Syllabus
Financial Economics – Financial Analysis
Accounting for Financial Markets
EBC4103
Academic Year: 2025-2026
Course Period: 02
SBE Emergency Number: 1333
School of Business and Economics
Bachelor
Master
©Academic year 2025-2026 Maastricht University School of Business and Economics
Nothing in this publication may be reproduced and/or made public by means of printing, offset, photocopy or
microfilm or in any digital, electronic, optical or any other form without the prior written permission of the
owner of the copyright.
Table of Contents
1.
Introduction ................................................................................................ 3
2.
Course Structure ......................................................................................... 5
3.
Assessment and Grading .............................................................................. 6
4.
Literature ..................................................................................................10
5.
Code of Conduct .........................................................................................11
6.
Fraud and Plagiarism ..................................................................................13
7.
Global Citizenship Education & Competency Development ................................14
8.
Schedule ...................................................................................................16
9.
Lectures & Tutorials ....................................................................................17
Meeting 1: Opening Lecture ........................................................................................................... 17
Meeting 2: Introduction to Financial Statement Analysis ........................................................... 17
Meeting 3: Accounting Analysis I – Introduction ........................................................................ 19
Meeting 4: Accounting Analysis II – Recasting Financial Statements & Asset Distortions ..... 22
Meeting 5: Accounting Analysis III – Estimating Internally Generated Intangible Capital &
Asset, Liability & Equity Distortions ............................................................................................ 23
Meeting 6: Financial Analysis ........................................................................................................ 24
Meeting 7: Financial Analysis & Prospective Analysis: Forecasting.......................................... 25
Meeting 8: Prospective Analysis: Forecasting .............................................................................. 27
Meeting 9: Prospective Analysis: Forecasting & Value Implementation ................................... 31
Meeting 10: Prospective Analysis: Value Implementation .......................................................... 31
Meeting 11: Case Preparation ........................................................................................................ 32
Meeting 12: Equity Security Analysis & Risk Estimation ........................................................... 32
Meeting 13: Q&A & Trial Exam ................................................................................................... 33
10.
Support .....................................................................................................34
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1.
Introduction
Course Description
Being able to understand and use information from the financial statements is important in a
large variety of decision-making contexts. These include, but are not limited to, security
analysis, credit analysis, mergers and acquisitions (M&As), leveraged buy-outs (LBOs), initial
public offerings (IPOs), divestitures, and distress prediction. Financial statements thus play a
crucial role in the functioning of capital markets and facilitate an efficient allocation of
resources in an economy. This course therefore aims to strengthen your ability to interpret
financial statements and apply the information they provide in decision-making by investors,
creditors, analysts, auditors, managers, and other stakeholders.
Financial statement analysis skills are important in a wide variety of professions and are thus
of great importance in your career as a future accounting or finance professional. They will
allow you to effectively use, read, compare, and interpret financial statement information and
determine a company's health, prospects, and value. However, using the information presented
in the financial statements crucially depends on your understanding of the context in which the
information is prepared and on understanding relevant theories concerning financial reporting
decisions made by the executives of a firm.
This course teaches you the language of financial statement analysis and firm valuation. We
begin by examining the broader environment in which a firm operates, such as its industry,
competitive dynamics, and strategic choices, as the foundation for effective financial statement
analysis. Next, you will learn how to evaluate the quality and usefulness of a firm’s financial
statement information, understand the incentives that affect financial statement preparers, and
undo distortions in low-quality financial statements. Overall, this allows you to create financial
statements that are more relevant and comparable, thereby improving the usefulness of the
financial statements for (investment) decision-making. We then turn to financial/ratio analysis
to learn how to use (the information in) the financial statements to critically evaluate the drivers
of a firm’s financial performance. These insights form the basis of the prospective analysis
sessions, in which you will learn relevant techniques for forecasting future firm performance,
which we will subsequently use to determine an expected (intrinsic) value of the firm or the
firm’s shares. In doing so, we will discuss and compare various approaches to forecasting and
valuation used by, for example, (sell-side) analysts, investment bankers, and auditors.
This course is relevant for everyone who is involved in preparing financial statements or
who advises executives on corporate communication and reporting issues, everyone who wants
to become a financial analyst, investment banker, M&A advisor, and manager, those
performing valuation-related audit work (e.g., goodwill impairments), and everyone who uses
financial statements in the various decision-contexts or, more broadly, is interested in the role
of financial statement information in capital markets. The breadth of (corporate) positions that
rely on a good understanding of financial statements make financial statement analysis a crucial
aspect of your development as an accounting or finance professional.
To gain an in-depth understanding of financial statement analysis, the course uses various
real-life cases and assignments, discusses a range of relevant research articles that will broaden
your knowledge, and explains how financial statement analysis can be used to develop
profitable trading strategies.
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Course Coordination
Dr. Patrick Vorst, CFA, FRM (p.vorst@maastrichtuniversity.nl, B2.20) is course coordinator
and tutor in this course.
Refreshing Accounting Knowledge
The course builds upon several topics covered in intermediate accounting courses (e.g.,
depreciation calculations, asset write-downs, tax accounting, the relation between the income
statement and the balance sheet, etc.) and requires a basic understanding of accounting. As we
do not have time for a recap during the tutorial meetings, if you feel the need to recap your prior
accounting knowledge, please have a look at the following book:
•
Kieso, Weygandt, & Warfield, Intermediate Accounting, IFRS Edition, Wiley (4th or
5th edition)
Social Media
We are excited to invite you to our social media channel so you can exchange ideas and ask
questions about Accounting and Information Management topics. The group is a mix of people
from practice, academia, and, of course, you. It can help you stay up-to-date about current trends
in the industry, find relevant job opportunities, and contact experienced professionals for handson advice on your careers. Please follow the link https://www.linkedin.com/groups/8839208/
and request access to the group.
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2.
Course Structure
Basic Outline
The course consists of one opening lecture and twelve tutorial group meetings. The opening
lecture provides background on financial statement analysis, including the importance of
strategy and industry analyses. In addition, there will be a brief course introduction during
which the course objectives will be discussed, and an outline of the course will be provided.
The tutorial group meetings are held on Tuesdays and Fridays. In general, the tutorial meetings
consist of two main elements:
•
•
Preparation and discussion of assignments: These assignments aim to provide you with
the necessary knowledge about financial statement analysis theory, tools, and
techniques.
Discussion of research articles: the objective of discussing these research articles is to
gain a more in-depth, theoretical knowledge of financial statement analysis. However,
the topics discussed in the research articles are also practically relevant and are an
essential part of your academic training in financial statement analysis.
In addition to the tutorial meetings, you will find video lectures on Canvas that provide
additional insights on the topics discussed throughout the course and are intended to help you
prepare the tutorial assignments.
The structure of this course closely follows the textbook’s “Framework for Business Analysis
and Valuation Using Financial Statements,” as presented in Chapter 1 of Palepu, Healy, and
Peek. The course starts with a business strategy and industry analysis, followed by accounting
analysis, financial analysis, and prospective analysis. The last meetings focus on applications
of the analysis framework. As these topics build upon each other, it is extremely important not
to get behind and to stay up to date with the material covered in class, as it can be difficult to
catch up later and fully understand the topics subsequently discussed.
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3.
Assessment and Grading
Grading Overview
The final grade for this course is calculated as the weighted average of:
1.
2.
3.
4.
Participation & Professionalism (individual grade)
Group Case (group grade)
Research Article Presentations (group grade)
Written Final Examination (individual grade)
Final Grade
15%
20%
15%
50%
100%
Note: Partial grades obtained in this course remain valid for a period of three years, i.e.,
the academic year in which the grades were obtained, plus the two subsequent academic
years. Students who fail the exam (and re-sit) but pass the other course requirements will
have two choices in the two subsequent years: either take the exam only or reregister for
education. Students who opt to reregister for education will get new partial grades for
those grades that are assessed during the tutorial meetings (e.g., participation,
case, and presentations). These new grades will overwrite the grades that were obtained
earlier.
Participation and Professionalism
We expect students to attend class and actively participate each day. Most of you will become
accounting or finance professionals after you graduate, and you will be expected to act
professionally at all times. We expect the same professionalism in our class. Professionalism
includes respect for others, integrity, and personal responsibility. You must attend the tutorial
you are enrolled in, arrive to class on time, turn off all electronic devices when class starts, be
respectful to your tutor and other students in the class, and take responsibility for your own
performance. It should go without saying that we expect professionalism in all email
communication.
During each tutorial meeting, your tutor evaluates your performance. Tutors will evaluate
(1) the extent to which you demonstrate that you have studied and prepared yourself for the
tutorial meetings (preparation) and (2) the extent to which you actively contribute to the group
discussions during the tutorial meetings (participation). As part of your participation duties, you
are expected to take turns serving as a discussion leader during the tutorial meetings.
Proactively offering to serve as a discussion leader is appreciated. Performance as a discussion
leader is evaluated as part of class participation and discussion leaders are evaluated based on
their preparation, meeting structure, and management of content, and managing the group
dynamics during their tutorial meeting.
Since active participation of the group members is of great importance in this course, we
expect that you are present during all meetings and absences will affect your participation
grade. Furthermore, note that there is no course assignment to compensate for insufficient
participation.
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Group Case
As part of the course, your subgroup has to prepare an analyst report on a company of your
choice (see the course website for some example reports), which has to be handed in by
Tuesday, December 9, at 18.00 at the latest. You can pick any publicly traded company that
uses IFRS and/or US GAAP. Avoid firms in regulated industries, financial firms (e.g., banks
and insurance companies), and firms involved in large M&A transactions, as those represent
special cases that will make your analyses unnecessarily complex. Also, to make your life
easier, try avoiding firms with negative shareholder’s equity (e.g., McDonalds), or firms with
large balances of non-controlling interests. You are required to inform your tutor about the
company of your choice by Friday, November 7. On this date, you also have to hand in a set
of standardized financial statements of the company of your choice.
In the end, your report should provide an investment recommendation that states whether
you would recommend investors buy the stock, with your analyst report providing evidence to
support and substantiate your recommendation. Your report should cover the elements of the
framework for business analysis and valuation:
1. Industry and Strategy Analysis:
• i.e., what is the firm’s industry, how competitive is the industry, and what strategy
does the firm of your choice follow?
2. Accounting Analysis
• What are the areas of accounting discretion? Do you see any red flags?
• How comparable are the firm’s accounting choices with industry peers and/or over
time?
• Make any adjustments you deem necessary (don’t overdo this; max 2 adjustments in
which you focus on the ones you deem most important to improve accounting quality
and/or comparability). Do this for your own company and a maximum of one industry
peer. If you conclude that in certain areas an adjustment is not necessary, explain the
reasoning behind this choice.
3. Financial Analysis
• What are the drivers of firm performance? How does this compare to the firm’s peers
(industry peers or self-reported peers in the financial statements)?
4. Prospective Analysis
• Informed by the previous steps, develop forecasts of future performance. Forecasting
future balance sheets and income statements is the best way to go. You can use the
textbook’s standardized accounts and the exercises to develop your forecasts.
5. Valuation
• From your forecasts, determine the intrinsic value of the stock using the abnormal
profit or abnormal profit growth valuation model. Make appropriate terminal value
assumptions. Discount rates can be estimated using typical estimation procedures such
as the CAPM model and discount rates of peers.
6. Recommendation
• Based on your analyses, do you recommend investors buy the firm’s stock?
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Please limit your report to a maximum of 10 pages, excluding tables and appendices (Times
New Roman, 12, 1.5 line spacing; remember, it is about the quality of the report, not the amount
of text). Feel free to use all relevant information when developing your report. For example, a
lot of useful information can be collected from annual reports, investor relations websites,
company presentations, and other external sources (FactSet, Seeking Alpha, SEC filings
[EDGAR; www.sec.gov], etc.).
Research Article Presentations
Some meetings include the presentation and discussion of research articles (indicated by
“Article” rather than “Assignment”). Every student is required to prepare this literature
carefully and thoroughly before each class meeting. During these meetings, the readings will
be presented by a subgroup of students. However, we expect all students to interact during the
group presentations. It is important that you read the articles in advance so that you will have a
defendable opinion during the discussion in the group meeting.
The objective of the presentations is to provide the other students with an overview of the
readings and the relationship between the empirical findings and financial statement analysis.
Therefore, the presentation should help your group members understand the article's theory,
empirics, and practical relevance. Some guidelines for this presentation are as follows:
- Time: 20 to 25 minutes
- Content:
• Research question (i.e., what do the authors investigate?)
• Theoretical background & hypotheses (i.e., what do the authors expect to find, and
what is the underlying logic?)
• Methodology: Whereas in prior courses, discussing the research methodology might
not have been the main focus, this is not always the case here. You will see that for
some of the articles, the main (practical) contribution lies in developing and
implementing a new methodology that supports FSA practice (i.e., discuss how this
study improves upon existing FSA practice).
• Findings and implications of the articles (i.e., what do the authors find and why do we
care about their findings?)
• The relation between the articles and the textbook, assignments, and real-life examples
(i.e., how does this fit with the rest of the topics discussed in class).
Exam
The course is concluded by a written exam (see Master Education and Examination
Regulations). The written exam is a 120-minute closed-book exam consisting of open-ended
questions covering the literature assigned to and discussed during the tutorials, lectures, and the
case. You can use a non-programmable calculator (note that only the following types are
allowed: Casio FX82 or Casio FX85, and all their subtypes, like FX82 ES).
Since the exam is intended to test the knowledge about financial statement analysis that you
have gained throughout this course, it will contain questions about a broad range of issues
discussed in the course. As such, the exam questions reflect and represent the topics dealt with
in the course. This means that there will be questions about theory (including the academic
articles) and several applications of theory.
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Although deviations are possible, the division of topics on the exam will roughly have the
following distribution:
1. Accounting Analysis
2. Research Articles
3. Financial Analysis, Forecasting, and Valuation
Total
25%
25%
50%
100%
As such, all three components form an integral part of the exam, and skipping portions in your
study of the exam-relevant material is not advisable.
Note that you must hand in your entire examination set after the exam and any scrap paper
used during the exam. You are not allowed to copy, photograph, or take any examination papers
or scrap paper out of the examination room.
Additional notes
To pass this course, the summary and exam grades should be minimally 5.50. There are no
minimum requirements for the other partial grades. Grades for the case and exam are rounded
to the nearest decimal, except exam grades between 5.45 and 5.49; these are rounded to 5.4.
The summary course grade is computed according to the percentages disclosed at the beginning
of this section and is rounded to the nearest half, except for course grades between 5.25 and
5.49: these are rounded to 5.00.
For the unfortunate ones who do not pass the exam (i.e., have an exam grade lower than
5.50), the final course grade equals the exam grade, rounded to the nearest half. Furthermore,
in line with grading instructions from the Exams Office, an NG ("No Grade") indication will
be assigned to students who do not take part in the course and/or the exam.
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4.
Literature
During this course, we make intensive use of the following textbook:
Business Analysis & Valuation: An International Perspective, Krishna G. Palepu, Paul
M. Healy, and Erik Peek, Cengage Learning, Seventh Edition, 2025. (Hereafter PHP)
Spreadsheets containing financial statements may be available for some assignments or cases
on Canvas. Note that the textbook has a companion website at the following location:
https://www.cengage.com/cgiwadsworth/course_products_wp.pl?fid=M20b&product_isbn_issn=9781473796157
This website includes instructions on producing standardized financial statements and
additional material for some cases and assignments discussed during the meetings.
Additional required literature consists of the following research articles:
•
Arif, S., and E. Sul. (2024). Does accounting information identify bubbles for Fama?
Evidence from accruals. Journal of Accounting & Economics 78 (2-3): 1-22.
•
Barth, M.E., Liu, K., and C.G. McClure. (2023). Evolution in Value Relevance of
Accounting Information. The Accounting Review 98 (1): 1-28
•
Binz, O., Schipper, K., and K.R. Standridge. (2025). Estimating Profitability
Decomposition Frameworks via Machine Learning: Implications for Earnings
Forecasting and Financial Statement Analysis. Journal of Accounting & Economics,
Forthcoming
•
Colas, B., and C. Brousseau. (2025). Industry classification misfits: identification,
consequences and guidance. Review of Accounting Studies, Forthcoming
•
Dyer, T., Guest, N., and E. Yu. (2025). New accounting standards and the performance
of quantitative investors. Journal of Accounting & Economics 79 (2-3): 1-25
•
Iqbal, A., Rajgopal, S., Srivastava, A., and R. Zhao. (2024). A Better Estimate of
Internally Generated Intangible Capital. Management Science 71 (1): 731-752
•
Lyle, M. R., and T. Yohn. (2024). Measuring portfolio gains: The case of earnings
announcement trading signals. The Accounting Review, 99(4): 315-338.
•
Noordermeer, B., and P. Vorst (2025). Are Balance Sheet Disaggregations
Informative: Evidence from Forecasting Operating Assets. Management Science,
Forthcoming
•
Piotroski, J.D., and E.C. So (2012). Identifying Expectation Errors in Value/Glamour
Strategies: A Fundamental Analysis Approach. Review of Financial Studies 25 (9):
1841-1875.
•
Wang, F., Sterling Yan, X., and L. Zheng. (2023). Do Sophisticated Investors Follow
Fundamental Analysis Strategies? Evidence from Hedge Funds and Mutual Funds.
Review of Accounting Studies 29 (2): 1097-1146
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5.
Code of Conduct
How do we wish to interact with each other? Here, you will find a highlight of the values of
the School of Business and Economics (SBE), which inspire our community and act as a
framework for the personal conduct of employees and students:
01 Respect
First of all, we should be able to count on each other—among staff, students, and in cooperation.
Respect, reliability, taking responsibility, and self-reflection are the core concepts here. This
includes, but is not limited to, appropriate language in written and spoken communication.
02 Commitment
We are part of a community of motivated students and staff. We expect students and staff to
express their intellectual passion through ambition, initiative, and commitment. Staff and
students must encourage each other in this process.
03 Professionalism
Staff and students contribute to an inspiring work and academic climate through their various
fields of expertise, knowledge, and experience. We value each other's contributions in word
and deed. Students and employees have many rights as well as obligations, and we acknowledge
these and apply them appropriately and professionally at all times.
04 Inclusivity
Our School is dedicated to creating an inclusive environment for everyone, regardless of race,
ethnicity, religion, colour, nationality, sexual orientation, gender, etc. The inclusion of all
students and staff members is fundamental to our School’s diverse and international character.
English is used as the lingua franca at all times within our School.
05 Integrity
We are committed to protecting and guaranteeing academic integrity. This means taking exams
independently and honestly, indicating sources when writing a paper, essay, or thesis, and
always being truthful when filling out forms and other documentation.
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This Code of Conduct allows holding someone accountable for undesirable behavior. For more
details, including complaint procedures and potential sanctions, please consult our full code of
conduct on SBE’s Student Intranet.
Department of Accounting & Information Management Code of Conduct
“I expect the coordinators, instructors, and students in this and other Accounting &
Information Management courses to behave in a manner that is suited in general and for an
academic institution in particular. I emphasize fairness to all students taking the course. Please
do not do anything unfair to other students or ask the coordinator/instructor to make exceptions
that are unfair to other students. In addition, do not perform activities that have the effect or
intention of interfering with education or fair evaluation of a student’s performance. Examples
of such activities include, but are not limited to:
1. Cheating: behaving in a dishonest or deceitful way in order to win an advantage.
2. Plagiarism: copying another person’s work, ideas, etcetera, and submitting it as
your own or without attribution.
3. Fabrication: using fictitious data and results with the sole purpose to deceive.
4. Misrepresentation of records: tampering and falsifying information, for example on
one’s resume.
5. Facilitating dishonesty: knowingly helping or attempting to help another violate any
of the above provisions.
Furthermore, in communicating with the academic staff and fellow students, you are expected
to behave in a courteous way, i.e., you are expected to show good manners and respect for
others. You are especially advised to take this into account in your email communication. The
mere fact that the development in information technology has made it possible to send an email
within a matter of seconds does not mean that you should. Think twice before you send an email.
Adhering to the above code of conduct ensures that we can all focus on the fundamental purpose
of an academic institution, which is the pursuit of knowledge.”
Prof. Dr. Alexander Bruggen
Chair of the Department of Accounting & Information Management
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6.
Fraud and Plagiarism
To protect the reputation of the degrees that you – as students – receive, instances of cheating
or plagiarism are treated extremely seriously.
Fraud, including plagiarism, is understood as a student’s act or failure to act, making it
partially or fully impossible to correctly assess his/her knowledge, insight, and skills.
Plagiarism is the presentation of one’s own or other people’s ideas or words without adequate
reference to the source. Any assignment is an individual piece of work, which means that
plagiarism is strictly forbidden. Equally, the use of mobile phones, communication devices, or
any other information carrier (whether the phone or other device is turned on or off, used or not
used, etc., is irrelevant) during an examination is also forbidden.
If the Board of Examiners concludes that anything has occurred in an examination that
makes it partially or fully impossible to correctly assess his/her knowledge, insight, and skills,
they may impose a sanction in accordance with SBE’s policy on fraud, including plagiarism.
More information can be found on MySBE Intranet:
https://intranet.maastrichtuniversity.nl/en/cheating-and-plagiarism
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7.
Global Citizenship Education & Competency Development
“Global Citizenship Education (GCEd) should empower learners to assume active roles
(locally and globally) in building more peaceful, tolerant, inclusive, secure and sustainable
societies.” (UNESCO, 2014)
Why Global Citizenship Education?
One of the most important callings for education in our time is to guide students’ personal
development in global citizenship so that they can contribute meaningfully to perhaps the most
serious, sweeping, and integrated set of challenges humanity has ever known.
Graduates will face converging socio-ecological crises that permeate virtually all facets of
human life, institutions, and the natural world. In addition, students need to find rewarding and
well-compensated work in a world fraught with economic and employment instability, inequity,
social division, and conflict.
Competence-based education
This is why Maastricht University places great emphasis on fostering global citizenship
competencies, the knowledge, skills, and attitudes graduates will need to address the highly
complex and ambiguous issues they will encounter in their future personal lives and
professional careers and become change agents for a better, more socially inclusive,
environmentally sustainable, and equal world.
Figure 1 Evolving framework for Global Citizenship Education at UM. Bright blue fields
show knowledge elements, orange fields list skills, and dark blue fields list attitudes and other
characteristics. Note that the dimensions are not mutually exclusive: an element may fit in
multiple columns. Current trends in GCEd to focus more on attitudes, virtues, and agency
translate as a shift in emphasis from left to right dimensions and within dimensions from top to
bottom.
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Global literacy/systems thinking is about understanding an interrelated world's complexity,
ambiguity, and uncertainty and dealing with its challenges.
Social responsibility can be seen as the perceived level of interdependence and social concern
for others, society, and the environment. It relates to personal development, a search for
meaning, a sense of purpose, and an aspiration to contribute beyond the self.
Transformative engagement is about change agency. Learners can translate their knowledge,
attitudes, and skills into actions by designing, implementing, and evaluating (evidence-based)
innovative solutions or interventions, typically in co-creation with others.
For more information, visit:
https://www.maastrichtuniversity.nl/global-citizenship-education/global-citizenship-education
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8.
Schedule
Date Topic
Literature / Assignments
28/10 Opening Lecture
Chapters 1 & 2
31/10 Introduction to FSA
Chapters 1 & 2
Barth, Li, & McClure 2023
Wang, Sterling Yan, & Zheng 2024
Colas & Brousseau 2025
Assignments 1, 2, 3, & 4
4/11 Accounting Analysis Part I – Introduction
Chapter 3
Dyer, Guest, & Yu 2025
Assignments 5, 6, & 7
7/11 NO Class!!
Prepare and send the standardized statements of the case
company of your choice to your tutor.
11/11 Accounting Analysis Part II – Recasting
Financial Statements & Asset Distortions
Chapter 4 (pp. 139– 155)
Assignments 8 & 9
14/11 Accounting Analysis III – Fraud Prediction Chapter 4 (pp. 155 – 165)
& Asset, Liability and Equity Distortions Assignment 10
Article 1: Iqbal, Rajgopal, Srivastava, & Zhao 2025 (Pres. Group
1)
18/11 Financial Analysis
Chapter 5
Assignment 11
Article 2: Binz, Schipper, & Standridge 2025 (Pres. Group 2)
21/11 Financial Analysis & Prospective Analysis: Chapter 5
Forecasting
Assignment 12
Article 3: Noordermeer & Vorst 2025 (Pres. Group 3)
25/11 Prospective Analysis: Forecasting
Chapter 6
Article 4: Arif & Sul 2024 (Pres. Group 1)
Assignment 13
28/11 Prospective Analysis: Forecasting & Value Chapters 7 and 8
Implementation
Assignment 14
2/12 Prospective Analysis: Value
Implementation
Chapters 7 and 8
Assignment 15
Article 5: Piotroski and So 2012 (Pres. Group 2)
5/12 Case Preparation
N/A
9/12 Forecasting and Valuation: A Recap
Chapter 9
Assignments 16 & 17
Article 6: Lyle & Yohn 2024 (Pres. Group 3)
Hand in the case report before 6 pm!
12/12 Q&A - Recap
Q&A and Recap Session – Sample exam questions
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9.
Lectures & Tutorials
Meeting 1: Opening Lecture
The opening lecture provides an overview of the (structure of the) course and a broad
introduction to financial statement analysis, including the role and importance of industry and
strategy analyses.
Meeting 2: Introduction to Financial Statement Analysis
The first tutorial meeting of the course introduces the basics of using financial statements for
business analysis and valuation. We will focus on how capital market participants use financial
statement information.
Assignment 1
Framework
1. Chapter 1 of the textbook introduces financial statement analysis and why it is needed
in the current business environment. Read Chapter 1 of the textbook and answer the
following questions:
a. Under what conditions do information problems arise in a corporate setting? How
does the publication of financial statements by management contribute to solving
these information problems? What issues persist even after the publication of
financial statements?
b. How does the “lemons problem,” as discussed by Akerlof (1970)1 relate to the
described information problems? How is the valuation of companies affected by
this? What role does financial statement analysis play in solving these problems?
2. Chapter 1 of the textbook introduces a framework for executing financial statement
analysis, consisting of four steps (strategy analysis, accounting analysis, financial
analysis, and prospective analysis). Explain the importance of each step and the
relationship among them.
Assignment 2
Introduction to FSA: Is Accounting Information (Value) Relevant?
One of the premises of financial statement analysis is that the information reported by the
accounting system is useful to investors. Over the past years, discussions have developed
surrounding the usefulness of accounting information, especially related to earnings. The
following paper discusses the value relevance of accounting information and whether it has
declined over the past decades:
Barth, M.E., Liu, K., and C.G. McClure. (2023). Evolution in Value Relevance of Accounting
Information. The Accounting Review 98 (1): 1-28
Akerlof, G., 1970. The market for “lemons”: Quality uncertainty and the market mechanism. Quarterly Journal
of Economics, August, pp. 488-500. This article is not part of the required literature for the course.
1
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The following questions can serve as guidance for the discussion:
1. Explain the concept of value relevance. Why would the value relevance of accounting
in general and certain items in specific have changed over time?
2. What is the role of changes in the composition of different types of firms in the economy
in this process?
3. How does the authors’ approach to test for the value relevance of accounting items differ
from that in prior literature?
4. What do the authors find? Has the value relevance of accounting information declined?
Which items have gained/lost relevance?
Assignment 3
Introduction to FSA: Do Sophisticated Investors Follow
Fundamental Analysis Strategies?
Fundamental analysis is an important component of financial statement analysis practice. The
following article discusses the meaning of fundamental analysis and the extent to which hedge
funds and mutual funds exploit trading strategies based on fundamental analysis.
Wang, F., Yan, X. S., and L. Zheng. (2024). Do sophisticated investors follow fundamental
analysis strategies? Evidence from hedge funds and mutual funds. Review of Accounting
Studies 29 (2): 1097-1146.
The following questions can serve as guidance for the discussion:
1. Explain the meaning of fundamental analysis. How can it be useful to investors?
2. Do hedge funds and mutual funds trade based on accounting anomalies? How do the
authors test whether this is the case? How does the authors’ approach differ from prior
literature that investigates this?
3. Explain the different types of accounting anomalies that the authors investigate.
4. Explain how agency costs can affect funds’ hesitance to trade in line with accounting
anomalies. How can agency costs explain why some types of anomalies are more likely
to be exploited by hedge funds?
5. What do you think the results imply for the persistence of the anomalous returns?
Assignment 4
Industry Classification
Industry analysis forms an important component of financial statement analysis. However, there
are multiple ways to define industries and complications arise in defining what a firm’s true
industry is. The following article aims to identify industry core firms and separate them from
so-called “misfits” and discusses the implications of including misfits in among others financial
analysis:
Colas, B., and C. Brousseau. (2025). Industry classification misfits: identification,
consequences, and guidance. Review of Accounting Studies, Forthcoming
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The following questions can serve as guidance for the discussion:
1. Explain the importance of industry homogeneity in industry analysis.
2. How do the authors distinguish between misfit and core firms by comparing two
industry classification schemes?
3. How does the presence of misfits affect estimates of “abnormal” accruals? How do
misfits affect the relation between abnormal accruals and future restatements?
4. The paper evaluates various peer group selection methods for detecting earnings
management. Which method proved most effective, and why?
5. How do misfits affect information processing costs that affect investors, regulators, and
financial analysts?
Meeting 3: Accounting Analysis I – Introduction
This meeting addresses accounting analysis. PHP indicates that "…the purpose of accounting
analysis is to evaluate the degree to which a firm's accounting captures its underlying business
reality. Analysts can assess the degree of distortion in a firm's accounting numbers by
identifying areas of accounting flexibility and evaluating the appropriateness of a firm's
accounting policies and estimates." After the 'accounting analysis' meetings, you should be able
to:
a. discuss the advantages and disadvantages of allowing accounting flexibility or
accounting discretion;
b. identify key accounting policies and assess accounting discretion for a particular
company. In other words, know which financial statement items are especially prone to
manipulation or different interpretations;
c. identify management's motives for using its accounting discretion;
d. identify potential red flags in a company's financial statements;
e. undo accounting distortions.
Assignment 5
Key Accounting Policies
Read Chapter 3 of PHP about ‘accounting analysis’ and answer the following questions:
1. Many firms recognize revenues at the point of shipment. This provides an incentive to
accelerate revenues by shipping goods at the end of the quarter. Consider two
companies: one ships its products evenly throughout the quarter, and the other ships all
its products in the last two weeks of the quarter. Each company’s customers pay 30 days
after receiving the shipment. Using accounting ratios, how can you distinguish these
companies?
2. The conservatism principle arises because of concerns about management’s incentives
to overstate firm performance. Joe Banks argues, “We could eliminate conservatism and
make accounting numbers more useful if we delegated financial reporting to
independent auditors rather than corporate managers.” Do you agree? Explain why or
why not.
3. What are ways in which companies can manage earnings? What do you think is meant
with the term “real earnings management” and how does it differ from managing
earnings via accounting?
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Assignment 6
Accounting Analysis of AB InBev
Anheuser-Busch InBev SA/NV (short: AB InBev) is one of the biggest players in the
international brewing market, brewing approximately one-third of all beer consumed
worldwide. In 2022, its revenue amounted to $57.8 billion, an increase of 6.4% from 2021. AB
InBev owns over 500 beer brands, including many internationally well-known brands, such as
Budweiser, Stella Artois, and Corona. AB InBev sells its products in more than 100 countries on
all continents around the world, under a range of different distribution models (direct,
wholesale, on-trade vs. off-trade).
AB InBev's history is one of mergers and acquisitions. AB InBev lists acquisitions as one of
its core competencies, and management has gained a reputation for cutting costs and creating
(other) merger synergies. However, in recent years, analysts have cast doubt on the long-term
viability of this strategy. Not only is the number of potential acquisition targets shrinking due
to competition concerns, but analysts have further questioned management’s ability to create
organic growth in the acquired portfolio of brands.
The current company is a result of the combination of U.S.-based brewer Anheuser-Busch
and the Belgian-based brewer InBev. InBev itself resulted from a merger between Belgianbased Interbrew and the Brazilian brewing firm AmBev. In 2016, the large South African
brewing company SAB Miller was acquired, creating the current company. These takeovers
have led to large amounts of goodwill and other intangible assets on the company’s balance
sheet. In the December 31, 2022, statement of financial position, these amounted to $113 billion
and $40.2 billion, respectively, making them the two largest asset classes. In comparison, AB
InBev’s property plant and equipment was recorded at $26.7 billion. AB InBev has not recorded
any major goodwill impairments over the past few years.
AB InBev has taken on debt (among other financing methods) to finance the huge number
of mergers and acquisitions. Long-term debt reported on the statement of financial position
equaled $87.4 billion and $78.9 billion in 2021 and 2022, respectively. By the end of 2022, AB
InBev’s debt-to-EBITDA ratio was 3.51. Management uses this ratio to assess the liquidity
position of the firm and to compare the debt level of a firm against the (adjusted) earnings
capacity of the firm. AB InBev is committed to reducing its leverage and bringing down the
debt-to-EBITDA ratio to 2.0, which is also reflected in AB InBev’s low dividend. This is
important as the high debt levels have created concerns on the part of investors about AB
InBev’s credit risk and have been one of the main reasons behind AB InBev’s lagging stock
price performance over the past years. Since interest rates have increased, managing debt levels
is becoming increasingly important, although most of AB InBev’s loans have relatively long
maturity periods.
Organic growth in AB InBev’s 2022 revenue amounted to 11.2%. Most of this growth is
driven by price increases or AB InBev’s ability to sell higher-priced brands. The revenue per
HL of beer sold increased by 8.6%, while the volume growth in 2022 was only 2.3%. EBITDA
went up by 7.2%, illustrating the margin pressure that AB InBev has been experiencing, which
could be problematic given management’s reputation for generating the highest margins in the
brewing industry. While AB InBev’s 2022 net income has increased from $4.67 billion to $5.97
billion, its operating cash flows have decreased from $14.80 billion to $13.30 billion, mostly
driven by an increase in net working capital, which, in contrast, decreased substantially in 2021.
While AB InBev is required to report income numbers in line with IFRS, it also heavily
relies on non-GAAP performance measures such as EBITDA, normalized EBIT, and
normalized profit. Typical exclusions of these measures are income tax expense, results of
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associates, net finance costs, mark-to-market adjustments on hedging instruments, and
depreciation and amortization.
AB InBev is involved in several material tax proceedings, mainly related to its Brazilian
subsidiary AmBev. While AB InBev does not report a provision for these tax proceedings, it
identifies that possible losses could equal $17.4 billion (which is up from the $14.7 billion
estimated at the end of 2021).
The “Senior Leadership Team” AB InBev is comprised of 18 members and is headed by the
CEO, Michel Doukeris. Both members of the board of directors and executive board members
receive cash-based remuneration and are eligible for substantial performance-based equity
rewards (e.g., stock options). Different share-based programs allow company senior
management and the board of directors to receive or acquire shares of AB InBev. AB InBev
has three primary share-based compensation plans: the share-based compensation plan (“ShareBased Compensation Plan”), the long-term restricted stock unit plan for directors (“Restricted
Stock Units Plan for Directors”), and the various long-term incentive plans for executives (“LTI
Plan Executives”). Most of the programs have multiple-year vesting periods in which vesting
depends on, among others, relative total shareholder return. While in both 2021 and 2022, no
new stock options were granted, the number of outstanding stock options during 2021 and 2022
remained high at 102.7 million and 83.2 million, respectively. In addition, 20.9 million and 28.2
million restricted stock units were outstanding.
AB InBev’s worldwide presence exposes them to several risks, including currency risk.
Other risks include changes in commodity prices and changes in interest rates. AB InBev aims
to mitigate its exposure by hedging these risks. In line with hedge accounting, gains and losses
on effective hedges can be recognized in other comprehensive income rather than net income.
Moreover, AB InBev’s debt is denominated in several different currencies that reflect AB
InBev’s worldwide operational presence.
One of AB InBev's points of focus is innovation. In 2022, AB InBev spent $268 million on
R&D, down from $298 million in 2021. This research and development expenditure covers
many different innovations, including new products, process optimization, and, to a smaller
extent, market research. Furthermore, introducing new products requires considerable
investments in distribution and selling and marketing costs, which during 2022 (2021) were
equal to $6.4 and $6.8 billion ($5.9 and $7.3 billion), respectively.
Both “impairment of goodwill and other intangibles with indefinite useful lives” and
“uncertain tax positions” were mentioned as key audit matters in PWC’s 2022 independent
auditor’s report.
Based on the case description above, answer the following questions:
1. Identify key accounting policies (step 1) and asses the degree of accounting flexibility
(step 2).
2. What incentives can you identify that might influence the management’s reporting
strategy (step 3)?
3. Which key disclosures would you expect to feature in the annual report, considering the
answers to the previous questions (step 4)?
4. What potential red flags can you identify (step 5)?
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Assignment 7
Accounting Changes
Accounting is not static and accounting standards continuously evolve to address changes in
the business environment and meet expectations of investors. The following article discusses
how changes in accounting affect the investment decisions and short-term performance of
quantitative investors, showing how modifications in reported financial statement metrics can
temporarily disrupt algorithmic models and value-based strategies:
Dyer, T., Guest, N., and E. Yu. (2025). New accounting standards and the performance of
quantitative investors. Journal of Accounting & Economics 79 (2-3): 1-25
The following questions can serve as guidance for the discussion:
1. What are quantitative and discretionary (mutual) funds?
2. How do changes in accounting standards affect the reliability and comparability of
financial statement data for quantitative investors?
3. Why are value-oriented quantitative strategies more sensitive to accounting standard
changes than other quantitative strategies? How about funds that use more accounting
terminology?
4. Why is the mechanism that explains quant-fund underperformance following
accounting standard changes?
Meeting 4: Accounting Analysis II – Recasting Financial Statements & Asset Distortions
On Canvas, you will find several video lectures that cover the usefulness of accounting analyses
and the applications of several frequently observed accounting adjustments. During the
meeting, you will have time to ask any remaining questions.
Assignment 8
Recasting Financial Statements
Standardize the financial statements of Ahold Delhaize. For this purpose, you will find an empty
spreadsheet on Canvas that contains the financial statements of Ahold Delhaize for 2023 and
2024. Because it is time-consuming to go over the classifications of all balance sheet and
income statement items, please check your solutions with other students and the filled-in
version that is also available on Canvas. During the meeting, we can then focus on any unclear
classifications. While this will not be exam-relevant, you will have to do a similar recasting
exercise for your case. Moreover, from now on, we will mostly use the “recasted” financial
statement accounts.
Assignment 9
Asset Distortions
Carefully read the examples of asset distortions on pages 139 – 155 of PHP and answer the
following questions:
1. Depreciation & amortization. Answer discussion questions 2 and 3 at the end of
Chapter 4.
2. Intangible assets.
a. Answer discussion question 5 at the end of Chapter 4. You do not have to do
parts A and B. You can assume that R&D expenditures occur evenly throughout
the year(s) and that the expected life equals 6.7 years. In addition to answering
part C, what is the value of the R&D asset at the end of 2023 (HINT: you do not
need to recalculate the entire amortization table)?
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b. From an analyst’s perspective, which arguments would support capitalization
(rather than immediate expensing) of research expenditures?
3. Revenue Recognition. SuperMart, a supermarket chain, reported €120 million in
revenue for Q2. After a review, management discovers that €5 million of sales were
recorded before goods were actually delivered to customers. The gross margin on these
sales is 25%. SuperMart’s tax rate is 25%.
4. Revenue Recognition. Company BAM is an established construction company. On
1/1/2025, company BAM started construction on a new office building for ABC
company for an agreed-upon price of €675 million. BAM expects that the project will
take three years to complete and estimates that the total cost of the project amounts to
€500 million. By the end of 2025, BAM has incurred €150 million in costs. Assume that
an analyst believes that BAM is too optimistic about the project's total costs and instead
anticipates that the project will cost another €450 million to complete. What adjustments
does the analyst need to make to the 2025 Ending Balance Sheet and 2025 Income
Statement of BAM? BAM has a 35% marginal tax rate.
5. Write-down of current assets. Answer discussion question 9 at the end of Chapter 4.
Meeting 5: Accounting Analysis III – Estimating Internally Generated Intangible
Capital & Asset, Liability & Equity Distortions
Article 1
Intangible Capital – Presented by Subgroup 1
In the previous session, we adjusted the financial statements by capitalizing R&D expenditures.
Next to spending on R&D, SG&A expenditures can also be seen as (partly) creating an
intangible asset that can be capitalized. The following paper develops a methodology to
estimate the value of internally generated intangible capital:
Iqbal, A., Rajgopal, S., Srivastava, A., and R. Zhao. (2025). A Better Estimate of Internally
Generated Intangible Capital. Management Science 71 (1): 731-752.
Assignment 10
Asset, Liability, and Equity Distortions
Carefully read the examples of liability, equity, and other distortions on pages 155 – 165 of
PHP and answer the following questions:
1. Discounted receivables. Answer discussion question 10 at the end of Chapter 4. Use
the following table for the changes in the allowance for doubtful receivables:
Item
Allowance on January 1
Currency translation adjustments
Additions/release (allowance recognized as expense)
Use
Other
Allowance on December 31
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2022
466
49
93
(114)
(1)
493
2023
493
(6)
173
(297)
0
363
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2. Provisions. In its 2022 financial statements, AB InBev reports several contingencies for
which “the risk of loss is possible but not probable” such that AB InBev does not report
a provision for these possible losses. The potential loss related to several cases on tax
proceedings is $17.4 billion. Assume that an analyst disagrees with AB InBev’s
management and expects the risk of loss to be probable. Assume that the analyst expects
AB InBev to pay the above amount at the end of 2027. Assuming a 9% discount rate,
what adjustments should the analyst make to AB InBev’s beginning 2023 balance sheet,
2023 income statement, and ending 2023 balance sheet? The tax rate is 35%.
3. Unearned Revenues. Assume Telegraph Inc. has sold 100,000 1-year subscriptions to
its daily newspaper on July 1, 2024, and 100,000 1-year subscriptions on July 1, 2025.
For subscriptions sold during 2024 (2025), Telegraph Inc. charges €100 (€110). What
adjustments do you have to make to Telegraph Inc.’s 2024 and 2025 income statement
and beginning and ending 2025 balance sheet, assuming that Telegraph Inc. recorded
the entire subscription revenue on July 1 of the respective years? The tax rate is equal
to 25 percent. For simplicity, assume the cost of sales to be 0.
4. Post-employment benefits. In its 2022 financial statements, AB InBev reports a net
pension liability of $1,523 million. In a sensitivity analysis, it is reported that if the
discount rate were to go down by 0.5%, it would increase the pension liability by $295
million. Assume that an analyst thinks that, at the end of the year, a 0.5% reduction in
the discount rate is warranted. What adjustments should the analyst make to AB InBev’s
2022 financial statements if the original discount rate used by the analyst is equal to AB
InBev’s average discount rate of 5.9%? What is the effect (if any) on AB InBev’s 2023
income statement prepared by the analyst?
5. Post-employment benefits. Do you think the calculation of pension expense on the
income statement is appropriate? Is it reasonable to exclude some components of the
change in the unfunded obligation from income?
Meeting 6: Financial Analysis
After assessing a company's industry structure and competitive strategy and removing
accounting distortions, the company's financial statement information can be used to assess its
performance in the context of its strategy and industry structure. In Chapter 5, PHP
distinguishes two types of financial analysis: ratio analysis and cash flow analysis. Their
approach to ratio analysis is the decomposition of Return on Equity into a non-operating and
operating component, where the latter can be decomposed further into asset turnover, profit
margin, financial spread, and financial leverage. This is followed by a detailed analysis of these
four components. Ratio analysis, by revealing the drivers of a firm’s performance, provides the
basis for prospective analysis (i.e., forecasting future financial performance). Cash flow
analysis focuses on assessing the company's liquidity and evaluating how it manages its
operating, investment, and financing cash flows. The cash flow statement also provides an
indication of the quality of earnings. In the long run, positive earnings should go hand in hand
with positive operating cash flows. After the ‘financial analysis’ meetings, you should be able
to:
a. decompose Return on Equity (ROE), Return on Assets (ROA), and the Return on Net
Operating Assets (RNOA);
b. evaluate the components of ROE and ROA (in the context of the company's strategy);
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c. identify and evaluate the different drivers of asset turnover, profit margin, financial
spread, and financial leverage;
d. compute and interpret the sustainable growth rate;
e. calculate and analyze free cash flows (in the context of the company’s strategy, industry
characteristics, and credit policies).
Assignment 11
Ratio Analysis and ROE Decomposition
Read Chapter 5 of PHP about financial analysis and answer the following questions:
1. ABC Company recognizes revenue at the point of shipment. Management decides to
increase revenue for the current quarter by filling all customer orders. Explain the
impact on days receivable in this quarter, this and next quarter’s sales growth, and this
and next quarter’s profit margins.
2. Under IFRS, companies cannot use LIFO for inventory valuation. In a period of rising
prices, how are the following ratios affected by the decision to select LIFO rather than
FIFO:
a. Gross margin
b. Current ratio
c. Asset turnover
d. Debt-to-equity ratio
e. Average tax rate
3. How do you think ROA, asset turnover, profit margins, and the debt-to-equity ratio are
affected by the accounting policies required for intangible asset investments?
4. Answer problem 3 at the end of Chapter 5. Note that for answering problem 3, a
spreadsheet is available on Canvas and/or the book’s companion website.
Article 2
Income Statement Disaggregations – Presented by Subgroup 2
The following paper analyzes the usefulness of decomposing profits for financial statement
analysis and investigates how using machine learning can increase the insights obtained from
profit decompositions:
Binz, O., Schipper, K., and K.R. Standridge. (2025). Estimating profitability decomposition
frameworks via machine learning: Implications for earnings forecasting and financial
statement analysis. Journal of Accounting and Economics, Forthcoming
Meeting 7: Financial Analysis & Prospective Analysis: Forecasting
On Canvas, you will find a video lecture covering the sustainable growth rate and free cash
flows. During the meeting, you will have time to ask any remaining questions.
Assignment 12
The Sustainable Growth Rate and Free Cash Flows
1. Critically evaluate the following statement: “A company cannot grow faster than its
sustainable growth rate.”
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2. The following information is available about Company Svalbard:
2023
2024
Sales Revenue
€1,000,000 €1,150,000
NOPAT Margin
9.00%
Investment Income (net)
€5,000
After-tax net interest expense
€18,950
Beginning Operating Working Capital
€76,000
Beginning Net Non-Current Operating Assets €600,000
Beginning Investment Assets
€112,500
Beginning Debt
€630,800
Beginning Equity
€157,700
Svalbard’s beginning operating working capital, beginning net non-current assets, and
beginning investment assets are projected to remain constant as a percentage of sales
(in the corresponding year). The company wants to deleverage and plans to reduce the
debt-to-capital ratio to 75%. Based on this information, answer the following questions:
i. Calculate the end of 2023 Operating Working Capital, Net Non-Current Operating
Assets, Investment Assets, Debt, and Equity.
ii. Calculate Svalbard’s 2023 Free Cash Flow to Equity (FCFE) and Free Cash Flow
to the Firm (FCFF).
iii. What is Svalbard’s 2023 dividend payout ratio?
3. HelloYou Inc. started 2023 with a book value of equity equal to €120 million. The net
profit of HelloYou Inc. was €15 million. Assume that the firm wants to grow by 10
percent during 2024 and does not expect its return on equity to change. What should be
HelloYou Inc.’s dividend payout over 2023? How would your answer change if
HelloYou Inc. wants to grow its profit by 20%? How would your answer change if
HelloYou Inc. intends to grow by 10% but expects the return on new investments to
equal 20%?
4. Bloomington Inc.’s beginning 2023 net operating assets were €10,000. Its 2023 NOPAT
was equal to €1,500. If Bloomington Inc. wants to grow next year’s NOPAT by 24.67%,
reinvests 40% of its 2023 NOPAT, and expects next year’s return on existing assets to
increase to 17.5%, what is the implied return on its new investments?
Article 3
Balance Sheet Disaggregations – Presented by Subgroup 3
In the previous meeting, we decomposed ROE into its different components, as different
components of ROE may have different future performance implications. The following article
investigates the usefulness of balance sheet decompositions for forecasting operating asset
growth and future revenue growth:
Noordermeer, B., and P. Vorst. (2025). The Informativeness of Balance Sheet
Disaggregations. Evidence from Forecasting Operating Assets. Management Science,
Forthcoming
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Meeting 8: Prospective Analysis: Forecasting
Most economic decisions are based on future cash flows or earnings. Business strategy analysis,
accounting analysis, and financial analysis are, therefore, often just necessary steps to be able
to forecast future performance. Forecasting is the most essential task of prospective analysis.
As PHP indicates: "Managers need forecasts for planning and to provide performance targets;
analysts need forecasts to help communicate their views of the firm's prospects to investors;
bankers and debt market participants need forecasts to assess the likelihood of loan repayment."
Forecasting earnings keeps many analysts busy, and studying analysts' earnings forecasts keeps
many academic researchers busy. Although forecasting often sounds extremely subjective and
difficult, many of the most essential forecasting tools are easy to learn. Forecasts are also
needed to estimate company value. The next meetings focus on estimating future earnings and
using these earnings estimates to derive company value. Furthermore, we will discuss research
articles about earnings forecasting and valuation models. After the 'prospective analysis'
meetings, you should be able to:
a. understand the relation of forecasting to business strategy analysis, accounting analysis,
and financial analysis;
b. use your findings of strategy analysis, accounting analysis, and financial analysis in
basic and more complex forecasting tasks;
c. know and follow the basic steps of a forecasting task;
d. know how to assess the sensitivity of your estimates to the key assumptions;
e. describe and compare different valuation methods;
f. implement the different valuation methods;
g. derive free cash flows from your earnings estimates;
h. describe the different methods to estimate terminal values;
i. estimate terminal values.
Assignment 13
Forecasting Income Statement and Balance Sheet Items
On Canvas, you will find a spreadsheet containing the standardized 2023 and 2024 financial
statements of Ahold Delhaize. The sheet titled “Forecasts & Valuation” includes a series of
yellow cells indicating the forecast assumptions for Ahold Delhaize’s financial statements for
the years 2025–2031. Using the information provided below, develop forecasts of Ahold
Delhaize’s performance over this period by completing all yellow cells in the Excel file (HINT:
the end 2024 balance sheet amounts are the starting 2025 balance sheet values. Hence, once
you calculate 2025 sales, you can directly calculate these ratios). Based on your forecasts,
determine Ahold Delhaize’s free cash flow to equity and free cash flow to the firm over the
period 2025-2031.
Ahold Delhaize has provided the following information regarding its performance in the fourth
quarter of 2024 and its guidance for 2025:
• Through increased price investments, new own-brand assortments and strong
operational execution, our brands created value for customers in disruptive times. To
invest in these activities, our teams delivered over €1.35 billion in cost savings. This
commitment to strong and consistent performance further enabled a kick-start to several
Growing Together strategic initiatives, which will fuel accelerated growth in 2025.
• Q4 net sales were €23.3 billion, up 0.6% at constant exchange rates and up 1.0% at
actual exchange rates. Excluding the impacts from the divestment of FreshDirect, the
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•
•
•
•
•
•
•
•
•
•
•
closure of Stop & Shop stores and the cessation of tobacco sales in the Netherlands, net
sales growth would have been 2.1 percentage points higher.
Q4 comparable sales excluding gasoline increased by 1.4% for Ahold Delhaize, up 1.4%
in the U.S. and 1.2% in Europe. Comparable sales excluding gasoline were positively
impacted by 0.2 percentage points in the U.S. due to weather and calendar shifts, and
negatively impacted by 3.4 percentage points in Europe due to tobacco and calendar
shifts.
Ahold Delhaize online sales increased by 5.8% in Q4 at constant exchange rates and by
6.1% at actual exchange rates. This was driven by double-digit growth in online grocery
excluding FreshDirect. The divestment of FreshDirect had a negative impact of 5.1
percentage points.
Q4 underlying operating margin was 4.1%, a decrease of 0.2 percentage points.
Continued strong performance in Europe was offset by price investments and lower
non-recurring items in the U.S.
Q4 IFRS operating income was €607 million and IFRS diluted EPS was €0.41. IFRS
results were €351 million lower than underlying results. This was mainly due to an
amendment to, and additional funding for, the Dutch pension plan, resulting in derisking
of the balance sheet.
Q4 diluted underlying EPS was €0.69, a decrease of 6.6% compared to the prior year at
actual rates.
2024 full year Ahold Delhaize net sales were €89.4 billion, underlying operating margin
was 4.0% and diluted underlying EPS was €2.54, in line with initial expectations for the
year.
2024 full year IFRS operating income was €2,784 million and IFRS diluted EPS was
€1.89. IFRS results were mainly impacted by the costs associated with the Belgium
Future Plan, Stop & Shop store closures and an amendment to the Dutch pension plan.
2024 free cash flow was €2.5 billion, which is above our guidance of around €2.3
billion.
Management proposes a cash dividend of €1.17 for the full year 2024, which is a 6.4%
increase compared to 2023 and in line with our dividend payout policy.
For 2025, with our Growing Together strategy and our growth model as a guide, we will
invest at a steady pace to enrich our omnichannel capabilities, drive growth in customer
loyalty and expand our reach. We will prioritize and add to the scope of price
investments, accelerate new store openings and remodels, and scale technologies that
have a proven and successful track record.
2025 outlook: underlying operating margin of around 4%; mid- to high-single-digit
underlying EPS growth; free cash flow of at least €2.2 billion; and gross capital
expenditures of around €2.7 billion.
Next the information above, you can use the following information to forecast the line items:
Sales
Ahold Delhaize provides the following guidance on expected 2025 sales growth:
• The acquisition of Profi closed on January 3, 2025, which is expected to add around €3
billion in net sales.
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The closure of underperforming Stop & Shop stores was completed in 2024. The
estimated net impact to 2025 reported net sales from these closures is between $550 and
$575 million.
• The cessation of tobacco sales will impact Albert Heijn's net sales at franchised stores
for the first half of the year. Additionally, Delhaize and Albert Heijn stores in Belgium
will end tobacco sales as of April 1, 2025, due to regulation changes. This will have
around a 1.0 percentage-point impact on reported and comparable store sales in Europe
in 2025.
Assume that for the years beyond 2025, sales growth steadily moves toward a steady state sales
growth rate of 3 percent.
•
NOPAT Margins
While margins are expected to remain stable in 2025, Ahold Delhaize does expect the effective
tax rate to rise in the coming years. You can assume a tax rate of 23% for 2025 and beyond.
Further assume that over time, more efficient operations, reduced inflation, and lower price
pressure increase pre-tax NOPAT margins to 3.5%.
Net interest expense after tax
Ahold Delhaize expects that net financial expenses are increasing. In line with this guidance
and taking into account that over time several low-interest loans need to be refinanced at higher
rates, assume that the after-tax interest rate increases to 3.75% over the forecast horizon.
(In)Tangible assets to sales
Ahold Delhaize’s intangible assets primarily consist out of indefinite life intangibles such as
goodwill and brands and other definite life intangible assets such as franchise and customer
relationships. The following table reports information about Ahold Delhaize’s intangible assets
for 2023 and 2024, as well as adjusted ending 2024 balance sheet information incorporating the
acquisition of Profi:
Cost Basis
Accum. Amortization
Net BV
2023
2024
GW/Brands Others GW/Brands Others
11,074
4,075
11,499
4,409
0
2,151
0
2,489
11,074
1,924
11,499
1,920
2024 Incl. Profi
GW/Brands Others
12,661
4,409
0
2,489
12,661
1,920
Amortization expense in 2024 was 509. You can assume that the 2025 amortization rate remains
constant and that the amortization rate on the assets acquired in the Profi acquisition is the same
as on Ahold Delhaize’s other PP&E. Assume that in 2025 Ahold Delhaize’s intangible capex
covers the estimated amortization such that intangible assets remain constant. For 2026-2030
assume that Ahold Delhaize’s other intangibles grow in line with sales. From 2031 onwards all
of Ahold Delhaize’s intangibles should grow in line with sales.
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Ahold Delhaize’s tangible assets consist primarily out of property, plant, and equipment
(PP&E) and Right-of-Use (RoU, i.e., leased) assets. The following table reports information
about Ahold Delhaize’s PP&E for 2023 and 2024, as well as adjusted ending 2024 balance
sheet information incorporating the acquisition of Profi.
Cost Basis
Accum. Depreciation
Net BV
2023
26,037
14,390
11,647
2024
27,614
15,660
11,954
2024 Incl. Profi
27,977
15,660
12,317
Depreciation expense in 2024 was 1,618. You can assume that the 2025 depreciation rate
remains constant and that the depreciation rate on the assets acquired in the Profi acquisition is
the same as on Ahold Delhaize’s other PP&E.
Ahold Delhaize’s RoU assets had a balance of 9,483 at the end of 2023. At the end of 2024,
these were 9,649 (10,122) excluding (including) the Profi Acquisition. Depreciation expense
on RoU assets in 2024 was 1311. You can assume that the 2025 depreciation rate remains
constant and that the depreciation rate on the assets acquired in the Profi acquisition is the same
as on Ahold Delhaize’s other RoU assets.
After 2025, assume that the gap between capex and combined PP&E/RoU asset depreciation
linearly decreases over the remaining 4 years towards 0. Afterwards assume that tangible assets
grow in line with sales.
Net working capital to sales
Assume that because of efficiency increases Ahold Delhaize’s net working capital to sales ratio
decreases to -2% by the end of the forecast horizon.
Others
You can assume that all other items remain constant (for balance sheet items, that is, relative to
sales).
Article 4
Forecasting Bubbles using Accounting – Presented by Subgroup 1
Forecasting is an important aspect of financial statement analysis. Developing accurate
forecasts of future profitability is important for analysts and can help investors achieve better
returns. In the previous assignment, you developed estimates for a single company. The
following article connects many of the things we have done thus far and investigates whether
accounting information at the industry level can be used to forecast stock price bubbles.
Arif, S., and E. Sul. (2024). Does accounting information identify bubbles for Fama?
Evidence from accruals. Journal of Accounting and Economics 78 (2-3): 1-22
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Meeting 9: Prospective Analysis: Forecasting & Value Implementation
Assignment 14
Estimating Firm Value (and Free Cash Flows)
On Canvas, you will find a spreadsheet with actual and forecasted income statements and
balance sheets of Ahold Delhaize for the years 2024-2031. You can use the spreadsheet and
some additional information to estimate the value of Ahold Delhaize’s equity.
1. Estimate the value of shareholders’ equity at the beginning of 2024 using the Abnormal
Profit Model, the Abnormal Profit Growth Model, and the Discounted Free Cash Flow
Model. Evaluate the sensitivity of your value estimates to your assumptions about sales
growth beyond the terminal year. That is, estimate the value of the firm under each of
the following assumptions (the last year in the forecast window is 2031, so calculate
terminal values as of 2032!):
a. Competitive equilibrium assumption: the firm operates in a ‘competitive
equilibrium’ beyond the forecast horizon;
b. Competition affects the profitability of incremental sales, but not existing sales;
and
c. The firm defies all competitive forces: the sales base remains constant in real
terms (long-term growth rate = 3%).
2. Why do you think that, under assumption b, the value you obtain with the FCFE model
is not equal to but lower than the value you obtain with the AP and APG model? How
could you solve this issue?
3. Which valuation model has the largest terminal value? What explains the difference in
the relative importance of the terminal values across the models?
4. What happens to the valuation of Ahold Delhaize if, from 2025 onwards, the noncurrent operating asset-to-sales ratio decreases by an additional 1% per year? What is
the impact of lowering the debt-to-capital ratio to 55% from 2025 onwards? Why?
Meeting 10: Prospective Analysis: Value Implementation
Assignment 15
Value-to-book and value-to-earnings multiples
In assignment 14, you were asked to value Ahold Delhaize’s stock. Often, analysts and
investors determine firm value based on multiples. Under each scenario, determine Ahold
Delhaize’s equity value-to-book ratio and its leading equity value-to-earnings ratio.
Article 5
Value/Glamour Strategies and Fundamental Analysis – Presented
by Subgroup 2
The Efficient Market Hypothesis (EMH) predicts that stock prices reflect all publicly available
information, including financial statement information. This implies that an investment strategy
based on financial statement information cannot be profitable. In the previous assignments, you
were asked to calculate value-to-book ratios. Previous academic studies have found that firms
with high value-to-book ratios earn lower future returns but have debated the source of those
returns. This paper provides evidence consistent with investor mispricing and discusses an
approach to distinguish between mispricing and risk-based explanations.
Piotroski, J.D., and E.C. So (2012). Identifying Expectation Errors in Value/Glamour
Strategies: A Fundamental Analysis Approach. Review of Financial Studies 25 (9): 18411875.
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Meeting 11: Case Preparation
There will be no new material today. You can use the time to work on your case report. During
the class, you can discuss any issues or questions while developing and writing your case report.
Meeting 12: Equity Security Analysis & Risk Estimation
Assignment 16
Equity Security Analysis
Read Chapter 9 of PHP and answer the following questions:
1. Timmerman Inc.’s shares have a market value of €20 per share and a book value of €12
per share. If the cost of equity capital is 15% and the book value is expected to grow at
5% per year indefinitely, what is the market’s assessment of the steady state return on
equity?
2. If the share price in (1) increases to €35 and the market does not expect Timmerman
Inc.’s growth rate to change, what is the revised steady-state ROE? If, instead, the price
increase was due to a rise in the market’s assessed long-term book value growth rather
than long-term ROE, what would the price revision imply for the steady state growth
rate?
3. Analysts reassess Timmerman Inc.’s future performance as follows: growth in book
value increases to 12 percent per year, but the ROE of the incremental book value is
only 15 percent. What is the impact on the market-to-book ratio?
4. The Munich Beer Company plans to acquire Liverpool Beer Co. for €60 per share, a
50% premium above the current market price. The financial director of Munich Beer
argues that this valuation can be justified using a price-earnings analysis: “Munich Beer
has a P/E ratio of 15, and we expect that we will be able to generate long-term earnings
for Liverpool Beer of €5 per share. This implies that Liverpool Beer is worth €75, which
is well above our €60 offer price.” Do you agree with this analysis? What are the
underlying assumptions?
Assignment 17
Asset Valuation
In assignment 14, we directly valued Ahold Delhaize’s equity. Another approach is to first
value Ahold Delhaize’s assets (i.e., enterprise value) and estimate the value of equity by
deducting the value of debt and non-controlling interests from the enterprise value:
1. Ahold Delhaize has an equity beta of 0.98. The market risk premium is 5.2% and the
risk-free rate is 2,9%. Ahold Delhaize’s market capitalization at the beginning of 2025
was 28.8 billion. Assume that the market value of debt is equal to its book value. Based
on this information, determine Ahold Delhaize’s required return on net operating assets.
2. Determine Ahold Delhaize’s enterprise value and equity value assuming a terminal
value growth rate of 3% (i.e., you only need to do scenario 3). For simplicity, discount
the tax shield on debt with the same discount rate as you obtained in question 1.
3. How does the equity value you obtain compare to the equity value we obtained in
assignment 14. Where do these differences come from?
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Article 6
Measuring Portfolio Gains – Presented by Subgroup 3
One of the goals of fundamental analysis is to uncover over- and undervalued stocks, which
investors can use to develop profitable trading strategies. A common issue in academia and
practice relates to measuring how profitable a trading strategy is after considering all costs. The
following paper discusses an approach for measuring real-time gains to trading portfolios:
Lyle, M.R., and T. Yohn. (2024). Measuring Portfolio Gains: The Case of Earnings
Announcement Trading Signals. The Accounting Review 99 (4): 315-338.
Meeting 13: Q&A & Trial Exam
No new material – Q&A/Trial Exam Session. On Canvas, you will find some sample exam
questions that can be discussed during the session.
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10.
Support
An important aspect of being a student is figuring out your way of studying and dealing with
(performance) pressure, perhaps mental health struggles. However, it is important to remember
that no two people have the exact same journey, but everyone has their own path. Along the
way, you may encounter certain obstacles but know that you should not be afraid to ask for help
and support, even if you just want to talk. You can start by talking to your peers
who undoubtedly have similar experiences and struggles. However, additional help is available
within and outside SBE.
SBE Student and Career Counselling is a good place to discuss personal, academic, and
career-related topics. Especially if you have a (mental) illness or if other personal circumstances
affect your well-being and study, please make sure to contact them timely. It is a confidential
setting, and when necessary, the counselor can refer you to other support bodies, such as the
Maastricht University psychologists, student deans, or confidential advisors. If you want to find
out more about them, do not hesitate to visit the Intranet page of SBE Student and Career
Counselling (or via Student Portal>My Links>MySBE>Advice, Support and Counselling>SBE
Student and Career Counselling). It is possible to make an appointment with them through their
appointment system (https://sbe-scc.maastrichtuniversity.nl/).
If you are seeking psychological support, contacting the Maastricht University psychologists
is possible. You can find more information via Student Portal>My Links>MySBE>Advice,
Support and Counselling>Student Psychologists. You can book a Quick Psychological Referral
via https://www.maastrichtuniversity.nl/quick-psychological-referral.
Lastly, tutors and course coordinators are available to help with any course-related questions.
Bring your issue to your tutor first. If there is no resolution, course coordinators will provide
the necessary support. For any study- or rule-related issue, you can access AskSBE
(https://esc.maastrichtuniversity.nl/). When you submit a message via this platform, it will be
matched to the office with relevant expertise to address your question.
Please remember: Studying sometimes means that you will struggle. However, it should not be
suffering. Help is here if you need it. Please do not hesitate to ask.
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