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Financial Analysis Study materials
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Exported on May 27th 2015 at 10:59 AM Warwick Business School
Study materials Financial Analysis
Introduction
The Financial Analysis option is designed to complement the three other mainstream modules in accounting andfinance. However, only the compulsory Accounting and Financial Management module is a prerequisite.
What do we mean by Financial Analysis?
Financial analysis focuses on the use of financial statement data for company financial performance evaluation, equityvaluation and credit analysis. Financial analysis is carried out by analysts working in broking firms, investment banksand fund management businesses. The aim of the analyst is to extract as much information as possible from publiclyavailable financial statements published by companies (and any other data sources he/she might have access to) andto use this information to forecast future financial performance in order to guide equity investment and lendingdecisions. While analysis and forecasting of financial statements are essential aspects of financial analysis, analystshave a range of forecasting methods, performance measures and valuation methodologies to choose from. The abilityto appreciate the strengths and limitations of different techniques and to be able to apply these techniques to practicalproblems is an essential skill of the analyst which is developed in this module.
Page 1 of 1 Warwick Business School
Module outline Financial Analysis
Monday
Monday 29 June 2015
09.30-10.00 Arrival and coffee
10.00-11.30 Overview of financial analysis
11.30-12.30 An introduction of the capital market
12.30 Lunch
13.30-15.30 Financial statements revisited
15.30-16.00 Break
16.00-18.00 Restructuring financial statements for valuation
Two cases are introduced:• M&S• Carrefour
The cases will require students' presentation in group and the group name and allocation will be posted to my.wbs.The cases are available in the textbook, except where indicated. In addition, we will do some short exercises duringthe week to have a deeper understanding of important issues. These will be distributed during relevant sessions.Unless otherwise stated, sessions are taken by Shahed Imam and Robin Hewins.
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Programme Financial Analysis
Tuesday
Tuesday 30 June 2015
09.00-10.30 Case discussion:• M&S, Carrefour (group presentation), plus numerical exercise
10.30-11.00 Break
11.00-12.30 Ratio analysis for measuring corporate performance
12.30 Lunch
13.30-15.30 Equity valuation (1)
15.30-16.00 Break
16.00-18.00 Equity valuation (2)
Two cases are introduced:• Home Depot, Inc. in the New Millennium• European Oil and Gas Industry
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Programme Financial Analysis
Wednesday
Wednesday 1 July 2015
09.00-10.30 Case discussion:• Home Depot, Inc. in the New Millennium, European Oil and Gas Industry (group presentation), plusnumerical exercise
10.30-11.00 Break
11.00-12.30 Issues in financial analysis and valuation (1)
12.30 Lunch
13.30-15.30 Issues in financial analysis and valuation (2)
15.30-16.00 Break
16.00-18.00 Equity valuation exercise
Two cases are introduced:• Ryan Air• The Role of Capital Market Intermediaries in the Dot-Com Crash
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Programme Financial Analysis
Thursday
Thursday 2 July 2015
09.00-10.30 Case discussion:Ryan Air, The Role of Capital Market Intermediaries in the Dot-Com Crash (group presentation), plusnumerical exercise
10.30-11.00 Break
11.00-12.30 Valuing firms using multiples
12.30 Lunch
13.30-15.30 Issues in financial analysis and valuation (3)
15.30-16.00 Break
16.00-18.00 Valuation in practice (including survey of investors)
Two cases are introduced:• Whitbread PLC Valuation (provided on Monday)• Valuation ratios in airline industry
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Programme Financial Analysis
Friday
Friday 3 July 2015
09.00-10.30 Case discussion: Whitbread PLC Valuation, Valuation ratios in airline industry (group presentation), plusnumerical exercise
10.30-11.00 Break
11.00-12.30 Valuation of Morrison and related issues
12.30 Lunch
13.30 Conclusion and module debrief
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Programme Financial Analysis
Module assessment
The module will be assessed by 100% coursework.
The module will be assessed by a single assignment that will be set during the week. This will ask the modulemember to consider an appropriate company to analyse in some detail, taking into account the reasons for theanalysis being carried out and the background context of the company and the industry concerned or a currentbusiness situation to analyse. In order that the current business situation is as up-to-date as possible, it will be givenout during the week.
Questions? For any further information, contact Shahed Imam ([email protected]). Email is recommended asa contact method. Any updates or changes will be posted to my.wbs.
Submission deadline: 17.30 (UK time) Monday 3 August 2015
The marks for this assignment will be released on Monday 31 August 2015
The submission deadline is precise and uploading of the document must be completed before 17.30 (UK time) on thesubmission date. Any document submitted even seconds later than 17.30 precisely will be penalised for latesubmission in line with WBS policy. Please consult your student handbook on my.wbs for more detailed information.
The online assignment submission system will only accept documents in portable documents format (PDF) files.Please note that we will not accept PDF files of scanned documents. You should create your assignment in yourchosen package (for example, Word), then convert it straight to PDF before uploading. Please place your student IDnumber, NOT YOUR NAME, on the front of your submission as all submissions are marked anonymously.
All the scripts should also have the following paragraph included on the front page:
This is to certify that the work I am submitting is my own. All external references andsources are clearly acknowledged and identified within the contents. I am aware of theUniversity of Warwick regulation concerning plagiarism and collusion.
No substantial part(s) of the work submitted here has also been submitted by me in otherassessments for accredited courses of study, and I acknowledge that if this has been donean appropriate reduction in the mark I might otherwise have received will be made.
PLEASE ENSURE YOU KEEP A SECURITY COPY OF YOUR ASSESSMENT
Please ensure that any work submitted by you for assessment has been correctly referenced as WBS expects allstudents to demonstrate the highest standards of academic integrity at all times and treats all cases of poor academicpractice and suspected plagiarism very seriously. You can find information on these matters on my.wbs, in yourstudent handbook and on the University's library web pages here.
The University's Regulation 11 clarifies that '…'cheating' means an attempt to benefit oneself or another by deceit orfraud. This includes reproducing one's own work…' It is important to note that it is not permissible to re-use work whichhas already been submitted by you for credit either at WBS or at another institution (unless you have been explicitlytold that you can do so). This is considered self-plagiarism and could result in significant mark reductions.
Upon submission of assignment, students will be asked to agree to the following declaration:
Individual work submissions:
I declare that this work is entirely my own in accordance with the University's Regulation11 and the WBS guidelines on plagiarism and collusion. All external references andsources are clearly acknowledged and identified within the contents. No substantialpart(s) of the work submitted here has also been submitted by me in other assessmentsfor accredited courses of study, and I acknowledge that if this has been done it may resultin me being reported for self-plagiarism and an appropriate reduction in marks may be
Page 1 of 2 Warwick Business School
Assessment Financial Analysis
made when marking this piece of work.
By agreeing to this declaration (when the message pops up on submission) you are acknowledging that you haveunderstood the rules about plagiarism and self-plagiarism and have taken all possible steps to ensure that your workcomplies with the requirements of WBS and the University.
You should only indicate your agreement with the relevant statement, once you have satisfied yourself thatyou have fully understood its implications. If you are in any doubt, you must consult with the ModuleOrganiser or Named Internal Examiner of the relevant module, because, once you have indicated youragreement, it will not be possible to later claim that you were unaware of these requirements in the event thatyour work is subsequently found to be problematic in respect to suspected plagiarism or self-plagiarism.
Page 2 of 2 Warwick Business School
Assessment Financial Analysis
Teaching faculty
Shahed Imam - Module Organiser, Programme director, Executive MBA, AssociateProfessor of Accounting, WBS
Shahed was previously at Judge Business School, University of Cambridge where hecompleted his PhD on analysts' use of accounting information. In his PhD he interviewedanalysts and fund managers from leading investment houses in London. He published inleading accounting journals on analysts' use of information. His research has also beenpublished and quoted in various professional journals such as Professional Investormagazine for the CFA, CA magazine and The Times. He is currently involved in a largescale international project on Professional Investors. He is the joint editor of the currentedition of Wiley Encyclopedia of Management (Accounting). Shahed is a recipient ofWarwick outstanding teacher award in recognition of excellent teaching in MBAprogramme for seven consecutive years since 2008, based on students' rating. Hesupervises students on equity valuation and analysts' related topics. Currently he is theprogramme director for Executive MBA at Warwick and Shard (London).
Robin Hewins - Senior Teaching Fellow in Accounting, WBS
Robin was a Senior Lecturer (and Director of the Full-time MBA course) in The BusinessSchool at Imperial College until 2004. He has since taken on the role of visiting lecturerthere. Having read Mathematics as an undergraduate and Management Science as apostgraduate, he then went on to become a lecturer at Imperial. During his time there hehas undertaken consultancy for the treasury functions of many multinational companies,supervised several PhD students and published in the area of treasury management.Although he has given undergraduate and postgraduate lectures ranging fromManagement Mathematics and Management Economics, through Operations Researchand Multivariate Statistics to International Finance, his long standing commitment was inteaching both the Accounting and Quantitative Methods modules to the Full-time MBAstudents at Imperial. Robin is a module manager and a study note author for the DistanceLearning MBA at Imperial College and for external degrees run through the London Schoolof Economics.
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Teaching Faculty Financial Analysis
Readings
The core text provided for the week is:
Palepu, K.G.; Healy, P.M. and Peek, E. (2013)Business Analysis and Valuation: IFRS edition - Text and Cases (3rd edn)London: Thompson Learning
Please read Chapters 1-3 and 5 of the core text before the week commences. We will also cover Chapters 6-8 duringthe week. The chapters are not long, are written in a readable style and, to some extent, are a revision of earliermodules. Teaching notes on important issues will also be available before the module starts.
Before the module you should review the indicated articles. You should aim for a broad appreciation of the issuesraised in the articles rather than an understanding of the detailed techniques and analysis covered. For the mostdifficult articles (marked with an asterisk) you should focus only on general issues raised. The detailed terminologyand analysis used in these particular articles will become clearer during the module!
The readings in this module are divided into pre-readings and essential readings.
Completing as much of the pre-reading and essential reading as possible before you attend will provide you with awider understanding of the topics to be discussed during the module and therefore enhance your contribution to theclass.
However, we understand that many of you will find it difficult to complete all of the reading due to other commitments,so have classified the readings as follows:
Pre-readings are included in the online materials; you should read these in advance of the session to whichthey relate. Unless specified, you should treat ALL case studies as required pre-reading.
Essential readings are also included in the online materials. In order to complete the module and theassignment successfully you should complete this reading when you have time, either during or after themodule.
Participants are strongly encouraged to read any introductory finance text book for time value of money andother basic concepts of finance before the module.
Copyright
Please note that the readings provided are intended for your own individual study for this module and they are not tobe copied, sold, or used for purposes other than personal study. In each instance the copyright resides with thepublisher or author as stated and not with the University of Warwick.
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Readings Financial Analysis
Monday readings
Monday 29 June 2015
Pre-reading: Cascino, S.; Clatworthy, M.; Osma, B.G.; Gassen, J.; Imam, S. and Jeanjean, T. (2014)'Who Uses Financial Reports and for What Purposes: Evidence from Capital Providers'Accounting in Europe, 11, 2, pp. 185-209
Essential reading: Elliot, B. and Elliot, J. (2013)'Preparation of Financial Statements of Comprehensive Income, Changes in Equity and FinancialPosition' in Financial Accounting and Reporting (16th edn)London: FT Prentice-HallClick on the link above, once on the library webpage, click on the 'Connect to MyiLibrary e-book' linkand navigate to Part 1, Chapter 3 (note: this resource is restricted to 1 user at a time, so if you cannotaccess the reading right away, please keep trying)
Page 2 of 6 Warwick Business School
Readings Financial Analysis
Tuesday readings
Tuesday 30 June 2015
Pre-reading: *Penman, S. (2006)'Handling Valuation Models'Journal of Applied Corporate Finance, 18, 2, pp. 48-55
Penman, S. (2014)'Financial Ratios and Equity Valuation'in Cooper, C.L. (ed.) Wiley Encyclopedia of Management: Accounting VolumeChichester: John Riley & Sons
Essential reading: Lee, C. (2003)'Choosing the Right Valuation Approach'AIMR Conference Processdings, April, 2, pp. 4-14
Palepu, K.G.; Healy, P.M. and Peek, E. (2007)'Home Depot Inc. in the New Millennium'in Business Analysis and Valuation (IFRS edn)London: South-Western Cengage Learning
Page 3 of 6 Warwick Business School
Readings Financial Analysis
Wednesday readings
Wednesday 1 July 2015
Pre-reading: Cairns, D. (2010)'Accounting Standards and the Financial Crisis'Accountancy, 145, 1399, p. 67
Sanderson, I. (2010)'What Repo 105 Really Means'Accountancy, 145, 1400, pp. 28-9
Essential reading: Cornell, B. and Landsman, W.R. (2003)'Accounting Valuation: Is Earnings Quality an Issue?'Financial Analysts Journal, 59, 6, pp. 20-8
Young, S. (2014)'Earnings Management and Corporate Governance'in Cooper, C.L. (ed.) Wiley Encyclopedia of Management: Accounting VolumeChichester: John Riley & Sons
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Readings Financial Analysis
Thursday readings
Thursday 2 July 2015
Pre-reading: Imam, S. and Spence, C. (2015)'Context, not Predictions: A Field Study of Financial Analysts'Accounting, Auditing and Accountability Journal Accepted (2015)
Essential reading: Imam, S.; Chan, J. and Shah, Z. (2013)'Equity Valuation Models and Target Price Accuracy in Europe: Evidence from Equity Reports'International Review of Financial Analysis, 28, pp. 9-19
Imam, S.; Barker, R. and Clubb, C. (2008)'The Use of Valuation Models by UK Investment Analysts'European Accounting Review, 17, 3, pp. 503-35(You only need to read the main findings of this reference)
Whitbread PLC Valuation (This case will be handed out on Monday)
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Readings Financial Analysis
Friday readings
Friday 3 July 2015
Pre-reading: Healy, P. and Palepu, K. (2003)'How the Quest for Efficiency Corroded the Market'Harvard Business Review, 81, 7, pp. 76-85Click on the link above and search for the following term: AN 10147087
Essential reading: Penman, S. (2003)'The Quality of Financial Statements: Perspectives from the Recent Stock Market Bubble'Accounting Horizons, 17, Supplement, pp. 77-96
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Readings Financial Analysis
