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HARVARD UNIVERSITY
Course Description: Financial Statement Analysis is about financial information: how it is derived, how
it is used, how it can be appropriately altered to get a better view of the current performance and future
prospects of for - profit companies. Financial statement analysis is one important step in business
analysis. Business analysis is the process of evaluating a company’s economic prospects and risks. This
includes analyzing a company’s business environment, its strategies, and its financial position and
performance. Business analysis is useful in a wide range of business decisions such as investing in equity
or debt securities, extending credit through short or long term loans, valuing a business in an initial public
offering (IPO), and evaluating restructurings including mergers, acquisitions, and divestitures. Financial
statement analysis is the application of analytical tools and techniques to general-purpose financial
statements and related data to derive estimates and inferences useful in business analysis.
Text
Financial Statement Analysis, 10th edition. KR Subramanyam and John J. Wild. McGraw Hill (2009).
Faculty
Evaluation
The write-ups are due at the beginning of the class in which the case/problem discussion is
scheduled. Analytical rigor is more important than the elegance of the write-up. While some
problems and cases are computation-intensive, some are more issues-oriented. The length of your
write-up will vary depending upon the problem/case. I envision a typical write-up not to exceed
2-3 double-spaced pages. Please provide direct answers to the questions asked; you do not need
to summarize facts of the case. Answers in handwritten form are acceptable. Should you prefer
to have your answer available to you while the case is being discussed in class, make sure to have
two copies; one for submission to me, the other one for your use.
Term Project
Each student group (consisting of not more than three members) will be required to complete a
business analysis project using the corporate financial reports and analytical tools covered in the
course. They will select a US company from a list provided by the instructor. Further project
guidelines and submission deadlines will be announced later.
SCHEDULE
Motivating the course: Why you need to understand how to adjust financial statements: How companies
distort financial results and EVA.
“The Earnings Game: Everyone Plays, Nobody Wins,” Collingwood, Harris, Harvard Business Review,
June 2001.
“Corporate Budgeting is Broken—Let’s Fix It, Jensen, M.” Harvard Business Review, November 2001.
Leases
Pensions
Shareholders Equity
Case Assignment Due: Costco Wholesale Corporation Financial Statement Analysis A. Stanford
Graduate School of Business.
Current Assets
Inventory adjustments
Investment Securities
Business Combinations
Derivative Securities
Income Concepts
Nonrecurring Items
Revenue Recognition
Deferred Charges
Employee Benefits
Importance of ROIC
Components of ROIC
Analyzing RONA
Analyzing ROCE