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. Each module contains Data Analytics Insight boxes that describe how data analytics applies to the topics. Analytics and visualizations are reinforced with assignments in each module that present data graphically and require students to analyze and interpret the data visualizations.

Data analytics questions are exclusively available on myBusinessCourse. 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. We have partnered with Calcbench, a leading provider of data extracted from SE filings. Calcbench data underlies each of the Data Analytics Insights and all of the end-of-chapter data analytics assignments. This allows readers to work with actual and interesting financial statement data. These discussions and assignments are identified by the data analytics icon in the margin. SEE PAGES 2-9, 6-38, 7-18, 8-24.

Welcome to Financial Statement Analysis & Valuation!

Welcome to the Seventh Edition of Financial Statement Analysis & Valuation. Our main goal in writing this book was to address the needs of today’s instructors and students interested in financial analysis and valuation by providing the most contemporary, engaging, and user‑oriented textbook available. This book is the product of extensive market research including focus groups, market surveys, class tests, manuscript reviews, and interviews with faculty from across the country as well as conversations with credit and equity analysts at a wide range of firms. We are grateful to students and faculty whose insights, suggestions and feedback greatly benefited this edition.

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. The textbook takes a data‑driven approach to analysis and valuation; each module addresses applicable data analytic techniques.

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. The textbook takes a data‑driven approach to analysis and valuation; each module addresses applicable data analytic techniques.

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.

INNOVATIVE PEDAGOGY

Financial Statement Analysis & Valuation includes special features specifically designed for the student with a keen interest in analysis and valuation.

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 3-19, 4-27, 5-27.

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 5-11, 6-12, 7-7.

Data Analytics and Data Visualization

See the Data Analytics tab for a detailed description of this new feature.

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 2-12, 3-26, 5-8. 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 3-37, 10-29, 14-9.

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 1-26, 3-26, 12-18.

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 3-17, 4-20, 11-7.

Experiential Learning

Students retain information longer if they can apply the lessons learned from the module content. To meet this need for experiential learning, this text includes an Ongoing Financial Statement and Analysis Project. This project uses Excel and includes financial statements for two companies Parker Hannifin (PH) and Illinois Tool Works (ITW). Quantitative and qualitative questions in each module require students to apply the lessons learned to complete a comprehensive financial statement analysis and valuation. The project helps students synthesize the material in the module and integrate material across modules. For representative examples, SEE PAGES 1-49, 3-61, 11-62.

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 ref lect 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.

KEY CHANGES TO THIS EDITION

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.
  
• Updated and expanded data visualizations and analytics: Data analytics questions have been updated and expanded in each module to show their usage in financial statement analysis. Author‑prepared videos demonstrate how to complete the data visualizations and analytics assignments.
  
• New Data Analytics Insights: Each module includes new Data Analytics Insights that provide examples of how financial statement data can be analyzed and visualized to uncover trends and address important questions. Also, a new Appendix D entitled, “Data Analytics & Visualizations” provides an overview to create a baseline of knowledge.
  
• New analysis project: Each module concludes with a hands‑on analysis project set in mBC. Readers are led through an analysis of two competitors: Parker Hannifin (ticker: PH) and ITW (ticker: ITW). Readers apply the tools they learn in each module to complete a comprehensive financial statement analysis and valuation project.
• Integration of Calcbench data: We have partnered with Calcbench, a leading provider of data extracted from SEC filings. Calcbench data underlies each of the Data Analytics Insights and many of the end-of-chapter data analytics assignments. This allows readers to work with actual and interesting financial statement data.
• ESG reporting: We include relevant discussions of ESG reporting and analysis whenever appropriate.
  
• Enhancements to mBC: Assignments in mBC are updated to reflect new technology and reduce rounding issues. Downloadable Excel spreadsheets have been developed for many assignments. Solutions to algorithmic assignments have been added to this edition.
  
• Credit analysis: There is a new overarching framework for credit analysis to provide students context for this important topic. The authors discuss common goals of credit analysis and the critical facets of this process. They adopt the term “capital structure analysis” instead of “solvency analysis” in light of its growing popularity to emphasize the importance of looking at all facets of a company’s capital structure when conducting credit analysis.
  
• EBITDA: EBITDA is a term commonly used in practice. This important measure is introduced in several places and explains how it relates to net income and other income statement measures. This includes discussion of the pros and cons of using EBITDA and its variations.
  
• Analyzing intangible assets: New content in Module 6 discusses a wide variety of intangible assets including goodwill. The section discusses valuation methods, capitalization, and the subsequent accounting for intangibles. This includes explanation of the impairment of intangible assets and how to forecast intangibles.
  
• Treasury Stock: In light of the marked increase in the frequency and size of stock repurchases and retirements, this edition includes an expanded discussion of this activity and demonstrates the financial statement impact of retiring stock and its interpretation.
  
• Acquired Research and Development expense: The authors include a discussion of the origin and interpretation of acquired R&D expenses for financial statement analysis.
  
• Earnings Quality: We expand discussion of earnings quality to include a detailed look at the relations among net income, accruals, and cash f lows, along with academic research on these subjects.
  
• New Analyst Insights: Several new Analyst Insights examine comprehensive income, marketable securities, imputing lease expense from operating leases, and other trending topics.
  
• Financial statement implications of current events: We discuss important market implications to financial statement analysis such as the collapse of Silicon Valley Bank and its connection to debt investments, the effect of unused office space in the wake of the shift to work‑from‑home on lease arrangements, and other current events.
  
• Multiple choice questions: Each module contains a new set of multiple‑choice questions for readers to quickly check on their understanding of key concepts and tools for each module.
  
• Solutions: Solutions are presented entirely in MS Excel. Spreadsheets include all data from the exercises and problems, which facilitates student work and allows instructors to easily show demonstrate solutions.
  

SUPPLEMENT PACKAGE

For Instructors

• myBusinessCourse: A web-based learning and assessment program intended to complement your textbook and classroom instruction. This easy-to-use course management system grades homework automatically and provides students with additional help when you are not available. Further, detailed diagnostic tools assess class and individual performance. myBusinessCourse is ideal for online courses, hybrid courses, or traditional face-to-face courses for which you want to offer students more resources to succeed. Assignments with the MBC Homework logo in the margin are available in myBusinessCourse. eLecture videos are available for the module Learning Objectives, and Guided Examples for the in-module Reviews are available for you to assign students.
  
• Solutions Manual: Created by the authors, the Excel-based Solutions Manual contains complete solutions to all the assignments.
• PowerPoint: Created by the authors, the PowerPoint slides outline key elements of each module.
• Test Bank: The Test Bank includes multiple-choice items, exercises, short essay questions, and problems.