Faculty of Business: Finance and Economics
Credit points: 6 cp

Subject level: Undergraduate

Result Type: Grade and marks

Requisite(s): 25503 Investment Analysis OR 25906 Portfolio Theory and Investment Analysis (Advanced)
These requisites may not apply to students in certain courses.
There are also course requisites for this subject. See access conditions.

Handbook description

This subject examines the use of financial statements in assessing a firm's financial health, its strengths, weaknesses, recent performance and future prospects. It examines financial statement forecasting and modelling with an emphasis on cash-flow reconstructions from financial statements. Special issues dealing with financial statement information are emphasised in some depth. These issues include market efficiency, asset pricing, corporate restructuring and business valuation, debt ratings and financial distress.

Subject objectives/outcomes

On successful completion of this subject students should be able to:

1. Understand that financial statements should to be interpreted in context and supported by qualitative research
2. Reformulate and reconstruct financial statements for financial forecasting and modeling
3. Analyse financial and non-financial data relevant for credit and investment decisions
4. Apply quantitative techniques to value business, evaluate financial risk and assess financial distress.

Contribution to graduate profile

Corporate Financial Analysis builds on learning outcomes from accounting, economics, finance and quantitative methods. The company's financial reports provide a window into the business. This subject introduces students to the issues and practices of corporate financial analysis. It provides them with a analytical skills to undertake 'real world' financial analysis.

Teaching and learning strategies

This subject uses a range of teaching and experiential learning strategies. Lectures are supplemented by tutorial discussion and printed resources. Key concepts and procedures are presented at the lectures and illustrated through Australian examples. Recent financial statements published by Australian companies will be discussed and evaluated by students.

Content

• Financial information, disclosure regulation and market efficiency
• Analysis of financial statements
• Reliability and quality of financial information
• Reformulation and reconstruction of financial statements
• Financial analysis for credit and investment decisions
• Valuation analysis for new and existing business
• Risk analysis, debt rating and financial distress modelling.

Assessment

Case Study (Group)	30%
Case study involves detailed analysis of recent financial reports of Australian companies. Students will be required to assess credit worthiness of the company and to make investment decisions based on its forecast value. This assures objectives 1-4.
Mid-Semester Examination (Individual)	20%
The mid semester examination serves to reinforce essential themes and topics in corporate financial analysis. Students are required to demonstrate a good understanding of fundamentals of financial analysis. It assures objectives 1 and 2.
Final Examination (Individual)	50%
The final examination assures objectives 1-4. It will test students appreciation of issues in corporate financial analysis and their proficiency in evaluating the financial performance of firms.

Examinations will be conducted under University examination conditions, and hence thoroughly address concerns regarding secure assessment. The case study will be secured through a combination of updating of assessment tasks across semesters and/or plagiarism detection software.

Recommended text(s)

Penman, S.H. (2004) Financial Statement Analysis and Security Valuation, 2nd ed. McGraw-Hill, Boston.

Indicative references

Resvine, L., Collins, D.W. and Johnson, W.B. (2004) Financial Reporting and Analysis, 3rd ed. Pearson/Prentice-Hall, New Jersey.

Soffer, L. and Soffer, R. (2003) Financial Statement Analysis, Pearson/Prentice-Hall, New Jersey.

Stickney, C.P., Brown, P. R. and Wahlen, J.M. (2004) Financial Reporting and Statement Analysis, 5th ed. Thomson/South-Western, Ohio.

Wild , J.J. and Subramanyam, K.R. and Hasley, R.F. (2003) Financial Statement Analysis, 8th ed. McGraw-Hill, Boston.