HELZBERG SCHOOL OF MANAGEMENT
Financial Statements Analysis
INSTRUCTOR : Dr. Sudhakar Raju
OFFICE : Conway 311
OFFICE HOURS : M, Th 1.30 - 3 pm & by appointment
TELEPHONE : (816) 501-4562
E-MAIL : SUDHAKAR.RAJU@ROCKHURST.EDU
FAX : (816) 501-4650
TEXT: There is no primary textbook for this course. Readings are drawn from a number of
different textbooks that are on reserve at the library. Course material is drawn from the following
Financial Statements Analysis: A Valuation Approach, L. Soffer & R. Soffer, First Edition,
Fundamentals of Corporate Finance, Ross, Westerfield & Jordan, 7th Edition, Mc-Graw Hill
Analysis of Equity Investments: Valuation, J. Stowe, T. Robinson, J. Pinto & D. McLeavey.
Published by the Association for Investment Management and Research (AIMR) for the
Chartered Financial Analyst (CFA) Program.
Financial Institutions Management: A Risk Management Approach, A. Saunders & M.
Cornett, 6th Edition, Mc-Graw Hill Irwin.
FINANCIAL CALCULATOR: Hewlett-Packard (H-P) 10B II Business calculator.
(Note: Programmable calculators are not allowed in class examinations)
COURSE WEBSITE: Problem sets, answers to problem sets, course syllabus, course
announcements, etc. are posted on my website. The exact website address is:
You can also access the above site by accessing the Rockhurst CTE (Centre for Teaching
Excellence) site at http://cte.rockhurst.edu . Find my name under the faculty listing and
click on it to access my website.
COURSE DESCRIPTION: Financial Statements Analysis addresses the analysis and
interpretation of financial information, its role in the valuation of financial instruments (stocks,
bonds and derivatives) and the valuation of companies. The course also addresses the
increasingly critical role of “off-balance sheet items” (options, futures, swaps, mortgage backed
securities, asset backed securities, credit default swaps, collateralized debt obligations, etc.) in
financial management. Topics include analysis and interpretation of financial ratios, measures
for investment and company management and the current credit crisis. A considerable emphasis
is placed on the causes and consequences of the current credit crisis.
LEARNING OBJECTIVES: After completing the course, students should be able to:
• Read, analyze and interpret financial statements and ratios
• Forecast financial statements
• Value stocks using the dividend discount model
• Understand the impact of “off-balance sheet items” on firm value
• Develop a broad understanding of the valuation of “off-balance sheet” derivative
• Explain a corporation’s capital structure
• A previous course in Finance (such as FN 6100: Financial Policy)
• Some knowledge of EXCEL.
In Class Exams = 60%
Projects, Cases, Papers = 40%
The course grade is determined according to the following scale:
A = 91 - 100%
B+ = 85 - 90%
B = 76 - 84%
C = 60 - 75%
F = Less than 60%
1. ASSIGNMENTS: You will get the most from the lectures if you get the required reading done
before you come to class. I will also hand out problem sets periodically.
2. ATTENDANCE: You are required to come to all classes. If you are absent from a class you
should get notes from a classmate and you are, of course, responsible for any tests or
assignments missed. Excessive absences will result in a semester grade of DF. The college policy
on attendance is contained in the Rockhurst University Catalog.
3. MAKE-UP EXAMS: In case you are required to travel for work related purposes during a
scheduled mid-term examination date, please inform me at least a week ahead of time. Requests
for make-up exams will be considered on a case by case basis. If you are given permission to take
a make-up exam, the make-up exam must be taken within a week of the regularly scheduled exam
date. Please call Lynn Ross at (816) 501-4200 to schedule the make-up exam. You will generally
not be allowed more than one make-up exam over the course.
Mid-term exams that are missed for any other reason will require you to take a comprehensive,
essay based exam at the end of the semester to substitute for the missed exam.
The HSOM follows the University’s policy and schedule regarding make up final exams in
accordance with the final exam schedule published by the Office of the Registrar. Make up exams
will only be administered by the HSOM on the dates and times indicated by the registrar. In
addition, a $20 dollar fee will be collected from the student per university policy.
4. STUDENTS WITH DISABILITIES: Rockhurst University is committed to providing
reasonable accommodations for students with disabilities. Please contact Sandy Waddell
Director, Access Office (Massman Hall, Room 7, (816) 501-4689, firstname.lastname@example.org)
to provide documentation and request accommodations. If the Access Office has already
approved accommodations, please communicate with the instructor(s) of this course regarding
these arrangements by the second week of class in order to coordinate receipt of services.
5. RU OFFICIAL POLICY REGARDING STUDENT CONTACT INFORMATION: Student
contact information must be kept current in order to receive important notices from Rockhurst
University. Your contact information is online via your Banner Web account. Please check your
local address, local phone number, and emergency contact information on Banner Web and
revise as needed. All important university notices will be sent only to your RU email address.
Please check your RU email account in addition to any other email accounts you may have.
Accounts are activated at the Computer Services Help Desk (Conway 413).
6. RU ACADEMIC HONESTY POLICY: RU does not tolerate plagiarism and cheating. The
Rockhurst University Catalog provides examples of academic dishonesty and outlines the
procedures, penalties, and due process accorded students involved in academic dishonesty. All
infractions will be immediately referred to the Dean's office. In your research paper, make sure
you provide citations for all ideas and information that are not your own.
7. CLASSROOM CONDUCT: RU expects students to convey themselves with decorum. Leaving
in the middle of class, using cell phones and pagers during class, surfing the internet during
lectures, talking with other students, etc. violates appropriate classroom conduct.
I reserve the right to make any amendments to this syllabus.
Financial Statements, Taxes and Cash Flows
Chapter 2 of Fundamentals of Corporate Finance by Ross, Westerfield and Jordan
Debt versus Equity
The Balance Sheet and Income Statement
Market Value versus Book Value
Cash Flow from Assets
Cash Flow to Creditors and Stockholders
Working with Financial Statements
Chapter 3 of Fundamentals of Corporate Finance by Ross, Westerfield and Jordan
Sources and Uses of Cash
Problems with Financial Statement Analysis
Long Term Financial Planning and Control
Chapter 4 of Fundamentals of Corporate Finance by Ross, Westerfield and Jordan
Financial Planning Models
Percentage of Sales Approach
External Financing and Growth
The Internal Growth Rate & Sustainable Growth Rate
Equity Valuation, Firm Valuation & Dividend Discount Models
• Discount Rates in Valuation – Chapter 7 of “Financial Statements Analysis” by
L. Soffer and R. Soffer.
• The Dividend Discount and the Flows to Equity Models – Chapter 8 of
“Financial Statements Analysis” by L. Soffer and R. Soffer.
• Equity Markets and Equity Valuation – Chapter 8 of Fundamentals of Corporate
Finance by Ross, Westerfield and Jordan
The Cost of Capital
Dividend Discount Models (DDM’s)
EXCEL APPLICATIONS: Building Financial Models for Valuation; Case Study
Thursday, February 26, 2009: Exam 1 (Tentative)
Thursday, March 5, 2009: No Lecture: Research Class / Group Meetings
Friday, March 6, 2009: Research Project 1 Due
Firm Value, Debt Financing & Valuation
Chapter 9 - The Free Cash Flow Model and Analysis
Chapter 10 - Forecasting Free Cash Flows
Chapter 11 - The Adjusted Present Value Model
(All the above chapters are from “Financial Statements Analysis” by L. Soffer and R.
The Capital Asset Pricing Model (CAPM)
Estimating the Equity Risk Premium
Understanding & Estimating Beta
The Weighted Average Cost of Capital (WACC)
Does Debt Policy Matter?
The Modigliani-Miller Propositions
Financing and Valuation
How Leverage Affects the Cost of Capital
Balance Sheet Risk Management: Asset Liability Management (ALM) in Financial
Chapter 9 - Interest Rate Risk –II from “Financial Institutions Management: A Risk
Management Approach” by Saunders and Cornett. .
♦ The Concept of Duration
♦ Balance Sheet Risk Management
♦ Balance Sheet Duration Management
♦ Immunization & Regulatory Considerations
♦ The BIS Regulations on Capital Adequacy
♦ Difficulties in Applying the Duration Model
EXCEL APPLICATIONS: Estimating Beta and WACC, Case Study
Exam 2: To be determined
Off Balance Sheet Items (Derivatives); The Real Options Approach to Valuation
On and Off Balance Sheet Items
Derivatives: Futures and Options
Basic Option Positions
The Real Options Approach to Valuation
Valuing companies using the Merton model
CMOs, CLOs & CDOs
Derivatives and Balance Sheet Effects
Thursday, April 30: Exam 3 (Tentative)
Thursday, May 7: Final Project Due
Helzberg Leadership Speaker Series: Thursday, February 19, 7 – 8.45 pm
March 9-13: Spring Break
Monday, April 13: Easter Break – No class
May 7-13: Final Exams Week