Course | Columbia Law School

This course uses the information from real companies to analyze and interpret their financial statements. The design of the course assumes that participants have very little background with respect to the preparation, analysis, and interpretation of financial statements. While the mechanics of how to prepare financial statements are covered, emphasis is placed on what the numbers mean and how they are used. In the first third of the course, participants will learn: (1) how financial statements are prepared; (2) the linkage between the income statement, balance sheet, and cash flow statement; and, (3) how these statements need to be examined as a whole to understand a company's performance. Ratio analysis is explained and guidance is given regarding what to look for when analyzing a company's operating, liquidity, and leverage ratios.

In light of the current environment of distrust of financial statements, promulgated by such capital market disasters as Enron and WorldCom, the remaining two-thirds of the course examines the uses and misuses of financial statement data for a wide range of financing decisions. To avoid serious misdiagnoses of companies' prospects, analysts and users of financial statements must understand how to become financial detectives and get "behind the numbers," utilizing contemporary investigative analytic techniques. This seminar concentrates on how various financial reporting options affect income, assets, cash flow forecasts, financial ratios, and trends. Distinguishing between accounting rules and underlying economic realities is emphasized throughout. Approaches that analysts can take when external reports do not reflect a firm's underlying economics are described and applied. The course focuses on the pragmatic implications of corporate disclosures (and nondisclosures). Real company case analyses are used to enhance relevance and to promote participation in the learning process. Classroom discussion is designed to promote insight into resolving the issues presented by the case studies.