ACCT 581: Financial Statement Analysis Course Outline Course

! !"##$!%&'(!!)*+,+-*,.!/0,0121+0!"+,.34*4!

Course'Outline'

!"1"!"

#56741!814-7*90*5+!

The$ objective$ of$ this$ class$ is$ to$ provide$ you$ with$ a$ framework$ for$ analyzing$ a$ firm’s$ past$

performance,$estimating$its$ future$performance,$and$valuing$its$ equity.$ The$course$ integrates$ key$

concepts$ from$ accounting,$ finance,$ econom ics,$ and$ business$ strategy$ and$ a pplies$ them$ to$

financial$ de c is ion?making.$ The$ course$ focuses$ on$ teaching$ you$ to$ interpret$ numbers$ in$ the$

financial$ statemen ts .$ $ You$ should$ leave$ the$ course$ with$ the$ a b ility $ to$ gen e ra t e $ reasona b ly $

accurate$ (or$ at$ least$ logically$ consistent)$ forecasts$ of$ a$ firm's$ future$ financial$ performance,$

including $r e v e n u e s ,$e a r n in g s ,$a s s e t$b a la n c e s $a n d $ fre e $ ca s h $f lo w s$$

The$ class$ is$ case?oriented.$ $ You$ are$ responsible$ for$ preparing$ cases$ in $ advance $ of$ the$ cla ss $

session,$including$familiarizing$yourself$with$the$relevant$accounting$issue.$$The$course$illustrates$

contemporary$ forecasting$ and$ valuation$ techniques$ used$ by$ practitioners$ as$ well$ as$ evidence$

from$academic$resea rc h$on$the$effectiveness$of$these$techniques.$Students$planning$a$career$in$

accounting,$ the$ financia l$ industry,$ cons u lting ,$ or$ ge n e ra l$ mana g e ment,$ will$ find $ the$ k n owledge$

acquired$in$this$course$relevant.$

#:;</=!>?):<@"$>:?!

>+4076-0 5 7(!A,07*-*,!@B!81-C5D!! $172E917*5F(!),..!GH'I!

AC5+1(!JG'KL!IMHNO%&%! ;+*04(!KBH!

:PP*-1!Q5674(!R1P571S!F67*+T!0C1!U71,VS!! #.,44!0*214(!W1F+14F,3(!X(KHNO(KH!

57!,P017!-.,44S!57!U3!,995*+021+0! #.,447552(!!A595Y*-C!Q,..(!!Z[A!''G!

\5-,0*5+!5P!@3!:PP*-1(!"##!''I!! /1-0*5+!'MGIO(!]7,F6,01!"--56+0*+T!/06F1+04!

=2,*.(!9,07*-*,BF1-C5D^2,74C,..B64-B1F6! /1-0*5+!'MGX&(!@R"!,+F!:0C17!/06F1+04

! !

#56741!F67,0*5+(!Wednesday'August'23'to'Wednesday'December'6th'

)*+,.!=_,2!8,01:'December'6

! !

A7171`6*4*014!

You$should$have$taken$an$introductory$financial$accounting$and$introductory$finance$class.$$Upper$

level$fina n cial$accounting$c la s s e s $a n d $c o r p o ra te$finance$are$a ls o $h e lpful.$The$stated$prerequisite$

is$GSBA510.$

#56741!D1U4*01(!U.,-VU5,7F!

! !

! !"##$!%&'(!!)*+,+-*,.!/0,0121+0!"+,.34*4!

Course'Outline'

!"2"!"

WQ"$!a:;!W>\\!Q"b=!\="<?=8!Ra!$Q=!=?8!:)!$Q=! #: ;</=!!

By$the$end$of$the $class$you$will:$

•$

Have$a$frame work$for$analyzing$a$business.$$We$will$incorporate$ke y$elements$tha t$you$have$

learned $in$your$other$classes$and$apply$this$knowledge$systematically$to$value$a$business.

•$

Become$familiar$with$the$organization$and$disclosure$of$informat io n $ re p orte d$in$10?K$filings$and$

the$notes$to$th e $ fin a n c ial$statements.$$You$will$have$a$detailed$understanding$of$assets$and$

liabilities$re p orte d$on$the$balance$sheet.$$You$will$also$understand$what$assets$and$liabilities$

are$NOT$reported$ under$accounting$rules $and$determine$the$importance$of$th e s e$off?balance$

sheet$items$for$understanding$the$value$of$a$business.

•$

Be$proficient$at$calculating$and$interp re ting$financial$ratio s. $$You$will$understand$how$to$use$

ratios$to$com pare$a$firm$to$its$com petitors$and$to$evaluate$changes$in$ra tios $over$time.$You$will$

also$know$how$to$use$these$ratios$to$ help$fo re c a s t$ th e $future.

•$

You$will$understand$how$accounting$errors$(either$inten tio n a l$manipulation$by$management$or$

unintentional$mistakes)$impact$rep o rted $in c o me$and$the$book$value$of$equity.

•$

Learn$about$earnings$announcements$and$the$repo rting$of$GAAP$and$non?GAAP$earnings$

numbers.$$

•$

Have$a$frame work$for$foreca s tin g $ fu tu re $earnings$and$predicting$the$stock$market’s$response$to$

quarterly$earnings$announcements.

•$

Be$able$to$read$and$critically$evaluate$financial$analyst$reports$ on$publicly$listed$com panies.

•$

Understand$major$valuation$models.$$You$will$learn$a$unified$framew o rk $for$valuation$and$so$be$

comfortable$moving$between$discounted$cash$flow$models,$residual$income$models,$and$

models$based$on$market$multiples$such$as$the$price?earnings$ratio$and$the $market?to?book$

ratio.

•$

Be$proficient$at$inputting$finan c ial$data$into$the$eVal$valuation$excel$spreadsheets$and$using$

eVal$to$foreca s t$and$value$companies.

#:;</=!@"$=<>"\/!c!<=d;><=@=?$/!

Lundholm$and$Sloan,$Equity"Valuation"and"Analysis,$4

$edition.$This$book$is$available$at$the$USC$

bookstore$or$online$at:$amazon.com$or$createspace.com.$$

Note:$I$have$p lac e d $a $c o p y$o f$th e $b o o k $o n $re s e rve $a t$th e $L ib ra ry .$$$

:+.*+1!#,414(!"Y,*.,U.1!5+!R.,-VU5 , 7 F !5 7!

! C009(EEDDDB.6+FC5.2,+F4.5,+B-52E*+F1_BC02.!

:+.*+1!/5P0D,71(!1b,.(!C009(EEDDDB.6+FC5.2,+F4.5,+B-52E45P0D,71BC02.!

),-0/10(!!You$will$receive$an$account$so$that$you$can$access$FactSet$during$the$semester$

:))>#=!Q:;</!

Because$this$is$an$evening$class,$it$may$be$easiest$for$you$ to $schedule$an$appointment$to$meet$

me$at$a$time $ th a t$best$suits$you.$$I$will$be$available$to$discuss$the$course$with$you$before$class,$

during$the$break$in$the $middle$of$class,$or$after$class.$$I$also$check$my$email$regularly$so$if$you$

have$a$question$you$can$em ail$me.$

! !"##$!%&'(!!)*+,+-*,.!/0,0121+0!"+,.34*4!

Course'Outline'

!"3"!"

$="#Q>?]!c!\="<?>?]!"#$>b>$>=/$$

Reading$and$understanding$financial$statements$is$very$contextual.$$There$is$only$so$far$theory$

(e.g.,$knowing $ac co u nting $rule s)$c an $tak e$u s.$$It$is$a$bit$like$lea rn ing$h o w $to$driv e$a $ca r,$wh e re$y ou $

can$learn$the$road$rules$but$the$only$way$you$become$a$good$driver$is$by$driving$a$lot,$

encountering$different$road$conditions,$making$mistakes,$and$learning$from$your$mistakes.$$

Financial$Statement$Analysis$is$similar,$the$best$way$to$learn$is$by$actually$engaging$in$the$task.$$

This$means$the$class$is$very$“hands$on”$–$and$involves$the$use$of$cases$that$require$you$to$read$

financial$statements$and$answer$questions.$$This$is$hard$because$sometimes$you$do$not$know$

where$to$start.$$A.1,41!073!,..!-,414!U1P571!-.,44.$The$more$financial$statements$you$read,$the$

easier$it$gets$to$understand$what$to$look$for$even$though$the$issues$or$concerns$change$from$one$

firm$to$ano th e r.$You$need$to$dive$into$the$details$to$learn$how$to$analyze$financial$statements.$ $

The$Lundholm$and$Sloan$website$has$W1U-,404$that$many$students$find$helpful$for$reviewing$

concepts$discussed$in$class.$$Often$hearing$the$same$information$more$than$once$can$help$

consolidate$your$understanding.$$Therefore,$if$you$feel$that$you$did$not$quite$understand$

something$I$discussed$in$class,$please$check$the$webcasts.$$$

Periodically$we$will$work$on$in?class$exercises.$$For$these$classes,$you$will$want$to$bring$your$

laptop.$$In $ a d d itio n ,$f in a n c ia l$s ta te ment$materia ls $c a n $b e $ ve r y $lo n g $a n d $ yo u $ w ill$ o fte n $want$to$read$

them$from$your$comp u ter $ra th e r$th a n $p rin t$th e m $a ll$o u t.$$$

"//=//@=?$$$$

Group"Case"Homeworks"handed"in"" 20%"

Midterm"(Wednesday"October"11)" 20%"

Project"(Wednesday"November"15)" 20%"

Final"Exam"(Wednesday"December"6)" 30%"""

Participating"in"Class" 10%"

]<:;A!#"/=/$

The$Group $Cases$are$handed$in$as$one$per$group,$with$groups$ranging$from$3?5$students.$$We$

will$organize$team$membership$and$case$selection$in$the $first$class.$$$$

You$must$hand$in$a$case$fro m $each$of$the$major$parts$of$the$course$(A cc ou ntin g$Analysis,$

Financial$Analysis,$Forecasting,$Valuation,$and$Synthesis$and$Review).$The$case$homework$is$

not$graded$on$accuracy$alone.$An$honest$and$thoug h tfu l$effort$will$get$most$of$the$credit.$$The$

homework$should$not$be$more$than$th re e $ pages$with$four$supp orting$pages$of$tab les $or$

calculations.$$$

Each$group$member$may$have$a$different$set$of$skills$but$it$is$impo r ta n t$to$work$together$and$all$

participate.$$Later$in$the$course$I$will$ask$group$members$to$let$me$know$how$the$group$worked$

out,$so$please$try$and$make$a$positive$contribution$to$your$group$and$if$ yo u$have$ problems$le t$

members$know$in$advance.$$Remember$you$have$to$feel$like$you$are$doing$more$than$your$fair$

share$of$the$work$for$other$group$members$to$actually$think$that$you$have$done$your$fair$share$of$

the$work.$

! !"##$!%&'(!!)*+,+-*,.!/0,0121+0!"+,.34*4!

Course'Outline'

!"4"!"

Cases$are$due$at$the$start$of$class.$$You$can$use$Blackboard$to$submit$cases.$$Please$submit$all$

cases$as$PDFs$regula r$le tt e r$size$paper.$$On$days$when$your$team$hands$in$a$case$ yo u$should$

be$ready$to $answer$questions$and$get$involv e d $in$class.$$$

d;>e!"?8!)>?"\!=f"@!

For$the$Quiz$and$Final$Exam,$you$will$receive$a$10K$and$supporting$material$for$a$firm$at$least$

two$day s $in$a d v a n c e$of$the$test$date.$$The$tes t$will$involve$answe r ing $q u e s tio ns $a b o u t$th e $firm$

based$on$information$in$the$10K.$Attending$the$Quiz$and$Final$Exam$is$mandatory.$$

]<:;A!A<:Z=#$!

Each$team$will$apply$the$fram e work$covered$in$the$class$to$provide$a$valuation$of$a$company.$$I$

will$provide$more$details$on$the$project$later$in$the$course.$$$

#\"//!A"<$>#>A"$>:?!

Class$participation$portion$of$your$grade$is$based$on:$

•$ Class$attendance$and$positive$and$quality$contributions$shared$in$class,$made$with$

thought$and$preparation$prior$to$the$class$meetings.$

•$ Class$attendance$and$discussion$of$other$team’s$projects$during$the$project$presentation$

phase$of$the$class.$$

•$ A$positive$attitude$that$enriches$the$lea rn in g$experience$of$the$class$(e.g.,$helping$

another$student$struggling$to$answer$a$question,$looking$on$the$bright$side$of$things$if$a$

case$is$toug h ,$etc.).$$$$

I$have$listed $some$cases$as$“in$class$activities”$and$for$these$cases$you$are$not$expected$to$

prepare$beforehand.$$$

#\"//!=$>d;=$$=$

1.$ "77*Y1!,0!-.,44!5+!0*21$and$avoid$leaving$early.$

GB! R7*+T!,!+,21!01+0$to$class$a nd $s it$in $th e $sa me$location.!

KB! $67+!5PP$-1..9C5+14$and$other$audible$electronics.!

MB! 85!+50!641!.,90594$unless$required$for$an$in?class$exercise.!

%B! If$you$feel$a n o th e r$member$of$the $cla s s $is$d is tra ctin g $y o u ,$le t$m e $k n o w ,$a n d $where$

appropriate,$I$will$anonymously$communicate$your$feedback$to$them.!

XB! /*0!*+!0C1!4,21$spot$for$all$classes$(we$will$establish$a$seating$chart$in$the$third$class).!

#=\\!AQ:?=!"?8!\"A$:A!A:\>#a!

! !"##$!%&'(!!)*+,+-*,.!/0,0121+0!"+,.34*4!

Course'Outline'

!"5"!"

Research$has$shown$that$the$hum an$brain$is$not$good$at$multi?tasking.$$The$human$brain$

functions $ se quentially$which$means$it$takes$a$fra c tio n $of$a$second$for$your$brain$to$switch$fro m$

viewing$material$on$your$laptop,$checking$messages$on$your$phone,$or$listening$to$the$class.$$$

Even$when$you$view$what$is$on$someone$ else’s$laptop$your$brain$has$to$switch$from$listening $to$

the$class$to$fo c u s in g$on$the$laptop.$$Thus, $every$time$you$switch$activities$your$brain$has$to$go$

back$and$remem b e r$“w h e re$ it $was”$on$th e $other$activity.$$Therefore,$.,9059 4 !,+ F!-1..!9C5+14!

,71!+50!05!U1!641F!F67*+T!-.,44$6+.144!>!491-*P*-,..3!71`6140$you$to $open$up$your$laptops$and$

do$some$activity.$

]<"8>?]!A:\>#a$

There$is$no$mandated$curve$or$hard$target$for$classes$at$Marshall.$$Historically,$graduate$

electives$at$the$Marshall$School$have$had$an$average$GPA$of$around$3.5.$$$$

! !

! !"##$!%&'(!!)*+,+-*,.!/0,0121+0!"+,.34*4!

Course'Outline'

!"6"!"

/699570!/340124$

Student Counseling Services (SCS) - (213) 740-7711 – 24/7 on call

Free and confidential mental health treatment for students, including short-term

psychotherapy, group counseling, stress fitness workshops, and crisis intervention.

https://engemannshc.usc.edu/counseling/

National Suicide Prevention Lifeline - 1-800-273-8255

Provides free and confidential emotional support to people in suicidal crisis or emotional

distress 24 hours a day, 7 days a week. http://www.suicidepreventionlifeline.org

Relationship & Sexual Violence Prevention Services (RSVP) - (213) 740-4900 - 24/7 on

call

Free and confidential therapy services, workshops, and training for situations related to

gender-based harm. https://engemannshc.usc.edu/rsvp/

Sexual Assault Resource Center

For more information about how to get help or help a survivor, rights, reporting options,

and additional resources, visit the website: http://sarc.usc.edu/

Office of Equity and Diversity (OED)/Title IX compliance – (213) 740-5086

Works with faculty, staff, visitors, applicants, and students around issues of protected

class. https://equity.usc.edu/

Bias Assessment Response and Support

Incidents of bias, hate crimes and microaggressions need to be reported allowing for

appropriate investigation and response. https://studentaffairs.usc.edu/bias-assessment-

response-support/

Student Support & Advocacy – (213) 821-4710

Assists students and families in resolving complex issues adversely affecting their

success as a student EX: personal, financial, and academic.

https://studentaffairs.usc.edu/ssa/

Diversity at USC – https://diversity.usc.edu/

Tabs for Events, Programs and Training, Task Force (including representatives for each

school), Chronology, Participate, Resources for Students

! !ACCT!581:!!Financial!Stateme n t!A na lys is!

Course'Outline'

CLASS!SCHEDULE!!

PART'I:'INTRODUCTION'AND'BUSINESS'STRATEGY'ANALYSIS'

WEEK'1'

Session'A:'Wednesday,'August'23'

Course'Introduction'a n d 'Overview''

!"#$%&'()*"+,-../)01#2,"3)4)

5#&$.6,())7&#89:%&')7228")0#;")#&$)#&).<"3<%"=).>)#)4?@)

Session'B:''

Business'Strategy'Analysis'

!"#$%&'()))A&>.3B#,%.&)0.88"C,%.&)*"+,-../)01#2,"3)D)E;/%B).&89F))

!"#$%&'()))G&$"3;,#&$%&'),1")H6;%&";;)*"+,-../)01#2,"3)I))

)

PART'III:'ACCOUNTING'ANALYSIS'

WEEK'2'

Session'A:'Wednesday,'August'30'

Accounting'Analysis:'Review'of'Key'Accounting'Concepts'

!"#$%&'()*"+,-../)01#2,"3)J))

7&#89:%&')7228"()K6";,%.&;)4)L)M)

Session'B:''

Accounting'Analysis:'Understanding'how'Different'Accounting'Rules'affects'ratios'

0#;"()N&0.B)0.32.3#,%.&)%&),"+,-. . / O); 2 3" # $ ; 1 " ",). >)HC.63;"()))

P,#'")4)#&$)D)E#,,"B2,)-">.3")C8#;;F)

! !ACCT!581:!!Financial!Stateme n t!A na lys is!

Course'Outline'

WEEK'3'

Session'A:'Wednesday,'September'6'

Accounting'Analysis:'Revenue'Recognition'

0#;"()7228")#&$),1")%Q#$)%&),"+,-../()K 6 " ; ,%. &; )4 O)D O)J O)R O)# & $ )S )E5 TF)

Session'B:''

Introdu c tio n 'to'Ratio'Analy s is'

!"#$%&'()*"+,-../)01#2,"3)R))

PART'IV:''FINANCIAL'ANALYSIS'

WEEK'4'

Session'A:'Wednesday,'Septemb e r'1 3'

Accounting'Analysis:'Where'does'the'entity'start'and'stop?'

0#;"()H.;,.&)01%C/"&)%&),"+,- . . / )E5TF)

Session'B:''

Ratio'Analysis:'Advanced'Dupont'Analysis'and'Cash'Flow'Analysis'

!"#$%&'()*"+,-../)01#2,"3)R)#&$)S)

WEEK'5'

Session'A:'Wednesday,'September'2 0'

0#;"())7&#89:%&')7228"()K6";,%.&;)UL4D)E5TF)

Session'B:''

Ratio'Analysis:'Margins'and'Turnover'

G&$"3;,#&$%&')Q#C,;",)*%2;1"",;)

EG;">68)>.3)>.3"C #; ,%&')7 2 28" V;)NW P )#& $ )W3. X"C ,)Y )#8;.)=%$"89)6;"$)%&)#;;",)B#&#'"B"&,),92")

X.-;F)

A&,"323",%& ' )Z # 3' %& ; )# & $ )* 6 3& . < " 3;)E%&),"+,-../F)E#,,"B2,)-" >.3" )C8#; ;)L )%&)C8#;;)"+"3C %; " F )

' '

! !ACCT!581:!!Financial!Stateme n t!A na lys is!

Course'Outline'

PART'V:''FORECASTING'

WEEK'6'

Session'A:'Wednesday,'September'27'

Forecasting'Details'

!"#$%&'()*"+,-../)01#2,"3)M())P,36C,63")Q.3"C#;,%&')

Session'B:''

*"+,-../)01#2,"3)U())Q.3"C#;,%&')[",#%8;)

)T.3/;1.2).&)>.3"C#;,%&')#&$)$%;C6;;%.&).>)7228")

WEEK'7'

Session'A:'Wednesday,'October'4'

Forecasting'Application'

0#;"()7&#89:%&')7228"()K6";,%.& )4 I )E5TF)

Groups!will!present!their!Q4!EPS!Forecasts!for!Apple!please!have!presentation!on!a!USB!drive!

Session'B:''

Review!for!Midterm!

)

WEEK'8'

Session:'Wednesday,'Octob e r'1 1'

MIDTERM'EXAM''

! !ACCT!581:!!Financial!Stateme n t!A na lys is!

Course'Outline'

PART'VI:'VALUATION'

WEEK'9'

Session'A:'Wednesday,'October'18'

!"#$%&'()*"+,-../)01#2,"3)\())G&$"3;,#&$%&'),1")0.;,).>)0#2%,#8)

Session'B:'

*"+,-../)01#2,"3)4?()]#86#,%.&)B.$"8;)

0#;"()N&C.B)0.32.3#,%.&)P,#'")I)%&),"+,-. . / ) '

WEEK'10'

Wednesday'10/25/2017:''Apples'FY'2017'Earnings'Release'(Projected)'

Session'A:'Wednesday,'October'25'

Valuation:'Application'of'Discounted'Cash'Flows'and'Residual'Income'Models'

0#;"()7&#89:%&')7228"()K6";,%.&)4J)Y)4S)E5T F''

Session'B:''

Valuation'Application:''Predicting'Returns'at'Earnings'Announcements''

0#;"()A&,"8)E%&),"+,-.. / F)E5TF)

)

PART'VII:''SYNTHESIS,'REVIEW'AND'APPLICATIONS'

WEEK'11'

Session'A:'Wednesday,'November'1'

Determinants'of'Valuation'Ratios'

!"#$%&'()*"+,-../)01#2,"3)44)

0#;"()!";,#63#&,)A&$6;,39)%&)D??I)%&),"+,-../ )Y)E%&)C8#;;)" + " 3C %; " F )

Session'B:''

Valuation'Applications:'Mergers'

!"#$%&'()*"+,-../)01#2,"3)4D)

0#;"())7^_)*%B")T#3&"3)%&),"+,-. . / )E 5 TF)

! !ACCT!581:!!Financial!Stateme n t!A na lys is!

Course'Outline'

WEEK'12'

Session'A:'Wednesday,'November'8'

Valuation'Applications:''Initial'Public'Offerings'

0#;"()5#;)`9&'#)_.;,)%,;)`%&')E5TF)

Session'B:''

Project'Workshop'

Q&A!on!Projects!

WEEK'13'

Session'A:'Wednesday,'November'15'

Project!Presentations!

Session'B:''

Project!Presentations!

PROJECTS'Due'

Wednesday,'November'15'

WEEK'14'

Session:'Wednesday,'November'22'

Thanksgiving'–'NO'CLASS'

! !ACCT!581:!!Financial!Stateme n t!A na lys is!

Course'Outline'

WEEK'15'

Session'A:'Wednesday,'November'29'

Comprehensive'Case:'Tesla''

!"#$%&'()*"+,-../)01#2,"3)S)

0#;"()*";8#()E5TF)

Session'B:''

!"<%"=)>.3)>%&#8)"+#B)

WEEK'16'

Wednesday,'December'6,'2017'''

Scheduled'time:'7:00 pm'–'9:00pm'

FINAL'EXAM'''