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A short integrated presentation of valuation, profitability and growth analysis

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  • Kim Pettersson
  • Ole Sorensen

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.

Suggested Citation

  • Kim Pettersson & Ole Sorensen, 2016. "A short integrated presentation of valuation, profitability and growth analysis," International Journal of Accounting and Finance, Inderscience Enterprises Ltd, vol. 6(1), pages 43-61.
    • Handle: RePEc:ids:intjaf:v:6:y:2016:i:1:p:43-61
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    References listed on IDEAS

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    1. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411-411.
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