22E00100 - Financial Statement Analysis, 08.09.2020-19.10.2020
This course space end date is set to 19.10.2020 Search Courses: 22E00100
Topic outline
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After successfully completing the course, you will have the knowledge and skills needed to analyze financial statements in various decision-making situations. In particular, you will be able to analyze financial statements in order to evaluate (i) various aspects of the profitability of the firm, (ii) cash flows vs. accrual earnings, (iii) credit risk of the firm, and (iii) the value of the firm. You will, moreover, be familiar with how valuation models are used when preparing IFRS financial statements.
Most of all, you will not be fooled as easily by those kinds of folks:
The course will be delivered fully online and asynchronously (i.e. apart from testing no live interaction/presence requirements). You will approach the different topics module by module through the sections on the left, but are first required to familiarize yourself with the Syllabus and Practical Matters section to assure that we are all on the same side concerning deliverables, deadlines and assessment. Course content consists of materials published in the MyCourses sections (i.e., modules) and partly accessed through reading the relevant parts in the coursebook (Petersen, T & Plenborg, C. Financial Statement Analysis: Valuation - Credit Analysis - Executive Compensation. Prentice Hall.).
But let's start by first putting a face to the people behind the course and introduce both the team (David Derichs and Natasha Sjöblom) and the course:
Furthermore, this course is supported by a video series of expert views on the Science and Art of Valuation produced by the Department of Finance. If you are interested who is providing those opinions, have a look at the following video:Finally, Nina Sormunen provides additional practical insights into how companies use accounting expertise to truthfully and informatively report business information.Additionally, this course features mini-lectures by Aswath Damodaran, a true valuation guru at NYU Stern, that are provided as part of one of his corporate finance courses.In case you face technical issues at any stage during this course please place those questions in the Technical Issues discussion forum. Questions by email will not be answered as the course is administered by more than one individual.
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Grade Points 5 => 91 points 4 => 81 points 3 => 71 points 2 => 61 points 1 => 50 points fail < 50 points Please note that you have to get at least 20 points from the exam to pass. Please also note the following scaling issues. First, your total exercise points are divided by two (to get the 15% weight). Second, your exam 1 points are multiplied by 2/3 (to get the 40% weight). Retake exam points are unscaled.
PEP = previous exam points
G = group
EP = exam part
REP=retake exam part
time=refers to previous course timing (S20=summer 2020, A=autumn, S19=spring 2019)
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Updated: 10.9.2020
This section will go over the main administrative details and deliverables of the course and ask you to demonstrate your understanding with a short quiz that you need to pass (unlimited attempts) before starting Module I.
Course Progress and Administration
- The course proceeds through modules. All information relevant to achieve each module's learning goals can be found in the respective module page (or is referred to in the course literature) - Information does not mean content. A large part of the study material consists of chapters in the coursebook!
- You can follow your progress by accessing the progress bar.
- You are to complete modules sequentially. The indicated time frames in brackets are suggestions of progress with the end date being a binding deadline for submitting the graded exercises (if available). You can always be faster but never slower than the indicated time frame.
- Questions on content are to be asked in the Q&A forums in each module (not via email). Questions will be answered swiftly by the instructors in written form in the forum. Once per module, there may be an explainer video where the instructor will discuss questions requiring additional explanation. If a reply in written form in the forum to a question is not sufficient then please reply with the request for further explanation. Such questions should be entered two days prior to the module completion date. If there are no such questions, there will be no videos.
Course Material
- The relevant course literature includes:
- the coursebook Petersen, T & Plenborg, C. (2011). Financial Statement Analysis: Valuation - Credit Analysis - Executive Compensation. Prentice Hall. The book is available via the Learning Center and can be bought for example from the publisher or AdLibris as well as a PDF through Vital Source as a newer version. While studying using provided slides and articles is possible I would highly advise access to the coursebook. The instructors assume that you have access to the coursebook. Please follow the services of the Learning Centre during the coronavirus pandemic: https://www.aalto.fi/en/learning-centre/our-services-during-the-exceptional-circumstances
- Additional literature is provided in the individual module sections
- Instructional videos in each module section
- Other content such as links to relevant outside sources
Workload
- The workload necessary to complete the course is 162 hours translating to 6 ECTS.
- Exercises - 10 hours
- Course Project and Peer Evaluation - 60 hours
- Independent Study based on the module requirements - 90 hours
- Exam - 3 hours
- Naturally, the outcome you will achieve depends on your general ability and other contextual factors.
Assessment - Assignments (15%), Course Project (35%), Peer Evaluation (10%), and Exam (40%)
- Quizzes. Every module provides several self-assessment opportunities as non-graded quizzes to assess whether you understood the content and are ready to proceed to graded activities, the next section, or the final exam. Those quizzes are either provided through the MyCourses platform or can be "played" through String Learning relating to the relevant book chapters.
- Exercises. Modules altogether contain a total of three (3) mandatory assignments. Each assignment is graded out of 10 points, resulting in a total of 30 possible points. Exercises contribute 15/100 (fifteen out of one hundred) points to the final grade and will be converted from 30 to 15 by the rule of proportion (i.e. (Ex1+Ex2+Ex3) / 2).
- Student Project. The student project (equity analyst research report) contributes 35/100 (thirty-five out of one hundred) points to the final grade. It is to be conducted in groups of a maximum of five students (doing the project as individually is possible but discouraged due to an over-proportional amount of work). Please pick a group as soon as possible, but the latest by the end of Module 0. Assessment will be done through peer assessment that is validated by the instructors. Not pulling your own weight in group work will lead to a significant downgrading of your individual grade. Teams are advised to inform the instructor ASAP via email in case they experience dysfunctional group members.
- Peer Evaluation. Peer evaluation is an essential part of the course and it contributes 10/100 (ten out of one hundred) points to the final grade..
- Exam. The final (and retake) exam contributes to 40/100 (forty out of one hundred) points to the final grade. It will be administered through MyCourses and will take place on Monday 19.10. at 13:00-16:00. Time pressure is high and questions will be selected from a randomized question bank.
- You can carry over grades from the previous year if you inform via this link before the first assignment is due.
Learning [and Bonus Points (5%)] through Self-Reflection
Self-reflection is a key work-life skill. It enhances your learning through critical reflection and enables you to take action when necessary. From a pedagogical perspective, self-reflection connects old/existing knowledge with new content, leading to a higher likelihood of achieving long-term learning outcomes. At the same time, they provide a tool for the instructor to judge individual learning progress and provide guidance where necessary. I will provide feedback on your diary quality and potential questions where applicable. This course uses self-reflection in two ways:
- Every topic is preceded by 1-X questions that direct your attention and reflection. Before you start your topic, I would advise you to answer those questions for yourself to get a baseline understanding. Upon completion of a given topic, you could then revise your answer and note to yourself what was new.
- You can earn a total of 5 bonus points in total by reflecting publicly on the course content of the respective module in the respective discussion forum - one point per reflection per module. Reflections should be no shorter than 140 words. You can choose what you reflect on, for example, your previous work experience, your project company, Corona impact, another student's reflection (be sure to use the reply button in this case), or anything else that comes to mind.
Final Course Grade
- The final course grade is the weighted sum of Assignments (15%), Course Project (35%), Peer Evaluation (10%), Exam (40%), and Bonus (5%) = 105 points. Please refer to the grade book to follow your progress towards the final grade in real-time
- The points translate into the Aalto 0-5 grading scheme in the following manner: 5 (105-91 points), 4 (90-81 points), 3 (80-71 points), 2 (70-61 points), 1 (60-50 points) and 0/fail (49-0 points)
- You need to pass both parts of the grading with at least 50% of the maximum points available: Assignments and Course project with 30 points and the Exam with 20 points. Bonus points are only considered when passing these two hurdles.
As this is an asynchronous online course it is of paramount importance that you have understood the course structure and expectations. As a result, we kindly ask you to take the Syllabus Quiz to demonstrate this understanding. Only after passing the syllabus quiz will you obtain access to the individual module sections (note that modules open up once the course stated only, but you can pass the syllabus quiz beforehand). -
Research Analyst Report - Group Assignment
A. The Setting
For the group assignment, you (as a team - pick your team here if you have not already done so) assume the role of an independent equity research analyst. The assignment follows the same structure and goals as the CFA Institute Research Challenge. This means that it is very close to practice, giving you hands-on experience of what it is to be an equity research analyst and some anecdotes for prospective job interviews in the industry.
As part of an equity research analyst team, you are asked to develop an equity analyst research report on a company that is publicly listed in Finland, Sweden, or Denmark. The choice of company is up to you and can for example reflect your team's industry experience (if applicable).
B. The Deliverable
You are asked to deliver an equity analyst report according to industry standards (subject to your potentially limited industry experience). The assignment should follow the CFA Institute's Equity Research Essentials guide and fulfill the following requirements.
Reading Assignment B.1.: Read the CFA Institute's Equity Research Essentials guide
The equity research report MUST include the following:
- Subject company name and ticker symbol
- Subject company industry
- Recommendation (buy/sell/hold)
- Current price (date)
- Target price (% increase/decrease)
- Highlights
and be structured according to the following sections and subsections
- Section 1
- Recommendation
- Business description (5)
- Industry overview and competitive positioning (15)
- Section 2
- Investment summary (20)
- Corporate governance (5)
- Section 3
- Financial analysis (25)
- Section 4
- Investment risks (10)
- Valuation (20)
The report MUST NOT contain your names and student numbers. Doing so will result in an automatic down-grading of the assignment grade (from the weight of 35% to 30%) as it prevents anonymous peer assessment.
The equity research report must be submitted in PDF format accompanied by your valuation excel file in excel format (in total two files, a PDF and an excel file) by October 16th 2020, at 14:00 and accounts for 35% of the final course grade. The document should contain about 15 pages on A4-sized paper (the exact number of pages is not important, but the content is!). Please submit the assignment through the assignment activity.You may use any publicly available information on the case company. Those include, but are not limited to, company (and its competitor) financial statements, press releases, executive and personnel interviews, as well as information aggregators’ reports.
For further inspiration on how the deliverable can fulfill the guidelines please also see Yale University's published student analyst reports, which resemble your delivery quite a bit or the CFA Research Challange previous' winner or an example of an excellent previous report submitted in this course.
Reading Assignment B.2.: Read at least two of Yale University's published student analyst reports
Reading Assignment B.3.: Read the report of CFA Research Challenge previous' winner
Reading Assignment B.4.: Read the excellent previous report submitted in this course
C. The Evaluation
Financial analysts do not work in a vacuum but do have access to other analysts' reports. As part of this realization, they regularly stay updated on what other analysts they might follow publish in terms of valuations and appraise those evaluations. Implicitly, they formulate an opinion of those analysts and rank them for future reference and potential collaborations.
To replicate this practice, and give you exposure to other teams' work (presentations are not possible in this asynchronous summer format) you (individually) will be asked to peer assess two other groups' work as part of this case assignment. Your evaluations have to be well-founded and fair. You will have three days to submit those evaluations. After all, submissions arrived, the instructors will perform their own assessments to gauge whether the assessments were in line with the report quality.
The evaluation will take place through the assignment activity where you submitted the assignment.
Please note, that peer assessment is an essential part of your work life. You will from early on be asked to assess your subordinates and superiors. Providing well-justified assessments signals your leadership capabilities to both groups of assessees and will contribute to your career advancement. Peer-assessment is, however, not easy. Conflicts of interest might prevent honest assessment and the more experience you have the better you will be. Take this exercise as one learning opportunity to be better at the task of peer assessment.
D. Your Integrity
As an equity research analyst, your success is largely dependent on your reputation, which is both grounded in professional expertise and your integrity. While experience only builds slowly, you can already work on your integrity by delivering honest work. And, while you might have spent a career building your expertise, a founded doubt of your professional integrity can result in an immediate end to the former.
Being transparent in where your information comes from is a start. Sourced information should be properly cited using a generally accepted citation system (see, the Aalto University Citation Guide). The investment recommendation should be based on the evidence provided in the report. The written report should reflect both the dedication of team members and the intelligence they bring to their work.
That is, analyses should be their own and teams may not copy analysis (plagiarize*) from another source into their written reports or presentations. If in doubt about the severity of plagiarism please review the Aalto University Code of Academic Integrity and Handling Violations Thereof (sections 3 and 4). Teams found guilty of plagiarism will by the standard Aalto process be brought forward to the dean, who will in turn judge the appropriate sanction.
* Plagiarism is defined as copying or using in substantially the same form materials prepared by others without acknowledging the source of the material or identifying the author and publisher of such material. Teams may a) use excerpts from articles or reports prepared by others (either verbatim or with only slight changes in wording) with acknowledgment; b) cite specific quotations as attributable to “leading analysts” and “investment experts” by naming the specific references; and c) present statistical estimates of forecasts, charts, and graphs prepared by others with stating the source. (CFA Institute 2017)
E. Your Career?
Did you like what you were doing? Could you imagine a career as a financial analyst? Tune into the following playlist to see our experts' thoughts in a career in valuation!
Moreover, the actual (and wannabe) financial analyst is up to date with financial news. To get a job offer, most of the time you will also be tested for your interested in financial markets and how literate you are in terms of financial news. The FT.com is a arguably the best source for such information, providing you a balanced picture, analysis and investigative journalism. Through Aalto you have the opportunity to get free access to the online premium edition. I would suggest you make use of it as soon as possible to get yourself an edge over other applications. See here, for how you get access through Aalto.Exercises
Exercise 1 - Group Assignment: Case Trivago.
Exercise 2 - Individual Assignment: Valuation of Judy Choi's business
Exercise 3 - Individual Assignment: Valuation
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As Financial Statement Analysis is about creating meaning from financial statements, you will need to have a sound basis of financial accounting. This module prepares you for the remainder of the course by guiding you through accounting basics - likely familiar from previous courses - and more advanced accounting topics in the accrual domain such as depreciation and lease accounting. This understanding will be necessary to advance smoothly through later modules of this course.
To monitor your progress using the completion bar, be sure to perform and check off all activity items at the bottom of this section. The instructors will not monitor your activity completion status but strongly encourage you to keep track to successfully complete this course.
0.i. Bookkeeping Basics
Having a sound basis of the bookkeeping is essential to reap the full learning benefits of this course. As your last accounting - and especially accounting basics - course might date back to the olden days for your BSc studies, you might want to consider self-diagnosing yourself and your catchup needs with a short (ungraded) quiz.
Self-Assessment Activity 0.i.a.: Take Self-Assessment Quiz 1 and determine your catchup needs in terms of Debit and Credit accounting!
Next, the time has now come for you to start familiarizing yourself with the coursebook, which will be an indispensable companion during the course of this course. For that, please read Chapter 1 and if you deem necessary, self-assess your understanding with the respective String Learning Multiple Choice Quiz.
Reading Activity 0.i.a.: Read Chapter 1 in the coursebook!
Self-Assessment Activity 0.i.b.: "Play" String Learning Multiple Choice Quiz for Chapter 1!
Now, let's go yet a step deeper into your financial statement understand and see how well you understand how financial statements communicate information by self-assessing whether you understand how different items are interconnected. To brush up your knowledge, read Chapter 2 of the coursebook and self-assess yourself by "playing" the String-Learning Multiple Choice quiz (if you deem it necessary) and take the Self-Assessment Quiz 2.
Reading Activity 0.i.b.: Read Chapter 2 in the coursebook!
Self-Assessment Activity 0.i.c.: "Play" String Learning Multiple Choice Quiz for Chapter 2!
Self-Assessment Activity 0.i.d.: Take Self-Assessment Quiz 2: How financial statements articulate?! - You can use the provided excel template to solve and review the assignment.
At this stage, you are ready to proceed to the next topic, reiterating accrual accounting basic and advanced topics.
0.ii. Accrual Accounting
The main reason to perform financial statement analysis is to value a company. Accounting information portrayed through financial statements provides a basis and rich information source for firm valuation. To position the role of accounting information in its valuation context, we take some basic theory, which you should have been familiar with from previous courses (in for example Finance), upfront.
Reading Activity 0.ii.a.: Read the Slides Compilation on Accounting Information and Equity Valuation!
Now, let's start by reiterating what accrual accounting is and how it is different from cash-based accounting to in later modules understand, how and why cashflows are derived. Chapter 3 in the book provides a good starting point by going through the main issues and self-assess your understanding using the String Learning platform.
Reading Activity 0.ii.b.: Read Chapter 3 of the coursebook!
Self-Assessment Activity 0.ii.a.: "Play" String Learning Multiple Choice Quiz for Chapter 3!
While challenging to understand at first, accrual accounting is indispensable when providing realistic and especially timely information about a company. At the same time, different assumptions on accrual measurement can lead to confusion among financial statement users.
Two often contentious areas are depreciation and leasing, which provide both information and give rise to the need for adjustments when valuing businesses.
Reading Activity 0.ii.c.: Read the Slides Compilation on Measurement Implications of Depreciation and Leasing!
Reading Activity 0.ii.d.: Check the glossary of the book and read the relevant sections that refer to depreciation and leasing to get a more profound understanding of the issue!
0.iii. Module Summary
At this stage, you should have a good understanding and overview of the accounting foundations necessary to excel in this course. You are ready to proceed to the next module!
If issues remained unclear or you want to know more, please use the Q&A Forum to post your questions.
Note, self-reflection exercises start with Module I.
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This module will set the scene for the remainder of the course by defining financial statement analysis and enforcing its need by looking into why earnings are managed.
When advancing through this module and its topics, please try to answer and reflect upon the following guiding module questions. Taking self-reflection seriously will benefit your learning and your later employability:
- What is the wider societal and economic role of financial statement analysis and the financial statement analyst as a professional?
- How do the different elements of financial statement analysis lead to a holistic approach of understanding a business?
- Why do companies engage in managing their earnings?
- How does earnings management relate to financial statement analysis?
To monitor your progress using the completion bar, be sure to perform and check off all activity items at the bottom of this section. The instructors will not monitor your activity completion status but strongly encourage you to keep track to successfully complete this course.
I.i. Introducing Financial Statement Analysis
Guiding reflection questions for this topic:
- What is the wider societal and economic role of financial statement analysis and the financial statement analyst as a professional?
- How do the different elements of financial statement analysis lead to a holistic approach to understanding a business?
Why are YOU here to study Financial Statement Analysis? Maybe we can provide you with a basic rationale for the importance of this subject and the financial analyst's role in this context.
To get a deeper understanding of both the information and the agency problem, please go through the related Slides Compilation as well as Chapters 12 and 13 of the courseebook.
Reading Activity I.i.a.: Read the Slides Compilation on the economics of Financial Statement analysis!
Reading Activity I.i.b.: Read Chapters 12 and 13 in the coursebook!
Self-Assessment Activity I.i.a.: "Play" String Learning Multiple Choice Quiz for Chapters 12 and 13!
So now that we understood what the societal and economic need for financial statement analysis is, what does it actually entail - or not entail? Start by reading Sloan (2019) and let's continue from there.
Reading Activity I.i.c.: Read Sloan (2019) "Fundamental Analysis Redux" article!
So if it is not crunching the books, what then is Financial Statement Analysis?
To go into depth over what business analysis is and how to gauge the macroeconomic and industrial context as well as how it aligns with the strategy, have a look at the accompanying slides as well as chapter 2 and self-assess your understanding if you deem it necessary using the Strong Learning "game".
Now that we gained an initial understanding of how comprehensive Financial Statement Analysis really is, let's have a look at what value experienced practitioners put on a firms strategy and its operations:Reading Activity I.i.d.: Read the Slides Compilation on Understanding Financial Statement Analysis!
Reading Activity I.i.e.: Read Chapter 2 of the coursebook!
Self-Assessment Activity I.i.b.: "Play" String Learning Multiple Choice Quiz for Chapter 2!
I.ii. Earnings Management
Guiding reflection questions for this topic:
- Why do companies engage in managing their earnings?
- How does earnings management relate to financial statement analysis?
As a financial analyst, it is crucial that you understand the considerable amount of discretion and flexibility that firms have in constructing their financial statements. The practices of doing so are jointly referred to as earnings management and their aim is to present the company's financial position in the most realistic (and often most favorable) way. As such, understanding and interpreting these practices for a thorough, true analysis of the firm, is important and motivates the need to analyze financial statements.
But before we start analyzing the implications of earnings management, let's take a philosophical twist to the foundation of earnings, accounting information and accounting flexibility. Tune in for the two following videos to get an overview!
After having set the scene, let's take a more detailed look at what is the role of accounting information, accounting flexibility and earnings management in financial statement analysis! For that, please read the related Slides Compilation as well as chapters 3, 14 and 15 of the coursebook.
Reading Activity I.ii.a.: Read Slides Compilation on Earnings Management!
Reading Activity I.ii.b.: Read Chapters 3, 14 and 15 of the coursebook!
Self-Assessment Activity I.ii.a.: "Play" String Learning Multiple Choice Quiz for Chapters 3, 14, and 15!
Reading Activity I.ii.d.: Read the Rajgopal (2020) article!
If you are more philosophically minded and want to learn the whole truth about accounting figures and their constructing of reality, read one of the most popular accounting articles of all time, Hines (1988).
Now, that you have acquired an understanding of accounting information, accounting flexibility and earnings management, let's go through some practical examples on how to manage earnings by taking the accounting policy approach or managing earnings by using real actions. For that, please view the following playlist!
But when does earnings management done in good faith turn into fraud, which deteriorates trust in both a company's financial statements (with a high likelihood for bankruptcy) and financial markets in general? Have a look at the following video!
Let's now put learning into practice and test your knowledge of accounting information, accounting flexibility, and earnings management practices. For that, please take Self-Assessment Quiz 3!
Self-Assessment Activity I.ii.b.: Solve Self-Assessment Exercise 3 to assess your learning of accounting information, accounting flexibility, and earnings management practices.
Now, let's take another deep-dive into the practitioners perspective to what it really means to own the numbers and not blindly trusting what information financial statements feed you.
And, finally, let's hear how those same practitioners perceive data quality and how they obtain a higher level of assurance on the financial data they are looking at to prevent unpleasant surprises.
I.iii. Module Summary
At this stage, you will have formed a comprehensive opinion around the issues highlighted through our three guiding questions:
- What is the wider societal and economic role of financial statement analysis and the financial statement analyst as a professional?
- How do the different elements of financial statement analysis lead to a holistic approach of understanding a business?
- Why do companies engage in managing their earnings?
- How does earnings management relate to financial statement analysis?
Now after all work and no play (or better all theory and no practice) it is time to put this module's learnings into practice and already preview some of future modules' content by working on the mandatory and graded group assignment! At the same time, you can familiarize yourself with your project group and start establishing distance working routines to successfully (and stress-free) complete the final course project.
If issues remained unclear or you want to know more, please use the Q&A Forum to post your questions.Finally, yet most importantly, consider taking part in the self-reflection exercise to foster your self-reflection capabilities and facilitate long-term learning.
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Before proceeding to look through the crystal ball - i.e., valuation - we need to understand a firm's financial past and present by scrutinizing its financials. Financial statements contain (and hide) a host of valuable insights that can be accessed (or uncovered) by establishing historic base-levels of trends and performance. Those base levels are later essential when estimating and forecasting the future value of the firm - least as a check to uncover overambitious forecasting/valuation assumptions.
This module will walk you through a series of topics that allow you to get a sense of the past and present to facilitate using the crystal ball and valuing the future of a firm. You will thus cover the concepts of analytical financial statements, profitability analysis, growth analysis, liquidity risk, and finally, understand future red flags in the form of credit risk.
This module is structured into two sections: II.A. (II.A.i.: Reconstructing Financial Statements for Analytical Needs and II.A.ii.: Profitability Analysis) and II.B. (II.B.i.: Growth Analysis and II.B.ii.: Liquidity and Credit risk), where section II.A. aims to provide you with an understanding of the needs to reconstruct financial statements for analytical needs and how to measure - and improve - profitability in the form of profitability analysis. Thereafter, section II.B. extends this knowledge by providing you with tools to understand a firm's growth and determine its liquidity position as well as credit risk.
First, however, let's embed this topic more into practice and see how a structured approach to understanding a business - a framework - helps our experts to get up to speed on a given company quickly.
When advancing through this module section (II.A.) and its topics, please try to answer and reflect upon the following guiding module questions. Taking self-reflection seriously will benefit your learning and your later employability:
- What are analytical financial statements and why should you, as a financial analyst, construct them?
- What challenges does an analyst typically face when measuring net operating profit after tax (NOPAT) and invested capital?
- What is profitability and how can we measure it?
- How is value creation related to the profitability of the firm?
- How can working capital management (WCM) be utilized in improving profitability?
To monitor your progress using the completion bar, be sure to perform and check off all activity items at the bottom of this section. The instructors will not monitor your activity completion status but strongly encourage you to keep track to successfully complete this course.
II.A.i. Reconstructing Financial Statements for Analytical Needs: The Analytical Income Statement and Balance Sheet
Guiding reflection questions for this topic:
- What are analytical financial statements and why should you, as a financial analyst, construct them?
- What challenges does an analyst typically face when measuring NOPAT and invested capital?
The role of financial statements in analyzing and determining the value of the firm is crucial. In fact, as a financial analyst, financial statements often serve as the first resort of information on which you will be able to base your analysis. However, financial statements, published by firms to serve the information needs of a wide host of stakeholders from investors, creditors, to the tax office (and many more), do not - in most cases - serve as a ready-made information source for the analytical needs of an equity analyst. For this reason, it is essential to reconstruct them allowing for a realistic analysis of the firm. Tune in for the following video to get an overview of the concepts of accounting information, value and the pivotal role of analytical financial statements thereat!
Thereafter, please read the Penman (2009) article on financial statements' interrelations and relation to value to gain a more theoretical perspective on the issue:
Reading Activity II.A.i.a.: Read the Penman (2009) article!
Now that you got an overview of why analytical financial statements are important, let's have a closer look at both the analytical income statement and the analytical balance sheet, and how these statements are interrelated. Tune in for the following videos to get an overview!
As you saw from these videos, the analytical income statement and the analytical balance sheet serve as tools for reconstructing the reality reported by the firm and your task, as a financial analyst, is to match the operating items on the income statement with the respective items on the balance sheet as well as determine the invested capital across the firms analyzed.
Now it's time to take a more detailed look at how to construct the analytical income statement and balance sheet yourself as a financial analyst. For that, please go over the relevant Slides Compilation and Chapter 4 of the coursebook!
After studying the material, please self-assess your understanding using the String Learning "game" and by taking the Self-Assessment Quiz 4 on analytical financial statements!Reading Activity II.A.i.b.: Read Chapter 4 of the coursebook!
Reading Activity II.A.i.c.: Read the Slides Compilation on the Analytical Financial Statements!
Self-Assessment Activity II.A.i.a.: "Play" String Learning Multiple Choice Quiz for Chapter 4!
Self-Assessment Activity II.A.i.b.: Take Self-Assessment Quiz 4 to test your learning on the analytical income statement and balance sheet!
Next, have a look at the following video to understand the importance of identifying non-recurring charges, especially, when it comes to developing a cash flow for future-looking valuation.
Last but not least, after practicing your skills with the above self-assessment activities, it's time to put the acquired knowledge into practice and proceed with the Graded Individual Assignment!
Graded (Individual) Assignment Activity #2: Solve and submit graded assignment on time!
II.A.ii. Profitability Analysis
Guiding reflection questions for this topic:
- What is profitability and how can we measure it?
- How is value creation related to profitability of the firm?
- How can working capital management (WCM) be utilized in improving profitability?
Profitability (not surprisingly) is one of the most important topics when analyzing financial statements. Profitability signals the financial strength of a company to its stakeholders and since it carries over into retained earnings is the basis for why investors invest in a given company. Without profit (and retained earnings for that matter) there will not be any cash flow to value - but more on this later. Again, while future profitability is of most interest for valuing a firm, its historical profitability gives interesting cues about how the future might unfold and how competent management is.
While there are countless definitions of profitability, we cover a few that are measured in the form of ratios to develop a comprehensive understanding on the matter. Before getting into detail on the different measures, please take a look at the following Du Pont model, which breaks profitability analysis into sub-components highlighting what really is behind a firm's profitable operations and how this relates to the Economic Value Added (EVA) of a firm (EVA will be discussed further below):
Figure 1: Du Pont model for the structure of profitability analysis
As you can see, profitability is comprised of several measures. Let's start from the "top" with Economic Value Added (EVA)! To get an overview of this measure, please see the Corporate Finance Institute's definition of EVA and understand the content of the following video:
Let's now take a closer look at these profitability measures. For that, please read Chapter 5 and deepen your understanding with the relevant Slides Compilations on EVA, Ratio Analysis and Common-size and trend statements!
While these described measures provide you with a great number of tools to use for performing profitability analysis, there are certain caveats that should be kept in mind - for instance, financial ratios related to profit margins do not always account for economies of scale or operating risk. To understand why, please read the Slides Compilation on caveats for profitability analysis!Reading Activity II.A.ii.a.: Read Chapter 5 of the coursebook!
Reading Activity II.A.ii.b.: Read the Slides Compilation on Economic Value Added (EVA)
Reading Activity II.A.ii.c.: Read the Slides Compilation on Ratio Analysis!
Reading Activity II.A.ii.d.: Read the Slides Compilation on common-size and trend statements!
Reading Activity II.A.ii.e.: Read the Slides Compilation on caveats for profitability analysis!Also, have a look at the case of CAT to ground profitability analysis in practice.
After understanding how to measure the current profitability of a firm, let's extend this knowledge into a specific element related to profitability and how to improve it. As a financial analyst, you should be aware not only of the firm's current state but also - depending on your job (e.g. as a consultant) - how to determine its improvement prospects. One way to improve profitability is by managing working capital. Tune in for the next video playlist to understand how working capital relates to profitability and how, though working capital management (WCM), improve profitability! Note that the last four videos focus on improving working capital, are not directly linked to the learning outcomes of this course. We, nevertheless, recommend you to watch them to understand how working capital can be improved. Afterall, interview questions for consulting and analyst jobs can sometimes focus on working capital management due to its relation to profitability and being a quick gain in improving business performance.
To further deepen your understanding on WCM, please read the relevant Slides Compilation.
Reading Activity II.A.ii.f.: Read the Slides Compilation on Working Capital Management!As you now have a theoretical understanding on both how to measure as well as improve a firm's profitability, let's extend this into practice by playing the String Learning "game" and taking the Self-Assessment Quiz 5 and Self-Assessment Quiz 6!
Self-Assessment Activity II.A.ii.a.: "Play" String Learning Multiple Choice Quiz for Chapter 5!
Self-Assessment Activity II.A.ii.b.: Take Self-Assessment Quiz 5 to assess your learning of profitability!
Self-Assessment Activity II.A.ii.c.: Take Self-Assessment Quiz 6 to assess your learning of WCM!
II.A.iii. Module II.A. Summary
At this stage, you will have formed a comprehensive opinion around the issues highlighted through our guiding questions:
- What are analytical financial statements and why should you, as a financial analyst, construct them?
- What challenges does an analyst typically face when measuring NOPAT and invested capital?
- What is profitability and how can we measure it?
- How is value creation related to the profitability of the firm?
- How can working capital management (WCM) be utilized in improving profitability?
If issues remained unclear or you want to know more, please use the Q&A Forum to post your questions.Finally, yet most importantly, consider taking part in the self-reflection exercise to foster your self-reflection capabilities and facilitate long-term learning.
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In the first part of this module, you gained an understanding of II.A.i.: Reconstructing Financial Statements for Analytical Needs and II.A.ii.: Profitability Analysis. Now it is time to proceed with getting a deeper understanding of a firm by learning about II.B.i. Growth Analysis and II.B.ii.: Liquidity and Credit risk.
When advancing through this module section (II.B.) and its topics, please try to answer and reflect upon the following guiding module questions. Taking self-reflection seriously will benefit your learning and your later employability:
- What really is growth?
- How should a firm's growth rate be measured in light of value creation being the main objective?
- What are liquidity and credit risk, how are they interrelated and how can we measure them?
- Why is it important to monitor both short- and long-term liquidity closely?
- Why should we determine a firm's credit risk before proceeding to its valuation?
To monitor your progress using the completion bar, be sure to perform and check off all activity items at the bottom of this section. The instructors will not monitor your activity completion status but strongly encourage you to keep track to successfully complete this course.
II.B.i. Growth analysis
Guiding reflection questions for this topic:
- What really is growth?
- How should a firm's growth rate be measured in light of value creation being the main objective?
Growth analysis takes a pivotal role when it comes to approaching the "crystal ball" - analyzing a company's historical growth provides you, as a financial analyst, the means for predicting its future growth potential. This section will walk you through the concept of growth and provide you with some of the most common metrics for measuring growth. However, it is important to remember that a firm's growth is an outcome of internal firm factors as well as its market, industry, and competitors. As such, these growth metrics should always be complemented with information related to strategy, market growth, market share, and competitors to get a realistic view. But for now - during the infancy of your journey to becoming an equity analyst - let's not delve into detail into those complementing factors and rather focus on the actual measures for growth! To get an overview of some of the most central measures, please view the following video on per-share figures:
Now that you got an overview of some key measures for growth analysis, it's time to deepen your knowledge by learning more about the variety of measures for growth analysis. For that, please read Chapter 6 of the coursebook and the Slides Compilation on growth analysis!
Reading Activity II.B.i.a.: Read Chapter 6 of the coursebook!
Reading Activity II.B.i.b.: Read Slides Compilation on growth analysis!
Now that you have built a theoretical understanding of the topic, lets put learning into practice! For that, please play the String Learning "game" and take Self-Assessment Quiz 7!
Self-Assessment Activity II.B.i.a.: "Play" String Learning Multiple Choice Quiz for Chapter 6!
Self-Assessment Activity II.B.i.b.: Take Self-Assessment Quiz 7 to assess your learning of per-share figures!
II.B.ii. Liquidity and Credit Risk
Guiding reflection questions for this topic:
- What are liquidity and credit risk, how are they interrelated and how can we measure them?
- Why is it important to monitor both short- and long-term liquidity closely?
- Why should we determine a firm's credit risk before proceeding to its valuation?
After learning about profitability and growth in the previous topics, we notice connections to liquidity and credit risk. As a financial analyst, understanding liquidity and credit risk issues are of major importance as in the end, these two concepts determine the firm's future and capabilities to meet its financial obligations - and for that matter provide a red flag that points towards valuation of a firm being unnecessary. Tune in for the following video to get an overview:
What are liquidity and credit risk precisely, then and how can they be measured? Please see the following video playlist to get an overview!
Now that you got an overview of the interrelated concepts of liquidity and credit risk, let's deepen the focus by reading the relevant coursework. For that, please read the Slides Compilation and Chapters 7 and 11 of the coursebook!
Reading Activity II.B.ii.a.: Read Chapters 7 and 11 of the coursebook!
Reading Activity II.B.ii.b.: Read Slides Compilation on liquidity and credit risk!
Next, lets put this learning into practice! For that, please play the String Learning "game" and take Self-Assessment Quiz 8!
So arguable understanding a firm's credit risk is of paramount importance and can save you a lot of work in valuing the company if you identify the firm to be not creditworthy. If you are interested, have a look at the recent Financial Times article on the Wirecard scandal ("Wirecard fights for survival as it admits scale of fraud") and the effect of high credit risk on valuation (if you did not know, you get free access to the FT as a student of Aalto, see here) .Self-Assessment Activity II.B.ii.a.: "Play" String Learning Multiple Choice Quiz for Chapters 7 and 11!
Self-Assessment Activity II.B.ii.b.: Take Self-Assessment Quiz 8 to assess your learning of liquidity and credit risk!
II.B.iii. Module II.B. Summary
At this stage, you will have formed a comprehensive opinion around the issues highlighted through our guiding questions:
- What is growth?
- How should a firm's growth rate be measured in light of value creation being the main objective?
- What are liquidity and credit risk, how are they interrelated and how can we measure them?
- Why is it important to monitor both short- and long-term liquidity closely?
- Why should we determine a firm's credit risk before proceeding to its valuation?
If issues remained unclear or you want to know more, please use the Q&A Forum to post your questions.Finally, yet most importantly, consider taking part in the self-reflection exercise to foster your self-reflection capabilities and facilitate long-term learning.
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Finally, the time has come to take a look at the crystal ball - the future! But how do we determine the value of a company for its infinite future life - remember, most companies are going concern with no liquidation in sight?
There is no simple answer to the question, but there are roughly four ways in which we can reasonably approach the valuation task. Have a look at Figure 1 for an overview of the four most common approaches.
Figure 1: Valuation approaches (Petersen & Plenborg, 2011)
This module provides you an overview of the different valuation approaches and discusses in more detail Multiple Valuation and Cash-Flow based models. The Cash-Flow based approach is then deepened in the following module, where we take a closer look at different parameters of the valuation formula.
When advancing through this module and its topics, please try to answer and reflect upon the following guiding module questions. Taking self-reflection seriously will benefit your learning and your later employability:
- How do valuation approaches differ, but more importantly how can they be reconciled?
- Why do we have different methods for valuation?
To monitor your progress using the completion bar, be sure to perform and check off all activity items at the bottom of this section. The instructors will not monitor your activity completion status but strongly encourage you to keep track to successfully complete this course.
III.i. Valuation Models
As you saw in Figure 1, there is a host of different valuation techniques that are able to deliver an educated guess about the value of a company. But before we go into detail, let's hear what firm value really is.
So since we are after the intrinsic value of a firm, let's look at the different approaches that can deliver the extrinsic value of a firm in more detail by reading Chapter 9 in the coursebook and self-assess yourself whether you understood the main concepts, as without a good understanding of the main concepts it will be difficult to advance in this course and successfully complete the course project.
Reading Activity III.i.a.: Read Chapter 9 of the coursebook!
Self-Assessment Activity III.i.a.: "Play" String Learning Multiple Choice Quiz for Chapter 9!
Now, having a sound basis of valuation, let's first hear how the NYU Stern valuation guru Aswath Damodaran (author of a host of excellent books on valuation) unravels the complex topic of valuation to then proceed to embed the topic in practice and look at different valuation techniques in more detail.
While we go into more detail into these valuation approaches in the next to sections of this module, let's first understand how much time really goes into a valuation exercise and how many people are involved. Understanding the whole process clarifies also how the breasts of this topic are operationalized in real life - and might even provide you some cues for later job interviews for those much-thought-after valuation positions.
Moreover, you may be concerned that choosing a model out of the multitude of options might be a daunting task. Tune in to understand what our practitioners have to say about choosing different valuation techniques.
Most of the time, however, PV based models are combined with relative valuation (Multiples) based models as they can be used to check one's assumptions and provide realistic outcomes. Next, let's go deeper into valuation multiples!
III.ii. Relative Valuation (Multiples)
Valuation Multiples are a powerful and simple valuation technique, which have their merit in simplicity as well as incorporating all available market information in the price. On the other hand, every company is different, so it might be very difficult to identify comparables. But let's directly start this section by understanding what Multiples are, when they are meaningful and how to calculate them by understanding how Aswath Damodaran positions the topic in theory:
and then going into more practice with the following explainer video:
Moreover, to get a sound theoretical basis for valuation multiples, please reread the relevant section of Chapter 9 as well as the accompanying Slides Compilation on Multiples.
Next, let's dive into practice and hear what our valuation experts can inform about how they deploy transaction and trading multiples.Reading Activity III.ii.a.: Read the relevant section of Chapter 9 in the coursebook!
Reading Activity III.ii.b.: Read the Slides Compilation on relative valuation!
Selecting between different kinds of multiples is not always easy. Please have a look at the following videos to understand what implications accompany different choices.
First, we will have a look at the denominator of the equation to understand the implications of Equity and Enterprise value multiples.
and extend this understanding by looking at the interplay of the numerator and denominator choices and their interrelation.
Last, let's dive into the denominator of the multiples equation and watch the following video.
To ground these issues even further in practice, see how our experts strike the balance in the tricky issue of peer selection between quantity (statistical power) and quality (representativeness). Choosing a wrong basket of comparison targets might jeopardize your whole valuation exercise!
Be aware though that multiples can fluctuate widely - have a look at Case 1 to see how market price fluctuations reflect in firm multiples as a cautionary tale.
Last, often multiples calculation is combined with the present value method in terminal value calculation. You will learn more about this issue in the next module.
Before proceeding to the indispensable topic of Present Value Valuation, it's time to put your learning on Relative Valuation into practice with a real company example! For that, please take Quiz 9 to assess your learning on Relative Valuation:Self-Assessment Activity III.ii.a.: Take Self-Assessment Quiz 9 to assess your learning on Relative Valuation!
III.iii. Present Value Valuation
To really get behind the intrinsic value of a company, performing a present value valuation is indispensable. This is not a secret and also resonates with the profound experiences of our valuation experts.
Unsurprisingly at this stage, present value models rely on determining cashflow - something you are already familiar with from our previous modules - and discounting those to the present day. To start the learning journey, please re-read the relevant part of Chapter 9 in the coursebook and dive straight into the content watching the following playlist about Cash Flow Analysis!
Reading Activity III.iii.a.: Read the relevant section of Chapter 9 in the coursebook!
Deepen your understanding by reading the accompanying slides compilation on cash flow analysis.
Reading Activity III.iii.b.: Read the Slides Compilation on cash flow analysis !
Now it is time to deepen your understanding around specific PV valuation techniques! For that, please read the accompanying slides compilation.
Reading Activity III.iii.c.: Read the Slides Compilation on PV valuation !
Now that you have acquired a thorough theoretical knowledge on PV valuation approaches, now it's time to assess your learning before proceeding to the 3rd graded Assignment 3. For that, please take Self-Assessment Quiz 10:Self-Assessment Activity III.iii.a.: Take Self-Assessment Quiz 10 to assess your learning on PV valuation!Thereafter, please take and submit Exercise 3 on time:Graded (Individual) Assignment Activity #3: Solve and submit Exercise 3 on time!
Please have a look at the final module (IV) to understand specifities about the most important elements of present value valuations, including forecasting Cash Flows, the growth rate, the discount rate, and the terminal value.
III.IV. Module Summary
At this stage, you will have formed a comprehensive opinion around the issues highlighted through our guiding module questions:
- How do valuation approaches differ, but more importantly how can they be reconciled?
- Why do we have different methods for valuation?
Finally, yet most importantly, consider taking part in the self-reflection exercise to foster your self-reflection capabilities and facilitate long-term learning.
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After building a foundational understanding of valuation approaches in the previous module, this module will walk you through the critical components of your valuation model - valuation inputs. To avoid erroneous conclusions it is of great importance to understand the host of inputs that you need to assess before you are able to arrive at analytically sound valuations.
As such, please go through these special issue topics in detail, as your valuation depends on implementing the valuation technique you choose correctly!
To monitor your progress using the completion bar, be sure to perform and check off all activity items at the bottom of this section. The instructors will not monitor your activity completion status but strongly encourage you to keep track to successfully complete this course.
IV.i. Forecasting
Forecasting is clearly the culmination of financial statement analysis, where everything you have learned up to now comes together. To understand how forecasting is done in practice, please start this topic by reading Chapter 8 in the coursebook and supplement this understanding with some deep-dives into special issues provided in the accompanying slides compilation. Thereafter, test your understanding by 'playing' the String Learning Self-Assessment quiz.
Reading Activity IV.i.a.: Read Chapter 8 in the coursebook!
Reading Activity IV.i.b.: Read the Slides Compilation on Forecasting!
Self-Assessment Activity IV.i.a.: "Play" String Learning Multiple Choice Quiz for Chapter 8!
Next, let's look at how forecasting is done in practice in excel, by watching the following video and going through the PepsiCo Spreadsheet Example in excel.You might have realized when doing forecasts yourself, that financial statements rarely balance at the end of the exercise. Reconciling those differences is called plugging and requires some special attention. Not like this, however:
But rather by watching the following video on issues around plugging the balance sheet, which is an important step in forecasting but also harbors large error potential and in the end also career risks.
Finally, have a look at what our experts think about forecasting the main financial statements and where they place the most emphasis.
IV.ii. Growth
Essential to the forecasting exercise is, of course, determining the growth parameters. You have already familiarized yourself with the concept of growth and how to analyze it in Module II. Here, we focus on how to pick different growth rates that provide a realistic forecast and on the understanding of what consequences different choices imply/carry. Have a look at how valuation guru Aswath Damodaran (NYU Stern) unravels the topic and how he answers those questions:
To put this theory into practice, please have a look at what our practitioners can share with you so you can successfully embark on your growth journey!
IV.iii. Cost of Capital
Risk is a key input to present value valuation models and is reflected by the appropriate discount rate. Let's first define and understand risk, by following a mini-lecture of Aswath Damodaran:
The usefulness of the discount rate, however, extends beyond valuation to performance management and credit analysis. Oftentimes, it is also referred to as the cost of capital or hurdle rates - representing hurdles of appropriate returns considering a firm's riskiness (see EVA). But before going into detail, let's briefly revisit what the cost of capital represents on the conceptual level.
Now it is time to go deeper into the topic and read Chapter 10 in the coursebook and self-assess your understanding of this crucial concept:
Reading Activity IV.iii.a.: Read Chapter 10 in the coursebook!
Self-Assessment Activity IV.iii.a.: "Play" String Learning Multiple Choice Quiz for Chapter 10!
Next, let's briefly look at the different components of risk to the firm individually: the risk-free rate, the equity risk premium, the cost of debt and the weighting of the different components of those. You should be familiar with all of those concepts from your BSc studies. If in doubt or in need for a refresher, I would nevertheless encourage you to watch the following couple of short videos to brush up your understanding.
The risk-free rate provides the starting point for risk assessment, by stipulating a rate, which any reasonable investment that is riskier needs to exceed.
By how much this rate must be exceeded is conceptualized by the equity risk premium, how to derive the equity risk premium should be familiar from your BSc studies. Nevertheless I would encourage you to watch the following brief introduction:
The cost of equity is, however, only one side of the story. Most organizations also finance themselves by debt, with its own inherent riskiness:
Last, both the equity and debt risk premium need to be combined to reflect the riskiness of the firm as a whole:
Once you combined all necessary elements into the relevant cost of capital, you use it to discount the cash flows with their inherent riskiness to arrive at the present value.
Finally, please engage with the slides compilation to go into further detail on the Cost of Capital.
Reading Activity IV.iii.b.: Read the accompanying Slides Compilation on the cost of capital!
After acquiring a theoretical understanding of cost of capital, now its time to take the Graded Assignment 4!By now, you likely noticed that while calculating the cost of capital appears straight forward on the surface, there are many complexities that you need to manage in the murky reality of the financial analyst. Have a look at what our experts can recommend you for your own journey in the world of valuation!
Graded (Individual) Assignment Activity #4: Solve and submit Graded assignment on time!
IV.iv. Terminal Value
The terminal value usually is the largest and at the same time least predictable part of a present value model. This also implies that most mistakes abound here, which can render your valuation exercise worthless, and in practice risk your career. Hence, it is worth dedicating special attention to this term. Let's start once more with a short lecture by the valuation guru Aswath Damodaran on the terminal value concept:
Now, having gained a sound theoretical basis and overview on the concept of terminal value, have a look at some more specific hints by watching the following playlist:
IV.v. Deriving the Value per Share
The final outcome of your valuation as a financial analyst is to determine the value per share of the business you are evaluating. Your stakeholders, after all, would like to hear your opinion on whether this is a stick to buy, sell, or hold. How you do this in practice is revealed to you by - once more - Aswath Damodaran
IV.vi. Error Spotting
We all do mistakes. For you as a modeler, it is important to stay on top of your model and build in enough checks to prevent those mistakes affecting your reputation negatively. Only with enough inbuilt checks, you can demonstrate to co-workers and superiors that you are on top of things and that the mistake that happened is a random error rather than system modeling bias. Most commonly, the excellent modeler performs sense checks (Does the output make sense?), structure checks (Are the formula constructions consistent and as expected?) as well as stress tests (Does the model react predictably to changes?).
Sense checking involves performing a (1) trend analysis over time to check whether values are within the expected ranges, (2) performing a peer comparison to understand whether your numbers are consistent with benchmarks, and (3) an analysis of interrelated metrics to understand whether related values move as expected (e.g., sales go up yet operating costs are down?; debt was repeated, yet cash goes up?). If you fail on these measures, you are sure to face scrutinizing questions by colleagues or customers and risk your career as a whole. Often times it makes sense to print the model to gain some physical and mental distance from the excel spreadsheet, which after weeks and nights of working might have partly absorbed you.
Structure checking scrutinizes whether the model layout allows for timely and efficient error diagnostics. This involves having consistent column and row structures allowing you to spot false linking easily and keep an overview. It also involves calculating row and column totals where sensible and calculating growth rates for important lines and values to detect jumps that warrant explanations. If you don't do it your boss or latest your customer will. Check that the balance sheet equation is in balance. Check that the cashflow statement is in line, for example taking into account that assets have an inverse relation to cash (assets go up meaning you bought something meaning that cash left the company) and liabilities have a direct relationship (liabilities go up, meaning you received a loan meaning you received cash). Also, remember from one of the videos in this course that the fundamental accounting equation also derives cash as delta cash is equal to delta liabilities plus delta equity plus delta other assets.
Stress testing involves making changes to the model (e.g. assumptions) and making sure the model behaves as you would predict. Usually it makes sense to perform an extreme value check to directly see the output relation (e.g., making COGS 100% of sales implying that if there are other expenses than COGS you will make a loss).
Do not underestimate the importance of checking your model at regular intervals. Your co-workers and superiors are usually very nervous about the model and the modeler and will assign this important job to a person where they believe that he or she is on top of the model. Messing up a model might remove this task for your task list for the immediate future or forever. Trust is difficult to regain!
III.vii. Module Summary
If issues remained unclear or you want to know more, please use the Q&A Forum to post your questions.Finally, yet most importantly, consider taking part in the self-reflection exercise to foster your self-reflection capabilities and facilitate long-term learning.
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The exam will appear in this section and open on the stipulated time. There is no need to register for the exam separately.
A. Before the Exam
Before the exam date please make sure your internet connection is working and you are able to log in to this course’s MyCourses page with your Aalto username and password.
On the day of the exam log into MyCourses well in advance (for example about 20 minutes before the exam starts) to avoid traffic. Log in on this course’s page (not on your own front page!) to avoid any traffic caused by signing in.
Do not log out and log in again in MyCourses during the exam, unless necessary.
In case you would like to use the material provided during the course, it is advisable that you downloaded the material to your computer, as increased traffic during the exam may lead to the content not being downloadable.
B. Exam Content
The exam will focus on your numeric skills in determining different concepts acquired during the course as well as interpretations of those calculations. Higher-level conceptual skills were tested and assessed through the Equity Research Analyst Report.
Most questions will be calculations based on numbers provided and you are to fill in the exact solution to this question (i.e., based on the numbers provided calculate the cost of equity for the company?). Some questions will be multiple choice concerning interpretations based on those calculations (i.e., based on the numbers provided for the two companies, which company is the riskier investment option?)
Questions will be drawn at random from a question bank and figures provided in questions will be algorithmic (no question will have the same figures and same solution). This is to ensure that this exam actually tests individual-level capability. The randomization is so that the level of difficulty for all exams will be matched.
C. Exam Time and Location
C.1. Exam 1
Location: MyCourses
Date: 19.10.2020
Time: 13:00-16:00 (+ 2 minutes extra for eventualities)
C.2. Retake Exam
Location: MyCourses
Date: 6.11.2020
Time: 13:00-16:00 (+ 2 minutes extra for eventualities)
The exam will appear in this section and open on the stipulated time.