Business Analysis and Valuation

Synopsis

Business Analysis and Valuation: IFRS edition uses a wide range of contemporary cases to illustrate the use of financial statement data in various valuation tasks. Centred around the IFRS Standards, this text demonstrates how to get the most information out of IFRS based financial statements. The focus is not only on building a solid understanding of the latest theoretical approaches but also placing students in a confident position to apply these.

Summary

Business Analysis and Valuation is an essential and comprehensive text on the topics of business analysis and valuation. Written by Paul M. Healy, Professor of Business Administration at Harvard Business School, the text offers a comprehensive overview of the many processes of analytical and strategic thinking needed to make sound business decisions.

Chapter 1: The Role and Objectives of Business Analysis and Valuation

The first chapter of Business Analysis and Valuation provides an introduction to the topics of business analysis and valuation and introduces the reader to the purpose, methods and objectives of business analysis and valuation. Healy explains that the main objective of business analysis and valuation is to identify and assess “factors that will lead to the most value-creating investments and decisions.” Healy provides examples of various tools and techniques that can be used in order to conduct business analysis and valuation, including financial analysis, strategic analysis, competitive analysis, and others. He also highlights the importance of understanding the link between risk and return when evaluating a business opportunity.

Chapter 2: Accounting Data and Methods of Analysis

The second chapter of Business Analysis and Valuation delves into the details of accounting data and the methods of analysis associated with it. Healy describes the various accounting metrics used to measure a company’s financial health, such as cash flow, net present value, Economic Value Added, value Added Statement and others. He also explains what should be included in a validation procedure and how to use it in order to identify potential sources of accounting bias and identify patterns and anomalies in the data. Lastly, Healy discusses how accounting data can be used to help make informed business decisions.

Chapter 3: Models for Financial Analysis

The next chapter of Business Analysis and Valuation outlines the various models and techniques that can be used to conduct financial analysis. Healy explains how fund flow analysis can be used to assess operating performance and liquidity, and also covers how to use ratios and financial statement analysis in order to identify where a business stands in terms of sales growth, return on equity, and profitability. He also discusses the concept of value-based management, which is the use of financial models in order to assess the valuation of a company.

Chapter 4: Business and Risk Analysis

The fourth chapter of Business Analysis and Valuation discusses the concept of business and risk analysis. Healy provides an overview of the different types of risk that companies face, such as operational, financial, and strategic risk. He also explains how to use strategic planning and core competencies in order to identify areas of competitive advantage, and how to use sensitivity analysis to assess the impact of potential changes. Finally, Healy discusses the importance of understanding and preparing for the risks associated with a potential investment or business opportunity.

For example, a prospective investor might use risk analysis to assess the potential risks associated with a start-up venture. He might analyze the company’s financial records to determine the level of debt that it has and the interest rate on its loans. He could then use a financial statement analysis to determine the company’s cash flow and the potential returns on investments. Additionally, he could use sensitivity analysis to determine how market conditions and other external factors could affect the company’s financial performance over the long term. In conclusion, this chapter provides readers with a comprehensive overview of the tools and concepts associated with business and risk analysis.