Department of Finance

University of Dhaka
EMBA program
F-603: Financial Statement Analysis and Valuation

Course Teacher: Professor M. Sadiqul Islam

Class Hours: Wednesday 6:30 PM – 9:30 PM
Office Hours: After Class or by Appointment
Text: Financial Statement Analysis and Security valuation by S. H. Penman, 5th Edition
Business Analysis and Valuation by Palepu, Healy and Bernard, 4th/5thEdition.
References:
1. CFA Level 1, Volume 3 & CFA Level 2, Volume 4
2. Investment Valuation by Aswath Damodaran
Course Objective:
The objective of this course is to provide a framework for financial statement analysis, financial
forecasting and valuation using financial data.
Key Learning Outcomes:
After completing this course, students should be able to analyze financial statements, effectively
use financial forecasting and valuation tools. The major learning outcomes include business
analysis, ratio analysis, cash flow analysis, decomposition/ breakdown of ROE to identify the
drivers of profitability, and valuation techniques.
Grades:
Your performance in this course will be evaluated as under:
1st Mid-term Exam 15%
2nd Mid-term Exam 15%
Term Paper, Presentation and Class Participation 30%
Final Exam 40%
Case Presentations and Reports:
Students are expected to form groups for the presentation of cases and preparation of case reports
and term papers. A group can have a maximum of three members. Each member is expected to
participate in and contribute to the group equally. Grades will be based on group presentation and
report, individual presentation and class participation.
No definite format is prescribed for a case report, but in general a case report includes an
introduction, statement of the problem, alternative courses of actions, analysis of each alternative
and recommendations. All arguments should preferably be backed up by quantitative estimates.
Students may not need to use every piece of information provided in the case. For any information
required for analysis, but not mentioned in the case, students are free to make any realistic
assumption. However, their assumptions cannot contradict any information provided in the case.
Also, students cannot use any outside information for analyzing the case. Students should provide
justification in favor of their recommendations.

For case presentations, students are expected to use multimedia overhead projector. A hard copy
of presentation slides (6 slides per page) and a soft copy of presentation material (power point and
excel sheets) should be submitted by all groups at the beginning of class. Students will be severely
penalized if they copy others reports and presentation materials or part thereof. Even one group
is not allowed to share its analysis or presentation materials with other groups. Problems and
conflicts within the group should preferably be resolved internally. If group members are divided
with respect to solution and recommendation, they may choose to provide separate reports.
 COURSE CONTENTS
Class Contents Books
1-2 Framework and Need for Financial Statement Analysis – Users of financial Palepu:
statements, The role of financial reporting in capital markets, From business Chapter 1
activities to financial statements, From financial statements to business
analysis.
Accounting Analysis – Factors Influencing Accounting Quality; Steps in Chapter 3
Accounting Analysis; Implementing Accounting Analysis; Distortions in Chapter 4
Assets, Liabilities and Equity
3-5 Analysis of Firm Past performance – Ratio analysis, Activity ratios, Liquidity
ratios, Solvency ratios, Profitability ratios, Integrated financial ratios, Palepu:
Valuation ratios, Industry-Specific ratios, Research on ratios in equity Chapter 5
analysis, Credit ratios, Segment ratios, DuPont analysis – three factor & five
factor; Alternate decomposition of ROE, Cash Flow Estimate
5 How financial statements are used in valuation – Multiple analysis, Asset- Penman:
backed valuation, Fundamental analysis, The architecture of fundamental Chapter 3
analysis.
6 First Mid-term Test
7 Cash accounting, accrual accounting and discounted cash flow valuation – The
dividend discount model, The discounted cash flow model, Reverse Penman:
Chapter 4
engineering, Simple valuation models, The statement of cash flows. Cash flow,
earnings and accrual accounting.
8 Accrual accounting and valuation: pricing book values – The concept behind
the price-to-book ratio, Prototype valuations. A model for anchoring value on Penman:
book value, Applying the model to equities, Applying the model to projects Chapter 5
and strategies, Features of the residual earning model, Reverse engineering,
The building blocks of a residual earning valuation, Choices in valuation
models.
9 The analysis of the statement of shareholder’s equity – Reformulating the Penman:
statement of owner’s equity, Dirty-surplus accounting, Hidden dirty surplus. Chapter 8
10 The analysis of the balance sheet and income statement – Reformulating the Penman:
balance sheet, Reformulating the income statement. Chapter 9
11 Second Mid-term Test
12 The analysis of profitability – Cutting to the core of the operations: the analysis Penman:
of profitability, First-level breakdown: Distinguishing financing and operating Chapter 11
activities and the effect of leverage, Second-level breakdown: drivers of
operating profitability, Third-level breakdown.
13 Full-information forecasting, valuation and business strategy analysis – Penman:
Financial statement analysis: focusing the lens on the business. Chapter 15
13 Valuation in special circumstances: Valuing cyclical firms, Valuing distressed Damodaran
firms, Valuing private firms, Valuing firms with product options.
14 Presentations
15 Final Exam