Authors: Kim Pettersson; Ole Sorensen
Addresses: Department of Accounting and Auditing, Copenhagen Business School, Solbjerg Plads 3, 2000 Frederiksberg, Denmark ' Department of Accounting and Auditing, Copenhagen Business School, Solbjerg Plads 3, 2000 Frederiksberg, Denmark
Abstract: We demonstrate how the valuation models used in finance theory and the profitability and growth analysis taught in financial statement analysis are related. Traditional textbooks on finance and financial statement analysis are often very comprehensive, comprising a vast number of chapters. However, the learning cost associated to this seems to be that many students are unable to understand either the interrelations between the chapters in a financial statement analysis textbook, or the origins of financial information (i.e., financial statements) in applied finance. Thus, the underlying motivation of this teaching note is to highlight the purpose of profitability and growth analysis in financial statement analysis by incorporating the point of value relevance in applied finance. We hope this reduced presentation of valuation and profitability and growth analysis will help students to understand these interrelations. Finally, we offer students the necessary analytical flexibility to create their own coherent profitability and growth analyses.
Keywords: accounting education; applied finance; profitability; growth analysis; valuation models; value relevance; teaching; education; DuPont model; clean surplus relation; CSR; balance sheet equation; BSE; dividend policy irrelevance; financial statements; teaching note.
International Journal of Accounting and Finance, 2016 Vol.6 No.1, pp.43 - 61
Accepted: 28 Jan 2016
Published online: 12 May 2016 *