1. Analysing Financial Statements - why (1)
.pptx
School
Queen Mary, University of London**We aren't endorsed by this school
Course
ECOM 118
Subject
Economics
Date
Dec 16, 2024
Pages
7
Uploaded by CorporalOstrichPerson703
Free Cash Flow ModelLecturer: Gonçalo FariaSchool of Economics and FinanceAnalysing Financial Statements – Why is it relevant for valuation?
Analysing Financial StatementsFrom a valuation perspective, what is the relevance of a proper Financial Statements analysis?It is critical for:●the diagnostic of a business model (past and present) ●and for monitoring activity evolution (vs. expectations)=> Financial Statements are key inputs for the valuation exercise
Analysing Financial StatementsFinancial Statements are:oThe main instrument for the financial communication of a company towards its stakeholders (current and potential)oShould be reliable, audited documentsOverall, Financial Statements are a critical input for the financial decision process
Analysing Financial StatementsVery important to distinguish: oeconomic/financial perspective (ours!) fromoaccounting perspective, under which Financial Statements are elaboratedOur aim: oDiscuss an approach towards accounting information to properly inform the valuation exerciseofocus: Balance Sheet (BS), Income Statement (IS) and Cash Flow Statement (CFS)
Analysing Financial StatementsExample: Wirecard, a German payments group, collapsed into insolvency in June 2020 after revealing that €1.9bn in cash in its accounts probably did “not exist”. For years it was seen as a “star”. Follow-up for students: proposed discussion
ReferencesHillier, D., Ross, S., Westerfield, R., Jaffe, J., and B. Jordan, 2024, “Corporate Finance”, McGraw-Hill. (5thEuropean Edition), Chapter 3