Target Audience 

Financial Statement Analysis & Valuation is intended for use in a financial statement analysis and/or valuation course in which profitability analysis and security valuation are emphasized. This book accommodates mini‑courses lasting only a few days as well as extended courses lasting a full semester.

Innovative Approach 

Financial Statement Analysis & Valuation is applications oriented and focuses on the most salient aspects of accounting, analysis, and valuation. It teaches students how to read, analyze, and interpret financial statement data to make informed business decisions. This textbook makes financial statement analysis and valuation engaging, relevant, and contemporary. To that end, it consistently incorporates real company data, both in the body of each module and throughout the assignment material.

Flexible Structure

The curricula, instructor preferences, and course lengths vary across colleges. Accordingly and to the extent possible, the 15 modules that make up Financial Statement Analysis & Valuation were designed independently of one another. This modular presentation enables each college and instructor to “customize” the book to best fit their needs. Our introduction and discussion of financial statements constitute Modules 1 and 2. Module 3 presents the analysis of financial statements with an emphasis on analysis of operating profitability. Module 4 introduces credit risk analysis. Modules 5 through 10 offer an analysis of accounting numbers and disclosures. The aim of those modules is to help us better interpret financial statements and to adjust those statements as necessary to improve our financial statement analysis. Modules 11 through 15 describe forecasting, cost of capital estimation, and company valuation.

Flexibility for Courses of Varying Lengths

Many instructors have approached us to ask about suggested class structures based on courses of varying length. To that end, we provide the following table of possible course designs. For instructors desiring greater emphasis on accounting analysis, additional time can be spent on Modules 1 through 10. For instructors desiring greater emphasis on analysis and valuation, additional time can be spent on Modules 11 through 15.

THE ONLY FSA Text with an Online Learning and Homework System

Increase student readiness with eLecture videos for each module's learning objectives and concepts, Review videos created by the authors show students how to solve Review problems throughout the text, immediate feedback with Auto-graded homework, Test Bank questions that can be incorporated into your assignment material, and instructor Gradebook with immediate grade results.

Make instruction needs-based by identifying where students are struggling and customize your instruction to their needs. Gauge how your entire class or individual students are performing.

Ensure your students are getting the additional reinforcement and direction they need between class meetings.

Provide instruction and practice 24/7. Assign auto-graded homework. Option to make homework due before class to ensure preparedness. Use of included video content to allow students to revisit accounting topics as often as they like or until mastered.

Integrates with numerous learning management systems. Gradebook syncs automatically.

See myBusinessCourse tab for more information.

Innovative Pedagogy

Focus Companies for Each Module

Each module’s content is explained through the reporting activities of real companies. To that end, each module incorporates a “focus company” for special emphasis and demonstration. The enhanced instructional value of focus companies comes from the way they engage students in real analysis and interpretation. Focus companies were selected based on the industries that business students typically enter upon graduation.

Focus Companies by Module

Real Company Data Throughout

Market research and reviewer feedback tell us that one of instructors' greatest frustrations with other financial statement analysis and valuation textbooks is their lack of real, contemporary company data. We have gone to great lengths to incorporate real company data throughout each module to reinforce important concepts and engage students. We engage nonaccounting students specializing in finance, marketing, management, real estate, operations, and so forth, with companies and scenarios that are relevant to them. For representative examples, SEE PAGES 3-17; 5-17; 6-22.

Analyst Adjustments

Analyst Adjustments are incorporated throughout most of the modules. These boxed elements explain and illustrate the types of adjustments analysts make to accounting information to make it more useful in their assessment of a firm. For representative examples, SEE PAGES 5-14; 6-28; 7-7.

Data Analytics and Data Visualization

New technologies are changing the landscape of accounting and financial reporting. Companies are increasingly using data analytics and visualization (charts, pictures, and graphs) to more effectively convey financial information. To familiarize students with data visualization, each module opens with a data dashboard and it uses real‑world data analytics and applications for student learning. Analytics and visualizations are reinforced with assignments in each module that present data graphically and require students to analyze and interpret the data visualizations. We provide students with online access to author‑created PowerBI dashboards where they can interact with the data and learn how to create their own data visualizations. These discussions and assignments are identified by the data analytics icon in the margin. SEE PAGES 1-35, 4-35, 5-56.

Business Insights & Analysis Insights

Updated Business Insight boxes throughout each module showcase real‑world business scenarios through the lens of financial statement analysis. For representative examples, SEE PAGES 2-11, 3-23, 5-10. Analysis Insight boxes, in select modules, highlight the importance of analysts’ professional judgment in financial analysis as well as with the reformulation of financial statements. For representative examples, SEE PAGES 3-33, 4-32, 13-5.

Research Insights

Academic research plays an important role in the way business is conducted, accounting and analysis are performed, and students are taught. It is important for students to recognize how modern research and modern business practice interact. Therefore, we periodically incorporate relevant research to help students understand the important relation between research and modern business. For representative examples, SEE PAGES 3-26, 5-37, 7-19.

Decision Orientation

One primary goal of a financial statement analysis and valuation course is to teach students the skills needed to apply their accounting knowledge to solving real business problems and making informed business decisions. With that goal in mind, Analysis Decision boxes in each module encourage students to apply the material presented to solving actual business scenarios.

Financial Statement Effects Template

As instructors, we recognize that the financial statement analysis and valuation course is not directed solely toward accounting majors. Financial Statement Analysis & Valuation embraces this reality. This book highlights financial reporting, analysis, valuation, interpretation, applications and decision making. We incorporate the following financial statement effects template to train students in understanding the economic ramifications of transactions and their impacts on financial statements. This analytical tool is a great resource for students in learning analysis and applying it to their future courses and careers. Each transaction is identified in the “Transaction” column. Then, the dollar amounts (positive or negative) of the financial statement effects are recorded in the appropriate balance sheet or income statement columns. The template also reflects the statement of cash flow effects (via the cash column) and the statement of stockholders’ equity effects (via the contributed capital and earned capital columns). The earned capital account is immediately updated to reflect any income or loss arising from each transaction (denoted by the arrow line from net income to earned capital). This template is instructive as it reveals the financial impacts of transactions, and it provides insights into the effects of accounting choices. For those desiring a more traditional analysis, journal entries and T‑accounts are shown in the margin.

Mid-Module and Module-End Reviews

Financial statement analysis and valuation can be challenging—especially for students lacking business experience or previous exposure to finance, management, and other business courses. To reinforce concepts presented in each module and to ensure student comprehension, we include multiple mid‑module and module‑end reviews that require students to recall and apply the financial statement analysis and valuation techniques and concepts described in each module. To aid students in developing their comparative analysis skills, most of those review problems center on a company or companies that compete with the focus company of that module. For representative examples, SEE PAGES 3-4, 8-14, 11-19.

Experiential Learning

Students retain information longer if they can apply the lessons learned from the module content. To meet this need for experiential learning, we conclude each module with a hands‑on analysis project. A series of questions guides students’ inquiry and helps students synthesize the material in the module and integrate material across modules. For representative examples, SEE PAGES 1-48, 3-57, 11-51.

Excellent, Class-Tested Assignment Materials

Excellent assignment material is a must‑have component of any successful textbook (and class). We went to great lengths to create the best assignments possible from contemporary financial statements. In keeping with the rest of the book, we used real company data extensively. We also ensured that assignments reflect our belief that students should be trained in analyzing accounting information to make business decisions, as opposed to working on mechanical tasks. Assignments encourage students to analyze accounting information, interpret it, and apply the knowledge gained to a business decision or in a valuation context. There are six categories of assignments: Questions, Mini Exercises, Exercises, Problems, IFRS Applications, and Analysis Discussion Points.

Sixth Edition Changes

Based on classroom use and reviewer feedback, a number of substantive changes have been made in the new edition to further enhance the students’ experiences.

• Digital delivery enhanced To serve the expanding delivery modes of higher education, we updated and expanded our in‑module Reviews and Guided Example videos for all modules (each Learning Objective has a Review/Guided Example, as well as a corresponding eLecture). In addition, all objective assignments are available in MBC.
• Data visualizations and analytics Companies are increasingly using data visualizations (charts, pictures, and graphs) to more effectively convey financial information. To support student learning, each module opens with a data dashboard and includes end‑of‑module assignments that present data graphically and require students to analyze and interpret the data visualizations. We provide students with online access (via MBC) to author‑created PowerBI dashboards where they can interact with the data and learn how to create their own data visualizations.
• Content reflects new standards This edition covers new standards on Revenue Recognition, Leases, and Marketable Securities. It also includes in‑depth discussion of the Tax Cuts and Jobs Act and how new tax law impacts financial analysis.
• Redundancies have been reduced In response to adopter feedback, we have eliminated redundant discussions spanning Modules 3, 4, and 7 related to credit ratings and liquidity/ solvency ratios.
• Revenue, operating expenses, and receivables We expanded the discussion of revenue recognition following the new standard and included an illustration and analysis of Microsoft’s revenue recognition. We also discuss sales returns and allowances and the effects of foreign currency exchange rates. Our operating expenses discussion introduces the effects of the Tax Cuts and Jobs Act, with a deeper discussion in Module 10.
• Inventories Our discussion of cash conversion cycle includes an illustration of management actions undertaken by Home Depot to streamline its supply chain to reduce days inventory outstanding.
• Bond rating A new section in Module 7 discusses Credit Analysis, including how bond ratings are determined. We provide an example of S&P Global’s ratings for Verizon, following its purchase of Vodafone’s interest in Verizon Wireless. We also simplify our discussion of bond pricing.
• Share-based compensation Module 8 includes an expanded discussion of share‑based compensation and Tesla’s use of convertible debt.
• Investments We include a deeper discussion of the determination of fair value, including an expanded discussion of Level 3 inputs to value securities with limited markets and the accounting for those securities. Module 6 includes a new, expanded discussion of the new goodwill impairment standard.
• Derivatives We markedly revised our discussion of derivatives to simplify the exposition while maintaining the analysis coverage.
• Equity carve-outs The discussion of equity carve‑outs is simplified and we provide examples of the accounting for sell‑offs, IPOs, spin‑offs, and split‑offs. We also discuss the deconsolidation of a subsidiary.
• Leasing Module 10 reflects the new lease standard including the analysis of right‑of‑use assets and differences between operating and financial leases. We discuss retrospective and prospective adoption, using Microsoft and Delta Airlines.
• Pension disclosures We markedly revised our discussion of pension accounting with a detailed illustration of the pension footnote disclosures. We include a section on fair valuation of pension obligations and the accounting for plan settlements.
• Taxes We provide an in‑depth, completely revised, discussion of income tax expense, including the effects of the Tax Cuts and Jobs Act and the analysis implications during the transition period.
• Updated assignments We updated all data and financial statements throughout the book to reflect each company’s latest available financial statement filings and disclosures. Assignments include current financial statement excerpts and reflect new standards for Revenue Recognition, Leases, and Marketable Securities and the Tax Cuts and Jobs Act.