Advanced Financial Analysis: A Hands-On Workshop

Introduction to advanced financial analysis

• Users of financial data

• Content of the annual financial report

• Non-financial elements of the annual financial report and their importance

• Understanding the income statement, balance sheet and cash flow statement

• Other comprehensive income components

Basics of industry analysis and analyzing ratios using Excel

• Top-down approach for analysis

  • Macroeconomic factors to assess country exposure

    • Indicators of GDP, unemployment rates, inflation and interest rates

    • Deficit-to-GDP, debt-to-GDP and GDP growth rates

  • Industry analysis: understanding Michael Porter's five forces shaping industry's long term profitability

    • Starbucks, Apple Inc., Nike and McDonald’s cases

• Common size analysis to improve comparability

• Calculating trends and growth patterns

• Ratio analysis to assess key aspects of company performance:

  • Profitability

  • Liquidity

  • Efficiency and working capital management

  • Financing structure and risk

• Altman Z-score to assess potential bankruptcy

Financial cosmetics and creative accounting

• Valuing inventory at net realizable value: look for signals of obsolete inventory

• Analyst's consideration when examining inventory

• Evaluating how capitalizing versus expensing costs affect financial statements and ratios

• Impairment and revaluation of property, plant and equipment

• The choice of operating lease or finance lease

• Using special purpose vehicles for balance sheet manipulation

• Joint ventures: using equity method

• Consolidation: inflating goodwill by using full goodwill instead of partial goodwill method

• Stock options and stock grants instead of bonuses

Assessing quality of financial reports

• Framework for assessing company's quality of financial reports

• Potential problems that affect quality of financial reports

• Defining concept of sustainable and persistent earnings

• Beneish Model: M-score to describe degree to which earnings are manipulated

• Evaluating earnings quality of a company

• Evaluating cash flow quality of a company