In this course Professor Pratt demonstrates how properly managing the key determinants of return on equity (ROE) increases the value of the firm. He first provides a brief summary of the relevant features of time value of money with a special emphasis on internal rate of return, and then he demonstrates what it exactly means to create shareholder value. The ROE model is then introduced and fit into a value creation framework, followed by an intuitive and straightforward present value analysis that shows how improving ROE can drive up the value of the firm.

Professor Pratt then uses a spreadsheet, in which the model has been programmed, to conduct an analysis on the current market value of Best Buy, the well-known electronic equipment retailer. The viewer is then guided through some sensitivity analysis designed to highlight which financial metrics are most important to driving up Best Buy’s market value.

The overall theme of this course is that understanding this system provides a guide to identifying where management should focus its attention in its effort to increase the value of the firm, and due to their special understanding of financial statements, accountants are in an excellent position to take full advantage.

Course Key Concepts: Time value of money, internal rate of return, value creation, cost of equity, return on equity, operating decisions, investing decisions, financing decisions, value drivers, stock market value, market capitalization.

Learning Objectives
  • Discover and use the concept of interest and time value of money.
  • Discover and define value creation.
  • Identify the link value creation to return on equity and how it is affected by management’s operating, investing, and financing decisions.
  • Explore and use a spreadsheet-based valuation model using ROE inputs.
  • Identify and compute the inherent value of Best Buy.
  • Discover and describe how this valuation framework should be interpreted and used, which includes conducting sensitivity analysis on the model’s key inputs.
Last updated/reviewed: March 13, 2024
3 Reviews (16 ratings)


Anonymous Author
The ROE course was an eye-opener! It delved deep into Return on Equity concepts, providing valuable insights. The instructor's expertise shone through, simplifying complex financial metrics. Real-world case studies made the material relatable. An essential course for anyone looking to understand and apply ROE in their financial endeavors.

Member's Profile
enjoyed the presentation of the materials greatly. Could have actually been a bit longer and slower for me but otherwise great.

Member's Profile
Excellent lesson with many meaningful and useful insights.

Course Complexity: Advanced

No advanced preparation or prerequisites are required for this course.

Education Provider Information
Company: Illumeo, Inc., 75 East Santa Clara St., Suite 1215, San Jose, CA 95113
Contact: For more information regarding this course, including complaint and cancellation policies, please contact our offices at (408) 400- 3993 or send an e-mail to .
Instructor for this course
Course Syllabus
  Introduction to Firm Valuation and ROE Analysis3:10
  Step 1-Understanding Time Value of Money16:18
  Step 2 - Create Value12:14
  Step 3 - ROE Model12:06
  Step 3 - ROE Model Cont'd9:30
  Step 4 - Firm Valuation Exercises16:38
  Firm Valuation and ROE Analysis1:09:56
  Slides: Firm Valuation and ROE AnalysisPDF
  Firm Valuation and ROE Analysis Glossary/ IndexPDF