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IB396-15 Financial Statement Analysis and Security Valuation

Department
Warwick Business School
Level
Undergraduate Level 3
Module leader
Shahed Imam
Credit value
15
Module duration
10 weeks
Assessment
20% coursework, 80% exam
Study location
University of Warwick main campus, Coventry

Introductory description

This is an elective module available for WBS and Non-WBS students.

The main objective of the module is to provide students with the tools to analyse firm financial performance from an equity valuation perspective and to carry out a business valuation building on this analysis. A further objective is to encourage students to use the valuation-based framework to analyse the ‘quality’ of accounting information and to explore empirical studies concerned with testing the value-relevance of financial statement information.

Module web page

Module aims

The main objective of the module is to provide students with the tools to analyse firm financial performance from an equity valuation perspective and to carry out a business valuation building on this analysis. A further objective is to encourage students to use the valuation-based framework to analyse the ‘quality’ of accounting information and to explore empirical studies concerned with testing the value-relevance of financial statement information.

Outline syllabus

This is an indicative module outline only to give an indication of the sort of topics that may be covered. Actual sessions held may differ.

  1. Accounting and cash flow valuation model.
  2. Financial analysts’ use of financial statements: practice and evidence.
  3. Reformulation of financial statements and value-based ratio analysis.
  4. Implementation of accounting valuation models.
  5. Accounting quality and the value relevance of accounting information.

Learning outcomes

By the end of the module, students should be able to:

  • Understand and apply business valuation models that use accounting numbers.
  • Gain an understanding of the importance of ratio analysis to investors and analysts and learn how to apply a value based approach to ratio analysis.
  • Develop the ability to prepare a thorough valuation analysis including sensitivity analysis on the key assumptions.
  • Understand the factors determining quality of accounting information from an investor perspective and gain a basic understanding of empirical research on value relevance.
  • Develop ability to apply and integrate concepts from accounting and finance to the analysis of business plans and company valuation.

Indicative reading list

Financial Statement Analysis and Security Valuation 5th edition by Stephen H. Penman (2013).
Additional readings:
Healy, P. and Palepu, K. (2003) 'How the Quest for Efficiency Corroded the Market' Harvard Business Review, 81, 7, pp. 76-85
Penman, S. (2003) 'The Quality of Financial Statements: Perspectives from the Recent Stock Market Bubble' Accounting Horizons, 17, Supplement, pp. 77-96
Cascino, S.; Clatworthy, M.; Osma, B.; 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
Barker, R. (2010). 'The operating-financing distinction in financial reporting', Accounting and Business Research, 40 (4) pp. 391-403.
Penman, S. (2014) 'Financial Ratios and Equity Valuation' in Cooper, C.L. (ed.) Wiley Encyclopedia of Management: Accounting Volume Chichester:John Riley & Sons
Penman, S and Nissim, D. (2001). Ratio analysis and equity valuation: from research to practice. Review of Accounting Studies, March: 109-154.
Fairfield, P and Yohn, T. (2001). Using asset turnover and profit margin to forecast changes in profitability. Review of Accounting Studies 6: 361-375.
Penman, S. (2006) 'Handling Valuation Models' Journal of Applied Corporate Finance, 18, 2, pp. 48-55.
Lee, C. (2003) 'Choosing the Right Valuation Approach' in Larrabee, D.T. and Vodd, J.A (eds), Valuation Techniques Hoboken, NJ: John Wiley & Sons, pp. 243-58.
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.
Penman, S. (2016). 'Valuation: The State of the Art' Schmalenbach Business Review 17, 1, pp. 3-23.
Cascino, S., Clatworthy, M., Osma, B., Gassen, J. Imam, S. (2021) The usefulness of financial accounting information: Evidence from the field. Forthcoming at the Accounting Review. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3008083.
Penman, S. (2009) 'Accounting for intangible assets: there is also an income statement' Abacus, 45, 3, pp. 358-71.
Cornell, B. and Landsman, W.R. (2003) 'Accounting Valuation: Is Earnings Quality an Issue?' Financial Analysts Journal, 59, 6, pp. 20-8.
Dichev, I.; Graham, J.: Harvey, C. R. and Rajgopal, S. (2013) 'The Misrepresentation of Earnings' Financial Analysts Journal, 72, 1, pp. 22-35.
Imam, S. Barker, R, Clubb, C. 2008. 'The use of valuation models by UK investment analysts', European Accounting Review, 17 (3), pp. 503-535.
Imam, S. and Spence, C. (2015) 'Context, not Predictions: A Field Study of Financial Analysts' Accounting, Auditing and Accountability Journal, 29, 2 pp. 226-47.
Spence, C., Aleksanyan, M., Millo, Y., Imam, S., and Abhayawansa, S. (2019). Earning the 'write to speak': sell-side analysts and their struggle to be heard. Contemporary Accounting Research, 36, 4, 2635-2662.

Subject specific skills

Develop an understanding of how financial statements analysis can be linked to fundamental analysis.

Transferable skills

Demonstrate oral and written communication skills in relation to the analysis of company financial statement information from a valuation perspective.
Develop and apply modelling and spreadsheet skills to the solution of performance analysis and valuation problems.

Study time

Type Required
Lectures 10 sessions of 2 hours (13%)
Seminars 9 sessions of 1 hour (6%)
Private study 48 hours (32%)
Assessment 73 hours (49%)
Total 150 hours

Private study description

Private Study.

Costs

No further costs have been identified for this module.

You do not need to pass all assessment components to pass the module.

Assessment group D2
Weighting Study time Eligible for self-certification
Assessment component
Individual Assignment (15 CATS) 20% 15 hours Yes (extension)
Reassessment component is the same
Assessment component
Online Examination 80% 58 hours No

Exam

~Platforms - AEP


  • Online examination: No Answerbook required
Reassessment component is the same
Feedback on assessment

Feedback via my.wbs.

Past exam papers for IB396

Pre-requisites

To take this module, you must have passed:

Courses

This module is Optional for:

  • UIBA-N20B BSc in Management
    • Year 3 of N20B Management
    • Year 3 of N20B Management
    • Year 3 of N23K Management with Accounting
    • Year 3 of N234 Management with Digital Business
    • Year 3 of N235 Management with Entrepreneurship
    • Year 3 of N232 Management with Finance
    • Year 3 of N252 Management with Marketing
    • Year 3 of N23L Management with Strategy and Organisation
  • UIBA-MN3C Law and Business Four Year (Qualifying Degree)
    • Year 3 of MN3C Law and Business Four Year (Qualifying Degree)
    • Year 4 of MN3C Law and Business Four Year (Qualifying Degree)
  • Year 3 of UIBA-N400 Undergraduate Accounting and Finance
  • UIBA-N404 Undergraduate Accounting and Finance (with Foundation Year and Placement/Undergraduate Partnership Programme)
    • Year 5 of N4N7 Accounting and Finance (Foundation Year and Intercalated)
    • Year 5 of N404 Accounting and Finance (Foundation Year and Placement)
    • Year 5 of N405 Accounting and Finance (Foundation Year and UPP)
    • Year 5 of N403 Accounting and Finance (with Foundation Year)
  • Year 4 of UIBA-N403 Undergraduate Accounting and Finance (with Foundation Year)
  • UIBA-N401 Undergraduate Accounting and Finance (with Placement Year/Undergraduate Partnership Programme)
    • Year 4 of N401 Accounting and Finance (Placement)
    • Year 4 of N402 Accounting and Finance (Undergraduate Partnership Programme)
  • Year 3 of UCSA-I1N1 Undergraduate Computer Science with Business Studies
  • Year 4 of UCSA-I1NA Undergraduate Computer Science with Business Studies (with Intercalated Year)
  • Year 1 of UIOA-EEU Undergraduate EU Exchange
  • Year 4 of UGEA-RN21 Undergraduate German and Business Studies
  • Year 3 of UIPA-L8N1 Undergraduate Global Sustainable Development and Business
  • Year 4 of UIPA-L8N2 Undergraduate Global Sustainable Development and Business Studies (with Intercalated Year)
  • Year 4 of UIBA-N1RA Undergraduate International Business with French
  • Year 4 of UIBA-N1RB Undergraduate International Business with German
  • Year 4 of UIBA-N1RC Undergraduate International Business with Italian
  • Year 4 of UIBA-N1RD Undergraduate International Business with Spanish
  • UIBA-N20F Undergraduate International Management
    • Year 4 of N20F International Management
    • Year 4 of N20F International Management
    • Year 4 of N20S International Management (with Accounting)
    • Year 4 of N20T International Management (with Chinese)
    • Year 4 of N20P International Management (with Entrepreneurship)
    • Year 4 of N20M International Management (with Finance)
    • Year 4 of N20U International Management (with French)
    • Year 4 of N20L International Management (with Marketing)
    • Year 4 of N20V International Management (with Spanish)
    • Year 4 of N20W International Management (with Strategy and Organisation)
    • Year 4 of N20N International Management with Digital Business
    • Year 4 of N20E Management (with Foundation Year)
    • Year 4 of N234 Management with Digital Business
  • Year 3 of UIBA-MN3A Undergraduate Law and Business Studies
  • UIBA-N20J Undergraduate Management (with Foundation Year and Placement Year/Undergraduate Partnership Programme)
    • Year 5 of N20J Management (Foundation Year and Placement)
    • Year 5 of N20K Management (Foundation Year and UPP)
    • Year 5 of N23H Management with Digital Business (with Foundation Year and Placement Year)
    • Year 5 of N23J Management with Entrepreneurship (with Foundation Year and Placement Year)
    • Year 5 of N23G Management with Finance (with Foundation Year and Placement Year)
    • Year 5 of N255 Management with Marketing (with Foundation Year and Placement Year)
  • UIBA-N20E Undergraduate Management (with Foundation Year)
    • Year 4 of N20E Management (with Foundation Year)
    • Year 4 of N23N Management with Accounting (with Foundation Year and Placement Year)
    • Year 4 of N23M Management with Accounting (with Foundation Year)
    • Year 4 of N23E Management with Digital Business (with Foundation Year)
    • Year 4 of N23F Management with Entrepreneurship (with Foundation Year)
    • Year 4 of N23D Management with Finance (with Foundation Year)
    • Year 4 of N252 Management with Marketing
    • Year 4 of N254 Management with Marketing (with Foundation Year)
    • Year 4 of N23P Management with Strategy and Organisation (with Foundation Year)
  • UIBA-N20C Undergraduate Management (with Placement Year/Undergraduate Partnership Programme)
    • Year 4 of N20M International Management (with Finance)
    • Year 4 of N20B Management
    • Year 4 of N20D Management (Undergraduate Partnership Programme)
    • Year 4 of N20C Management (with Placement Year)
    • Year 4 of N20Q Management with Accounting (with Placement Year)
    • Year 4 of N236 Management with Digital Business (with Placement Year)
    • Year 4 of N237 Management with Entrepreneurship (with Placement Year)
    • Year 4 of N232 Management with Finance
    • Year 4 of N233 Management with Finance (with Placement Year)
    • Year 4 of N253 Management with Marketing (with Placement Year)
    • Year 4 of N23L Management with Strategy and Organisation
    • Year 4 of N20R Management with Strategy and Organisation (with Placement Year)
  • Year 3 of UMAA-G1N4 Undergraduate Mathematics with Business Studies
  • Year 4 of UMAA-G1N5 Undergraduate Mathematics with Business Studies (with Intercalated Year)
  • UIOA-EOS Undergraduate Overseas Exchange
    • Year 1 of UEOS Undergraduate Overseas Exchange
    • Year 1 of UEOS Undergraduate Overseas Exchange
  • Year 3 of UPXA-F3N1 Undergraduate Physics and Business Studies
  • Year 4 of UPXA-F3ND Undergraduate Physics and Business Studies (with Intercalated Year)
  • Year 1 of UIOA-EUS Undergraduate USA Exchange