identifying specific income statement items that may require adjustments to obtain a clearer picture of its underlying earnings, thus enhancing their skills in accurate financial analysis and interpretation.
- Module 7: Liquidity and Earnings Manipulation Recognition
- In this module, students will master the use of liquidity ratios to accurately analyze a company's liquidity position, alongside a practical understanding of applying the cash conversion cycle. This module guides learners in identifying key qualitative liquidity factors within financial reports of public companies, enabling them to assess a company's overall liquidity health through a blend of qualitative and quantitative tools. Additionally, the module delves into the recognition of earnings manipulation techniques employed by company management, teaching students to use various sources to detect red flags indicative of manipulated earnings. This comprehensive approach provides a well-rounded skillset for evaluating corporate financial health and integrity.
- Module 8: Solvency and Forecasting
- This module delves into understanding the crucial quantitative and qualitative factors that define a firm's solvency position. Students will learn to calculate and interpret various solvency ratios, gaining insights into the implications of additional debt and its impact on financial leverage. This module also covers techniques for determining a firm's enterprise value and its correlation with reported capital structure. A key aspect includes using the Altman Z regression formula to detect signs of financial distress. Additionally, students will be introduced to the types and mechanics of financial forecasts, culminating in the practical skill of preparing a forecasted income statement based on key variables, equipping them with essential tools for informed financial decision-making and analysis.
- Summative Course Assessment
- This module contains the summative course assessment that has been designed to evaluate your understanding of the course material and assess your ability to apply the knowledge you have acquired throughout the course. Be sure to review the course material thoroughly before taking the assessment.
Taught by
Michael Rybak
