MIDLANDS STATE UNIVERSITY

Business Sciences Faculty

Department of Business Management

Module Outline

Module Name: Financial Statement Analysis

Module Code: MBM 804

1. Purpose of the Module

The main purpose of this module to expose learners to concepts of interpretation and analysis of
financial statements and the reconstruction of companies. The major benefit to the learners is
that they will be in a position to improve the strategy implementation process through the
incorporation of objective quantitative techniques.

2. Aim of the Module

Upon completion of the module, learners will be able to use knowledge in the following areas;

a) Strategy development and choice, strategy implementation and strategy analysis and evaluation
b) Analysis & Interpretation of financial Statements (accounting & stock exchange ratios)
c) Organisational performance assessment and reporting
d) Organisational failure prediction
e) Organisational reconstruction schemes.

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 3. Body of Knowledge

3.1 To provide learners with an understanding of how to interpret and analyse financial statements to
determine financial position and financial performance.

3.2 To provide learners with skills necessary in the selection and calculation of relevant indicators of
financial and non-financial performance

3.3 To provide learners with skills necessary for evaluation of significant features and issues in
financial statements, such as corporate failure prediction .

4. Intended Learning Outputs and Outcomes

4.1 Outputs
Upon completion of the module, learners should have acquired practicing skills in analysing and
interpreting financial statements and making adjustments for special type of transactions.

Learners should therefore be able to produce the following outputs: -

 Financial statements analysis reports
 Objectively determined business and/or operational strategies
 Failure prediction models

4.2 Outcomes
 Innovative ideas/concepts applicable to financial statement analysis, corporate failure
prediction and organizational rescue schemes.

5. Teaching and Learning Activities

The teaching strategy will include blended learning, consisting of on-line learning using e
Learning Management System, mobile learning and other platforms, face to face with lecturer
and self-learning. In addition, learners will be subjected to quizzes and group projects for

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learning purposes. Each topic will be introduced by the lecturer to provide information and
ideas, and to raise key issues and promote discussion. Thereafter, learners are expected to learn
on their own under the lecturer’s guidance.

6. Module Content:
Topic 1: Introduction to Analysis
Upon completion of the topic learners should be able to;
 Define financial statements analysis
 Discuss factors associated with communicating useful financial information
 Appreciate contemporary features in financial reporting
Topic 2: Financial Reporting
Upon completion of the topic learners should be able to identify the financial statements,
namely;
 The statement of comprehensive income and its components
 The statement of financial position and its components
 Statement of changes in equity and its components
 Statement of cash flows and its components
 The underlying assumptions in the preparation of Annual financial statements
 The salient features of annual reports

Topic 3: Techniques of analysing financial statements

Upon completion of the topic learners should be able to apply the different techniques of
financial statement analysis namely;

 Comparative analysis
 Indexed analysis
 Trend analysis
 Ratio analysis

Topic 4: Ratio analysis

Upon completion of the topic learners should be able to;

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  Define and compute relevant financial ratios;
- Profitability ratios
- Solvency ratios
- Liquidity ratios
- Efficiency ratios
- Shareholder ratios
 Explain what aspects of performance specific ratios are intended to assess.
 Analyse and interpret ratios to give an assessment of an entity’s performance and financial
position in comparison with:
i. an entity’s previous period’s financial statements
ii. another similar entity for the same reporting period
iii. industry average ratios.
 Discuss the limitations in the use of ratio analysis for assessing corporate performance.

Topic 5: Interpretation and Analysis of financial statements

Upon completion of the topic learners should be able to
 Identify the problems of using historic information to predict future performance and
trends.
 Discuss how financial statements may be manipulated to produce a desired effect (creative
accounting, window dressing).
 Explain why figures in a statement of financial position may not be representative of
average values throughout the period; for example, due to:
i. seasonal trading
ii. major asset acquisitions near the end of the accounting period.
 Define and compute relevant financial ratios.
 Explain what aspects of performance specific ratios are intended to assess.
 Analyse and interpret ratios to give an assessment of an entity’s performance and financial
position in comparison with:
i. an entity’s previous period’s financial statements
ii. another similar entity for the same reporting period
iii. industry average ratios.

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  Interpret an entity’s financial statements to give advice from the perspectives of different
stakeholders.
 Indicate other information, including non-financial information that may be of relevance to
the assessment of an entity’s performance.
Topic 6: Corporate failure prediction models
Upon completion of the topic learners should be able to apply;
 The Z score model
 The A score model
 The K model
 The balance score card; in predicting corporate failure

Topic 7: Corporate sustainability

Upon completion of the topic learners should be able to;
 Apply financial analysis to develop corporate recovery strategies

6. Learners’ Assessment and Mark Allocation

Scheduled assessment will be 40% of coursework and 60% final examination. Coursework
assessment will be based on group and individual written assignments, seminar presentations,
projects and on-line quizzes.

7. Recommended Reading Material

 Warren B financial analysis latest edition
 Van Horn – principles of financial management
 Ross Westerfield and Jordan- fundamentals of corporate financial management
 Any other textbook on financial statements analysis
 Internationally recognized journals and e-resources on financial analysis.

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