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Overview

This course helps you understand the flow of money in a business and its link to shareholder value and credit ratings. The course presents a framework for analysis and provides spreadsheets to implement the framework.

Prerequisites

Help and Office

Materials

Assignments

Exams and Grading

Schedule

Class Topic
1
  • The purpose of financial statement analysis: Valuation, credit risk assessment, and performance evaluation
2
  • Introduction to deriving unlevered free cash flows
  • Unlevered net income or net operating profit after tax
  • Unlevered net assets or net operating assets
3
  • Deriving unlevered net income
  • Distinguishing between operating and financial items
  • Drivers of unlevered net income: Size, growth, and NOPAT margin
4
  • Deriving net operating assets
  • Financial assets versus non-financial assets
  • Financial liabilities versus non-financial liabilities
5
  • Drivers of net operating assets: Revenue-related metrics
  • Days of receivables, bad debts, days of deferred revenues
6
  • Drivers of net operating assets: Expense-related metrics
  • Days of prepayments, days of inventories, PP&E turnover, days of payable
7
  • Distinguishing between operating working capital and fixed capital
  • Fixed versus variable items
  • Seasonal versus cyclical items
8
  • Financial assets and financial liabilities
  • Distinguishing between solvency and liquidity
9
  • Leverage and liquidity ratios
  • Leverage: Debt/EBITDA, Debt/EBIT, Debt/FFO,
  • Liquidity: Financial assets/Sales, (Financial assets + Undrawn revolver)/Sales
10
  • Effect of leverage and liquidity: ROIC versus ROE
  • How leverage amplifies changes in ROE vis-a-vis changes in ROIC
  • How liquidity dampens changes in ROE vis-a-vis changes in ROIC