Final Lessons (BAV, Wednesday, Week 13)
business-analysis-and-valuationyear-two"Arguably I am not a bouncing-off-the-walls kind of guy. But today, even less so." -- Francois Brochet, on being ill
Takeaways from a semester of accounting-based valuation:
-- It's useful to approach financial statement analysis in a systematic sort of way. Overview, business model, accounting analysis, financial analysis, valuation.
-- Business analysis informs financial analysis; differentiate between financial and non-financial metrics. It's hard to analyze a company if you have no clue how they actually make money.
-- Compare accounting policies across peer companies; investigate differences.
-- Read footnotes, always.
-- Identify assumptions, construct scenarios, do sensitivity analysis. Otherwise, you don't know what's actually an important assumption...
-- Markets make mistakes. Just objectives; it happens.
-- Just because it's good and correct and legal accounting doesn't mean you shouldn't change it to do valuation. Example: Company X goes from owning 49% of a subsidiary to 51%. It consolidates the subsidiaries results on its financial statements and revenue increases by 40% between one year and the next. Good accounting? Yes, that's how GAAP works. Useful for valuation purposes/analyzing operating performance? No way.