Financial Analysis & Firm Valuation

  • 7-weeks
  • 1.5 credits
  • Prerequisite:

The course will begin by establishing a framework for thinking about economic value added from a finance perspective (i.e. The job of senior management is to deliver a return to shareholders greater than the market-required rate of return given the risk associated with their investments. Students will learn the McKinsey framework for improving economic value added through external restructuring, internal restructuring and financial engineering. The course will then move to the development of a business analysis model leading to a financial analysis model. Students will learn and apply basic tools of financial analysis such as profit and risk analysis and asset utilization analysis, using traditional techniques such as ratio analysis, decomposition of return on equity, and decomposition of return on assets. From there, the course will move to balance sheet analysis and cash flow analysis with an emphasis on special problems such as off-balance sheet financing techniques, shortcomings in current accounting for research and development costs and their impact on firm value. This will lead to discussion of the adversarial environment of financial reporting and more on quality of earnings. Students will then learn to project financial information and perform competitor analysis.This will be followed by discussion of mergers and acquisitions to include leveraged-buy-out analysis. Finally, students will learn to value market capitalization using basic valuation techniques such as discounted cash- flow analysis, earnings-per-share, book to market and various cash-flow and earnings-based multiples.

Kelley School of Business

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