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INSTRUCTOR’S/SOLUTIONS MANUAL
FINANCIAL REPORTING, FINANCIAL STATEMENT ANALYSIS, AND VALUATION
A
STRATEGIC PERSPECTIVE
SEVENTH EDITION
JAMES M. WAHLEN
Professor of Accounting
James R. Hodge Chair of Excellence
Kelley School of Business
Indiana University
STEPHEN P. BAGINSKI
Herbert E. Miller Chair in Financial Accounting
J. M. Tull School of Accounting
Terry College of Business
The University of Georgia
MARK T. BRADSHAW
Associate Professor of Accounting
Carroll School of Management
Boston College
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CONTENTS
Some Suggestions for Using This Textbook............................................ I-i to I-x
Schedule
1............................................................................................ I-xi
Schedule
2............................................................................................ I-xii
Schedule
3............................................................................................ I-xiii to I-xiv
Solutions to Questions, Exercises and Problems, and Teaching Notes
to Cases
Chapter 1 Overview of
Financial Reporting, Financial Statement
..... Analysis, and Valuation............................................ 1-1 to 1-39
Chapter 2: Asset and Liability Valuation and Income
..... Measurement............................................................. 2-1 to 2-31
Chapter 3 Income Flows Versus Cash Flows:
Understanding the
..... Statement of Cash Flows.......................................... 3-1 to 3-40
Chapter 4 Profitability Analysis...................................................... 4-1 to 4-41
Chapter 5 Risk Analysis.................................................................. 5-1 to 5-40
Chapter 6 Financing Activities........................................................ 6-1 to 6-41
Chapter 7 Investing Activities......................................................... 7-1 to 7-40
Chapter 8 Operating Activities........................................................ 8-1 to 8-39
Chapter 9 Accounting Quality......................................................... 9-1 to 9-17
Chapter 10 Forecasting Financial Statements................................... 10-1 to 10-103
Chapter 11 Risk-Adjusted Expected Rates of Return and
the
..... Dividends Valuation Approach................................. 11-1 to 11-20
Chapter 12 Valuation:
Cash-Flow-Based Approaches................... 12-1 to 12-60
Chapter 13 Valuation:
Earnings-Based Approaches...................... 13-1
to 13-24
Chapter 14 Valuation:
Market-Based Approaches......................... 14-1 to 14-29
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Some Suggestions for Using this Textbook
Our
discussions with professors who teach courses in financial reporting, financial
statement analysis, and equity valuation and our study of the course outlines
of users of previous editions of this book lead us to make the following
observations:
1.
There is little consensus
regarding the objectives and content of courses in financial statement
analysis. Courses vary in their relative
emphasis on (a) the concepts, tools, and skills for analyzing financial
statements, (b) the effects of alternative accounting principles on the quality
of accounting information, and (c) valuation.
2.
At various institutions,
faculty in accounting, finance, and economics may teach this course.
3.
The course may focus on the
most recent research findings and the methodological issues in conducting
empirical research using financial statement data.
4.
The course may presume that
students have had only an introductory financial accounting course or that
students have had the equivalent of a major in accounting.
It is not surprising that the
professors we spoke with felt that the textbooks on the market satisfied some
of their needs, but seldom did one textbook satisfy all of them. We have no delusions in this regard about the
potential for this textbook either. We
have five premises in writing this book:
1.
Analyzing financial statements
and valuing firms is an integrated process in which the analyst must understand
industry competitive dynamics, firm strategy, accounting information content
and quality, profitability and risk assessment, forecasting, and valuation
models. We strive to integrate these six
components of the process throughout this book.
We discuss this in more detail below in the section on positioning this
text.
2.
The usual goal of financial
statement analysis is to value a firm.
Therefore, we discuss the important concepts, tools, and skills of
financial statement analysis with this objective constantly in view.
3.
The financial statement
analysis course serves as a synthesizing experience for students, integrating
concepts and skills from accounting, finance, economics, business strategy, and
related disciplines.
4.
Examples, illustrations,
problems, and cases based on current data for actual companies enhance student
motivation and skill development.
5.
The text, questions, exercises,
problems, cases, software, and related materials should provide sufficient
flexibility to permit professors to adapt these materials to suit their
particular objectives and needs.
Positioning of the Book
As we indicate
in the preface to the book, we find it helpful to view financial statement
analysis as a triangle. The analysis of
profitability and risk using financial statements is in the center of the
triangle. Interpreting profitability and
risk ratios requires an understanding of the economic characteristics of the
industries in which a firm competes and the business strategies a firm has
selected to compete in those industries.
The analyst should not naively accept reported financial statement
information when performing profitability and risk analysis, but should first
assess its quality and make appropriate adjustments. The assessment of quality and appropriate
adjustments may differ depending on whether the firm’s financial statements
have been prepared in accordance with U.S. GAAP (Generally Accepted Accounting
Principles) or IFRS (International Financial Reporting Standards). The analysis of a firm’s profitability and
risk in the recent past serves as a prelude to forecasting its future profitability
and risk. Forecasts of future earnings,
cash flows, and dividends provide the bases for valuing a firm. We depict these elements below:
Forecasting and Valuation of Firms
Industry Economics GAAP and
IFRS
and
and the Quality of
Business Strategy Accounting
Information
As authors of this book, we find it useful to reflect on the
courses that we teach in financial statement analysis and then place a dot
inside the triangle to indicate the relative emphasis on each of the elements
depicted as points of the triangle. You
may find it useful to do the same. We
discovered that, although the location of our dots differed somewhat, all of
the elements were needed for effective financial statement analysis. De-emphasizing any of the elements can take
away from the potential richness of the course.
Thus, we have tried to position our book to cover this entire
triangle. Furthermore, we must not only
include each of these elements in our courses, but we need to cover them in a
balanced and integrated manner. We
accomplish this balance and integration in this textbook by continually
relating each of the elements to the others and designing problem and case
materials that require students to do the same.
Structure of the Book
The material in this textbook divides into three main segments:
1.
Core concepts and tools of
financial statement analysis: Chapters 1
to 5.
2.
Quality of accounting
information and U.S. GAAP and IFRS:
Chapters 6 to 9.
3.
Forecasting and valuation of
firms: Chapters 10 to 14.
Not only do instructors differ on their relative emphasis on
each of these parts, but they also differ as to the sequence in which they
cover them. We have designed this
textbook so that instructors have flexibility to sequence the topics to suit
their particular preferences. Chapter 1
is an overview of financial statement analysis and is intended as a starting
point for all courses. We can think of
several sequencing scenarios for which we feel the textbook is adaptable:
Scenario 1: Begin with the core concepts of financial
statement analysis (Chapters 1 to 5), move to alternative GAAP (Chapters 6 to
9), and finish with valuation (Chapters 10 to 14).
Scenario 2: Begin with the tools of profitability and
risk analysis (Chapters 4 and 5) and then move to valuation (Chapters 10 and
14). Fill in with materials on
particular GAAP as needed for assigned problems and cases (Chapters 6 to 9).
Scenario 3: Begin with concepts and procedures underlying
the financial statements (Chapters 2 and 3) and then move to alternative GAAP
(Chapters 6 to 9). Move next to the
tools of financial statement analysis (Chapters 4 and 5) and their application
in valuation settings (Chapters 10 to 14).
Other sequences are also possible. The key is balanced coverage of each of the
elements, not necessarily their sequence.
Sample Course Outlines
One
use of this textbook is in a two-course sequence designed for students who will
be intensive users of financial statements in their professional
responsibilities (security analysis, credit analysts, investment bankers,
financial consultants). The first
course, Corporate Financial Reporting, emphasizes alternative accounting
principles and their effects on the financial statements and on assessments of
the quality of accounting information.
The second course, Financial Statement Analysis, applies the tools of
financial statement analysis to the financial data of actual companies, both
for the purpose of studying their profitability and risk and for valuing
them. Schedules 1 and 2 in this
instructor’s/solutions manual present course outlines for these two
courses. Another approach is to use the
textbook in a single course, Financial Reporting and Statement Analysis, which
combines the content of the two-course sequence. Schedule 3 presents an outline for this
course.
When
students have previously taken courses in intermediate and advanced accounting
principles, the instructor may omit Chapters 6 to 9. Most students, however, will find that the
financial statement user perspective taken in the study of various alternative
accounting principles in these chapters enhances their understanding and
broadens their perspective. The material
on valuation in Chapters 11 to 14 is sometimes covered in finance courses
instead of the course in financial statement analysis.
Schedules
1, 2, and 3 also indicated suggested problems and cases for undergraduate and
graduate courses. We suggest making
heavy use of questions, exercises, and problems for undergraduate courses and a
mixture of problems and cases for graduate courses. The cases are more integrative and generally
more complex than the problems. The
problems, however, require both analysis and interpretation. In that sense, the problems are like
mini-cases.
Term
Paper Project
We
have found that assigning a term paper project is an excellent synthesizing
device for the financial statement analysis course. Students can either work alone and analyze
two companies in the same industry or work in groups to analyze three or four
companies in the same industry. Analyzing
more than four companies is cumbersome and typically not necessary. We have students summarize the economics and
current conditions in the industry, describe the strategies of each of the
firms, input the financial statement data with appropriate adjustments into a
spreadsheet program (such as FSAP), perform a profitability and risk analysis,
prepare forecasted financial statements, and value the firms. We ask students to turn in progress reports
throughout the term to insure that they are making progress on the project. The first item turned in, at about the
one-third point in the course, is an outline of the economic characteristics of
the industry and the strategies of the firms.
The second item turned in, at about the two-thirds point in the course,
is a printout of the financial statements and financial statement ratios and a
short description of the accounting quality issues (both high- and low-quality)
and the data adjustments made together with a comparative analysis and
interpretation of the profitability and risk ratios. The third item turned in is a set of
forecasted financial statements and valuations of the firms, which occurs with
approximately two weeks left in the course.
We often devote the last several class periods of the term to short
project presentations by students.
Appendix 1.1 of the text provides students with guidance in conducting
the term project.
Overview
of Cases
The teaching
note for each case describes the objectives of the case as well as suggestions
for teaching it. We present below a
summary of the principal purpose of each case.
Case 1.1:
Starbucks. This integrative
case introduces the series of parts that appear in each of the remaining
chapters. The purpose of the integrative
case series is to permit students to apply the material covered in each chapter
to the financial statements and other information for the same company. Case 1.1 leads students to review the
important concepts and principles underlying the balance sheet, income
statement, and statement of cash flows and to begin conducting financial
statement analysis. The case works well
for a first class if students have not done any class preparation, because the
instructor can walk students through selected questions to orchestrate the
desired review. The instructor might
also provide solutions to the first four parts of the case involving each
financial statement and the relations between them, and then spend time with
interpretations. We find Starbucks works
well for this integrative case because most students are familiar with their
coffee shops, the firm has a relatively simple business model (which makes
understanding the accounting and building the forecasts a bit easier), and the
financial statements involve a broad range of interesting accounting
issues. Of course, other firms can be
used as integrative cases equally effectively.
Case 1.2:
Nike: Somewhere Between a Swoosh
and A Slam Dunk.
This case reviews the basic concepts and principles from the
introductory financial accounting course and introduces tools for analyzing
financial statements. The case works well
for a first class if students have not done any class preparation, because the
instructor can walk students through selected questions to orchestrate the
desired review. The instructor might
also provide solutions to the first four parts of the case involving each
financial statement and the relations between them, and then spend class time
with interpretations.
Integrative Case 2.1: Starbucks. This portion of the integrative case on
Starbucks examines the firm’s disclosures on income taxes, with emphasis on the
relation between book income and taxable income and interpretation of changes
in various deferred tax accounts.
Integrative Case 3.1: Starbucks. This case focuses on interpreting the
statement of cash flows of Starbucks. It
also examines the relation between net income, cash flow from operations, and
EBITDA.
Case 3.2:
Prime Contractors. Prime
Contractors shifted its strategy from an asset-intensive business to a
people-intensive business. Students
study the statement of cash flows to see evidence of this strategic shift. The case also illustrates that net income and
cash flow from operations can move in opposite directions and students are
asked to explain how this can happen.
Case 3.3:
W.T. Grant company: A Case Study
of Bankruptcy. Grant was profitable
up to the last year before its bankruptcy, but was unable to generate cash
internally. This case demonstrates the
need for a statement of cash flows. The
case provides the relevant financial statement ratios, so students need not
make many calculations. The case
demonstrates how a poorly executed business strategy can sink even a large,
well-established company. It also brings
up several accounting issues, including inadequate provisions for uncollectible
accounts, recognition of interest income on installment receivables,
consolidation policy, and control systems for decentralized firms. Students do not need background in the
specifics of these accounting issues in order to observe their effect on the
financial statements. The W.T. Grant
bankruptcy occurred in 1975, yet continues to serve as a classic study of how
cash flow problems can lead to financial difficulty.
Integrative Case 4.1: Starbucks. Part A of this case asks students to compute
various profitability ratios for Starbucks and explore reasons for changes in
its profitability during the most recent three years. Part B of the case provides the same
financial ratios for Panera Bread Company as those computed in Part A for
Starbucks and asks students to compare the profitability of the two firms.
Case 4.2:
Profitability and Risk Analysis of Walmart Stores. Part A of this case asks students to
calculate traditional profitability and risk ratios for the most recent year in
the case and then interpret the changes in profitability and risk in recent
years. Walmart shifted its strategy to
(1) increase the emphasis on supercenters, which combine their traditional
discounts store concept with grocery products, and (2) grow through
acquisitions abroad. The effects of
these strategic shifts show up in the financial statement ratios. The instructor can assign the parts of this
case involving profitability analysis with Chapter 4 and the parts involving
risk analysis with Chapter 5.
Alternatively, the instructor can assign the case as an integrative case
for Chapters 4 and 5. Problem 10.6 asks
students to prepare forecasted financial statements for Walmart and Problems
11.14, 12.17, 13.20, and 14.23 ask students to value Walmart. Thus, the instructor can use Case 4.1 and
these four subsequent problems for an integrated study of Walmart. Part B of this case provides profitability
and risk ratios for Carrefour and Target and asks students to compare the
profitability and risk of these firms with Walmart. Differences in the design and effectiveness
of the strategies of these three firms come out clearly in this part of the
case. As with Part A, instructors can
assign the profitability parts of Part B when covering Chapter 4 and the risk
parts when covering Chapter 5 or assign it as an integrative case after
covering both Chapters 4 and 5.
Case 5.2:
Massachusetts Stove Company: Bank
Lending Decision. This case is based
on an actual, privately-held company that asked that its identity not be
revealed. The setting of the case and
the financial statement data are almost identical to those for the company in
the time period set forth in the case.
The industry faced a downsizing as a result of new environmental
regulations and a decrease in demand.
This company focuses on retail direct marketing and has apparently
carved itself a unique niche.
Substantial uncertainty surrounds the future of this company (unsettled
lawsuit, continued design and testing costs to meet EPA regulations), so the
loan decision is not an easy call.
Case 5.3:
Fly-by-Night International Group:
Can This Company Be Saved?
This case, based on the financial statements of Flight Group
International, analyzes a company approaching bankruptcy. Students must identify causes of the firm’s
problems and suggest changes they would make to keep the firm out of
bankruptcy. Students are also asked to
apply the Altman bankruptcy prediction model to this firm. A unique aspect of the case is that the
majority shareholder is also the chief executive officer and chairman of the
board. Part of the firm’s difficulties
relates to dealings by this individual with the firm, which are not exactly
arms’ length. This case serves as an
excellent vehicle for discussions of corporate governance and ethical issues.
Case 5.4: Millennial Technologies: Apocalypse Now. This case is based on financial data for
Centennial Technologies and illustrates three essential analyses: (1) detecting
the games firms can play to make themselves appear more profitable than they
are, (2) assessing credit risk of a firm with a viable product but significant
short-term liquidity risk, and (3) assessing bankruptcy risk for a firm that
has limited access to capital markets because of purported fraudulent
reporting. This case asks students to
apply Beneish’s model for detecting earnings manipulation and the Altman model
for predicting bankruptcy.
Integrative 6.1: Starbucks. Starbucks makes use of operating leases for
much of its store space and, therefore, leaves property, plant and equipment,
and debt off its balance sheet. This
case asks students to compute the present value of operating lease commitments
and calculate several debt ratios both without and with capitalization of
operating leases.
Case 6.2:
Oracle Corporation: Share-Based
Compensation Effects/Statement of Shareholders’ Equity. Oracle Corporation’s Statement of
Shareholders’ Equity reports several material equity transactions. Students are asked to compute the
long-term-debt-to-shareholders’-equity ratio to measure the extent to which
Oracle uses leverage. Then, students
must identify how Oracle’s share-based compensation plans and stock repurchase
plans affect leverage and future return on equity. Finally, students must describe how the
equity transactions reported in the statement are shown in the statement of
cash flows.
Case 6.3:
Long-Term Solvency Risk:
Southwest and Lufthansa Airlines.
Actual Southwest Airlines (U.S. GAAP) and Lufthansa Airlines (IFRS)
balance sheets and note excerpts show the extent to which the two airlines use
operating leases. Students use these two
very different financial statement and note presentations to capitalize
operating leases and compare long-term solvency risk between these two companies
before and after effective lease capitalization.
Integrative Case 7.1: Starbucks. This comprehensive case covers all of
Starbucks’ investing activities.
Students must read and evaluate accounting policy for long-lived
operational assets including fixed assets, leasehold improvements, asset
retirement obligations, and asset impairment and R&D (these latter two as
compared to IFRS rules). Students
identify Starbucks’ use of fair value in accounting for majority-owned equity
investments, how Starbucks will incorporate accounting standard changes in the
area, and how Starbucks accounts for resulting goodwill and its potential
impairment. Students also must evaluate
how Starbucks reflects its minority passive investments in net income and other
comprehensive income and how it reflects its minority active investments in net
income. Students are required to
effectively consolidate its minority active investments.
Case 7.2:
Disney Acquisition of Marvel Entertainment. Students must answer several questions about
how Disney must account for its September 2009, $4 billion cash and stock
acquisition of Marvel. Emphasis is
placed on the new accounting rules in the area (the acquisition method).
Integrative Case 8.1: Starbucks. Starbucks recognizes revenue in retail
transactions, as a supplier of other companies, and from transactions with
franchisees. This portion of the
integrative case asks students to address questions regarding Starbucks’
accounting for revenue recognition.
Case 8.2:
Arizona Land Development Company.
This case illustrates the effects of alternative income recognition
methods on the three principal financial statements. The case provides full financial statements
under each income recognition method.
Students therefore devote time to understanding the different effects on
the financial statements instead of performing the laborious calculations. The link between asset valuation and income
recognition, discussed in Chapter 2, come through clearly. The case also demonstrates that the
alternative income recognition methods do not affect cash flows. Students must make a judgment as to the
appropriate time to recognize income.
Case 8.3:
Coca-Cola Pensions. Students
analyze Coca-Cola’s pension footnote to explain changes in the net pension
liability, trace changes in pension assets and liabilities to net income
(through pension expense) and to other comprehensive income. Students must also explain how a change in an
expected compensation level increase assumption affects the pension liability
and current and future pension expense.
Integrative Case 9.1: Starbucks. This portion of the integrative case requires
students to analyze issues of earnings quality for Starbucks. Specifically, students must take a position
on how they will treat Starbucks’ restructuring charges, accounting changes,
self-insurance reserves, and other comprehensive income items when forecasting
future earnings.
Case 9.2:
Citi: A Very Bad Year. Citi has reported a large loss during the
recent financial crisis. Students are
required to analyze Citi’s earnings quality by examining Citi’s financial
statements and note disclosures.
Specific requirements relate to principal transactions, realized gains
and losses from sales of investments, provisions for loan losses, restructuring
charges, goodwill impairments, and discontinued operations.
Integrative Case 10.1: Starbucks. This case requires students to construct a
spreadsheet or use FSAP to prepare forecasted financial statements for
Starbucks. Students must decide on
appropriate assumptions to prepare the forecasted financial statements. By this point, students should be familiar
with Starbucks, although it is not essential that students will have prepared
the portions of the integrative cases in prior chapters in order to decide on
appropriate assumptions. These
forecasted amounts become the base for the integrative cases on valuation in
Chapters 11 to 14.
Case 10.2:
Massachusetts Stove Company:
Analyzing Strategic Options.
This case follows up Case 5.2, which analyzes the credit risk of
Massachusetts Stove Company. The setting
of Case 10.2 is five years later. The
firm is healthier but its wood stove products have reached maturity. Students are asked to prepare forecasted
financial statements to assess the desirability of adding gas stoves to the
wood stove line of products. The case
provides forecasted assumptions for the best case, most likely case, and worst
case scenarios. Students must design a spreadsheet
to permit analysis of these options.
Integrative Case 11.1: Starbucks. Students compute the cost of equity capital
for Starbucks and then apply the dividend-based valuation method, using
forecasted amounts from Integrative Case 10.1.
Students must also study the sensitivity of the valuation to changes in
discount rate and the long-term growth rate.
Integrative Case 12.1: Starbucks. This portion of the integrative case guides
students through the valuation of Starbucks using the present value of free
cash flows to common equity shareholders and the present value of free cash
flows to all debt and equity stakeholders.
The case also asks students to assess the sensitivity of their
valuations to changes in assumptions about costs of capital and long-term
growth rates.
Case 12.2:
Holmes Corporation: LBO
Valuation. This case involves the
full range of analyses for a leveraged buyout (LBO), including identifying the
desirable attributes of an LBO candidate, preparing projected financial
statements, and valuing the company using present values of cash flows, present
values of residual income, present value of residual ROCE, and market
multiples. Holmes is not an obvious
choice for an LBO, so good discussions develop about whether or not to pursue
the firm. The preparation of forecasted
financial statements is relatively straightforward because Holmes’ financial
statement relations have been fairly stable in the past. Although we place this case at the end of
Chapter 12, instructors can assign appropriate parts as they cover Chapters 10
to 14, or use it as a synthesis case after covering all of these chapters. The case requires approximately three hours
of class time.
Integrative Case 13.1: Starbucks. This portion of the integrative case guides
students through the valuation of Starbucks using the residual income valuation
method. It also asks students to assess
the sensitivity of their valuations to changes in the discount rate and
long-term growth rate.
Integrative Case 14.1: Starbucks. Students are asked to apply the value-to-book
and value-earnings valuation methods to Starbucks. They also apply these valuation methods with
different assumptions about the discount rate and long-term growth rate to
study the sensitivity of the valuations to these assumptions. Comparisons of value-to-book and
value-earnings ratios to market-to-book and price-earnings ratios provide a
basis for evaluating current market prices.
Students are also asked to reverse engineer the discount rate and
long-term growth rate consistent with current market prices.
Computer
Software
A Financial
Statement Analysis Package (FSAP) is available on the web site to all adopters
of the book. FSAP permits students to
enter financial statement data for a company, which they can then analyze using
FSAP. FSAP also has capabilities for the
preparation of forecasted financial statements and valuation of a firm using
the valuation methods discussed in Chapters 11 to 14. The output of FSAP for PepsiCo appears in
Appendix C. FSAP contains a user manual
with many line-by-line guides for how to use FSAP.
We
welcome suggestions and comments that might provide guidance for future
editions of this book. The revisions for
this edition attempt to reflect the excellent suggestions we have received on
the sixth edition.
Schedule 1
Corporate Financial Reporting Course Outline
(Twenty 90-Minute Class Sessions)
Class Prepare
Period Topic Read Undergraduate Graduate
1 Overview of Financial Reporting Ch.
1 Prob. 1.15 Case 1.1
2 Asset Valuation and Income Ch.
2 Case 2.1 Case 2.1
Measurement Prob.
2.16 Prob. 2.16
3 Income Flows versus Cash Flows Ch.
3 Case 3.1 Case 3.1
Prob.
3.23 Prob. 3.23
4 Debt Financing Ch.
6 Prob. 6.5, 6.10 Prob. 6.5, 6.10
5 Shareholders’ Equity/Stock Ch.
6 Prob. 6.21, 6.22 Prob. 6.24
Options Case
6.2
6 Off-Balance Sheet Financing Ch.
6 Prob. 6.17, 6.20 Prob. 6.17
Case
6.1
7 Long-Lived Operational Assets Ch.
7 Prob. 7.15, 7.16, Case 7.1 (Parts I & V)
7.17
8 First Examination
10 Corporate Acquisitions Ch.
7 Prob. 7.22, 7.23 Prob. 7.23
12 Revenue Recognition Ch.
8 Case 8.1 Case 8.1
13 Revenue Recognition Ch.
8 Prob. 8.19, 8.21 Case 8.2
14 Second Examination
15 Income Taxes Ch.
8 Prob. 8.26 Prob. 8.26
17 Derivatives Ch.
8 Prob. 8.23, 8.24 Prob. 8.23, 8.24
18 Accounting Quality Ch.
9 Prob. 9.10, 9.11 Case 9.1, 9.2
19 Project Presentations
20 Project Presentations
Schedule 2
Financial Statement Analysis Course Outline
(Twenty
90-Minute Class Sessions)
Class Prepare
Period Topic Read Undergraduate Graduate
1 Introduction to Financial State- Ch. 1 Case 1.1 Case 1.1
ment Analysis
2 Overview of Profitability Analysis Ch. 4 Prob. 4.21 Case 4.1 (Part A)
3 Analyzing Restaurant and Ch.
4 Prob. 4.23, 4.24 Prob. 4.23, 4.24
Capital-Intensive
Firms
4 Analyzing Personnel and Financial Ch. 4 Prob. 4.22, 4.25 Prob. 4.22, 4.25
Services
Businesses
5 Overview of Risk Analysis Ch.
5 Prob. 5.13, 4.16 Case 5.1
6 Cross Section Profitability and Case
4.1 (Part B) Case 4.1 (Part B)
Risk Analysis
7 Credit Risk Analysis Ch.
5 Case 5.2 Case 5.2
8 Bankruptcy Risk Analysis Ch.
5 Case 5.3 Case 5.3
9 Financial Reporting Manipulation Ch. 5 Prob. 5.19 Case 5.4
Risk Analysis
10 Examination
11 Forecasted Financial Statements Ch.
10 Case 10.1 Case 10.1
12 Valuation: Dividends-Based Ch. 11 Case
11.1 Case 11.1
Approaches
13 Valuation:
Cash-Flow-Based Ch. 12 Case 12.1 Case
12.1
Approaches
14 Valuation:
Earnings-Based Ch. 13 Case 13.1 Case
13.1
Approaches
15 Valuation: Market
Multiples Ch. 14 Case 14.1 Case
14.1
16 Synthesis Case Case
12.1 Case 12.1
17 Synthesis Case Case
12.1 Case 12.1
18 Project Presentations Case
11.1 Case 11.1
19 Project Presentations
20 Examination
Schedule 3
Financial Reporting and
Statement Analysis
(Thirty
90-Minute Class Sessions)
Class Prepare
Period Topic Read Undergraduate Graduate
1 Introduction to Financial Reporting Ch. 1 Prob. 1.15 Case 1.1
and Financial
Statement Analysis
2 Asset Valuation and Income Ch.
2 Case 2.1 Case 2.1
Measurement Prob.
2.16 Prob. 2.16
3 Income Flows versus Cash Flows Ch.
3 Case 3.1 Case 3.1
Prob.
3.23 Prob. 3.23
4 Introduction to Profitability Ch.
4 Prob. 4.21 Case 4.1 (Part A)
Analysis
5 Introduction to Risk Analysis Ch.
5 Prob. 5.13 Case 5.1
6 Cross Section Profitability Analysis Case 4.1 (Part B) Case
4.1 (Part B)
7 Financial Reporting Manipulation Ch. 5 Prob. 5.19 Case 5.4
Risk Analysis
8 Debt Financing Ch.
6 Prob. 6.5, 6.10 Prob. 6.5, 6.10
9 Shareholders’ Equity/Stock Ch.
6 Prob. 6.21, 6.22 Prob. 6.24
Options Case
6.2
10 Off-Balance Sheet Financing Ch.
6 Prob. 6.17, 6.20 Prob. 6.17
Case
6.1
11 Long-Lived Operational Assets Ch.
7 Case 7.15, 7.16 Case 7.1 (Parts I
&
V)
12 First Examination
13 Intercorporate Investments Ch.
7 Prob. 7.11, 7.18 Case 7.1 (Parts III
&
IV)
14 Corporate Acquisitions Ch.
7 Prob. 7.22, 7.23 Prob. 7.23
Case
7.2
15 Foreign Currency Translation Ch.
7 Prob. 7.25, 7.26 Prob. 7.25, 7.26
16 Revenue Recognition Ch.
8 Case 8.1 Case 8.1
17 Revenue Recognition Ch.
8 Prob. 8.19, 8.21 Case 8.2
18 Income Taxes Ch.
8 Prob. 8.26 Prob. 8.26
19 Pensions and Healthcare Benefits Ch. 8 Prob. 8.22 Prob. 8.22
20 Derivatives Ch.
8 Prob. 8.23, 8.24 Prob. 8.23, 8.24
21 Accounting Quality Ch.
9 Prob. 9.10, 9.11 Case 9.1, 9.2
22 Second Examination
23 Forecasted Financial Statements Ch.
10 Prob. 10.1 Case 10.1
24 Valuation:
Dividends-Based Ch. 11 Case 11.1 Case
11.1
Approaches
25 Valuation:
Cash-Flow-Based Ch. 12 Case 12.1 Case
12.1
Approaches
26 Valuation:
Earnings-Based Ch. 13 Case 13.1 Case
13.1
Approaches
27 Valuation: Market
Multiples Ch. 14 Case 14.1 Case
14.1
28 Project Presentations
29 Project Presentations
30 Third Examination
