CPE SESSION 30: SUNDAY, AUGUST 8, 1:00 PM – 4:30 PM

Applied Financial Statement Analysis

Description/Objectives:
This class discusses an applied approach to teaching financial statement analysis and equity valuation. Our aim is to span the void between the abstract theoretical treatment of equity valuation and the practical problem of valuing an actual company using real-world data. The overriding theme for the class is that good forecasts of future financial statements are the key input to a good valuation.

The class will suggest many ways of bringing students closer to the real-world analysis and valuation issues. First, we will discuss how to use financial statement analysis software as a teaching tool. Besides exposing students to the types of tools found in practice, using software has the pedagogical advantage of presenting students with a consistent model of how financial statements flow into ratios, how ratios flow into forecasts, and how forecasts flow into valuation. Second, we will discuss many sources of real-world data, mostly found on the web, illustrating how to incorporate this data into the analysis process. Finally, we will discuss how to develop quantitative stock screens to identify interesting companies for analysis.

Format/Structure:
The first part of the workshop will address ratio analysis and the distortions caused by accounting measurement errors. The second part of the workshop will present a structured approach to forecasting and valuation. The third part of the workshop will discuss quantitative stock screens. For each part, we will use condensed versions of existing financial statement analysis cases to illustrate the concepts and teaching techniques. Participants are encouraged, but not required, to bring a laptop with them to the workshop.

Intended Audience:
The primary audience is instructors of classes that cover financial statement analysis and equity valuation. However, the material is also potentially of interest to instructors of introductory or intermediate accounting who want to add an analysis and valuation component to their classes.

Presenters:
Russell Lundholm, University of Michigan
Richard Sloan, University of Michigan

Sponsor:
Financial Accounting and Reporting Section

* Denotes special requirements or prerequisite