Summary

Summary Financial Statement Analysis and Valuation 2023/2024

1 purchase

Course
Financial Statement Analysis and Valuation (323059M6)

Institution
Tilburg University (UVT)

This document contains a summary of the lecture notes of Financial Statement Analysis and Valuation, basically containing every topic that is discussed in the course.

[Show more]

Preview 4 out of 33 pages

View example

Uploaded on March 26, 2024
Number of pages 33
Written in 2023/2024
Type Summary

forecasting
residual income model
dcf
advanced dupont
valuation
value drivers
ratio analysis
financial statement analysis

Institution
Tilburg University (UVT)
Education
Accountancy
Course
Financial Statement Analysis and Valuation (323059M6)

$6.09

Add to cart

Save

100% satisfaction guarantee
Immediately available after payment
Both online and in PDF
No strings attached

Summary Financial Statement Analysis and Valuation lecture notes

MSc Accountancy and MSc Finance, Tilburg University

Contents

1. Introduction
○ Financial models to assess future performance
2. The Core Value Drivers
○ The residual income model
○ Profitability
○ Investment / growth
○ Risk
○ Profitability and growth interact
○ A common analysis structure via financials
3. Understanding the Business
○ What information do we need?
○ Business strategy
○ Using financials to understand a business
○ Accounting distortions
4. Ratio Analysis
○ The enterprise value perspective
○ The advanced DuPont decomposition
○ Analyzing is comparing
5. Information Collection
○ The importance of high quality data
○ Analyzing means comparing
○ Focused information collection
○ Firm initiated information
○ Firm external information
○ Qualitative vs quantitative information
6. Forecasting
○ Setting up the model
○ Structured forecasting
○ Slight tangent: connecting the dots to other lectures
○ Forecast horizon
○ Discipling the terminal value
7. Valuation
○ Full valuation models
○ Cost of capital
○ Multiples valuation
8. Capita Selecta
○ Wealth transfers in stock transactions
○ Scenario Analyses

, 1. Introduction

1.1 Purpose of this chapter

Financial analysis → support decision-making
process

1.2 Financial models to assess future performance

Decisions based on financial analysis:
● Investment decisions
○ markets to enter
○ acquire another firm
● Strategic decisions
○ internal resource allocation
● Lending and investment decisions by banks

All these decisions have expected future performance of the analysis target as input

The value of a firm is a function of the expected future profitability
● resource allocation decisions depend on which alternative is more likely to provide
the highest expected future return on investment

Future performance is highly uncertain, therefore decision makers need to assess the
expected future performance and also how uncertain these expectations are.

Any assessment of future prospects begins with an in-depth assessment of the current
economic situation

The key difficulty is devising a model that simplifies the main drivers of a firm’s business
model enough to be useful and focus on drivers for which high-quality data can be
collected. (also in time and within budget parameters)

, 2. The Core Value Drivers

2.1 Purpose of this chapter

Core value drivers that focus and anchor an equity valuation analysis:
● return-on-equity (ROE)
● investment growth (gi )
● risk / cost of equity capital (r)

2.2 The residual income model

The starting point for any valuation is the Dividend Discount Model (DDM)

Just like any other investment, a firm should be worth the present value of the expected cash
receipts it will provide to its owners (E0 [...] stands for “expectations formed in period 0 about
the term in square brackets”)
Dividends reflect the disbursement of funds, rather than the performance that created the
ability to disburse funds in the first place. so not a good basis for firm value

One of the main connections between the income statement and the balance sheet is
earnings

● The book value of equity represents the claim of the firm owners to the company’
assets
○ Earnings represent additional resources generated during the period
between the two dates on which the balance sheet was recorded
○ Dividends reflect the outflows of funds to owners
● Thus, the change in owners’ claims to resources (the change in book value of equity)
equals earnings minus dividends
● The residual of earnings minus dividends is also often called reinvested earnings

, This intuition is encapsulated in the so-called clean surplus relation:

(2.4)

To get an even clearer picture of what determines firm value, the RIM (residual income
model) can be further reformulated to express value as a function of return-on-equity, book
value of common equity, and cost of equity capital.

The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.

Quick and easy check-out

You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.

Focus on what matters

Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!

Frequently asked questions

What do I get when I buy this document?

You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.

Satisfaction guarantee: how does it work?

Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.

Who am I buying these notes from?

Stuvia is a marketplace, so you are not buying this document from us, but from seller AccUVT. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy these notes for $6.09. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

66184 documents were sold in the last 30 days

Founded in 2010, the go-to place to buy study notes for 15 years now

Start selling