NYU Stern School of Business

Undergraduate College

C10.0003.002: FIN STATEMENT ANALYSIS

Fall 2010

Instructor Details

Aaron Hipscher

ahipsche@stern.nyu.edu

(212) 998-0011

MW 12:30pm-1:30pm, Or By Appointment

KMC 10-89

 

TBA

?@stern.nyu.edu

TBA

TBA

 

Course Meetings

MW, 11:00am to 12:15pm

KMC 4-90


Final Exam:

Schedule exceptions
    Class will not meet on:
    Class will meet on:

 

Course Description and Learning Goals

This course is designed to prepare you to interpret and analyze financial statements effectively. This course explores in greater depth financial reporting topics introduced in the core course in financial accounting and also examines additional topics not covered in that course. The viewpoint is that of the user of financial statements. However, we develop sufficient understanding of the concepts and recording procedures, to enable you to interpret various disclosures in an informed manner. We discuss each financial reporting issue in terms of its effect on assessments of a firm’s profitability and risk. We then apply the analytical tools and concepts in competitor analysis, and credit decisions. This course is designed primarily for students who expect to be intensive users of financial statements as part of their professional responsibilities.   

The United States is moving towards adopting international accounting standards. We will be looking at U.S. GAAP and what kinds of changes you can expect to see in the future. We will see how these changes will impact you both as a student of accounting and as a future user of accounting information. We will be discussing this all during the course.

 

Required Course Materials

The readings, problems, and cases for the course come from Financial Reporting, Financial Statement Analysis, and Valuation: A Strategic Perspective, 7th edition, by Wahlen, Baginski, & Bradshaw. (FSA) You will also need a copy of the General Mills Financial Statements 10-K, which can be downloaded at:  http://www.generalmills.com/corporate/investors/index.aspx.

 
Go to the 2010 Annual Report and download form 10-K.  

Three Internet addresses may prove useful to you at some point in the course:   

1. Filings with the Securities and Exchange Commission: http://www.sec.gov/.

2. Pronouncement of the Financial Accounting Standards Board: http://www.fasb.org.

3. Pronouncement of the International Accounting Standards Committee: http://www.iasc.org.uk/.

We will also be discussing current articles on the subject. You may not use the 6th Edition.

 

FINANCIAL STATEMENT ANALYSIS PACKAGE

A financial statement analysis package (FSAP) is available to ease the calculation of financial ratios and to perform other analyses. Access FSAP and the user manual at:


http://www.thomsonedu.com/accounting/stickney/

 

Group Projects

Groups may be 3 to 4 people. Each group will choose a manufacturing or merchandising (retailing) firm to analyze, and compare it to a secondary company. The analysis should cover the relevant topics discussed during the course and Powerpoints will be handed in and presented toward the end of the term. You are to summarize the economics and current conditions in the industry, describe the strategies each of the firms pursue, perform a profitability and risk analysis, and assess the reasonableness of the current market price. More details will be given as the semester progresses. I will assign the groups.

 

Grading

In general, students in this course can expect a grading distribution similar to that used in our core courses, where:

> 25-35% of students can expect to receive A’s (for excellent work)
> 50-70% of students can expect to receive B’s (for good or very good work)
> 5-15% of students can expect to receive C’s (for adequate or below work)

Grade Distribution:
Midterm 35%,  Final 45%,  Group Presentation 15%,  Class Participation 5%

 

Re-Grading

The process of assigning grades is intended to be one of unbiased evaluation. Students are encouraged to respect the integrity and authority of the professor’s grading system and are discouraged from pursuing arbitrary challenges to it.

If you believe an inadvertent error has been made in the grading of an individual assignment or in assessing an overall course grade, a request to have the grade re-evaluated may be submitted. You must submit such requests in writing to me within 7 days of receiving the grade, including a brief written statement of why you believe that an error in grading has been made.

 

Professional Responsibilities For This Course

ASSIGNMENTS & ATTENDANCE  
 

Readings, cases and/or problems are assigned for each class. You should come to class prepared to discuss your analysis of the cases and problems. Regular class participation is important to the learning process for you and your classmates.

Class attendance is mandatory and part of a student's grade. Absences may be excused only in the case of documented serious illnesses, family emergency, religious observance, or civic obligation. If you will miss class for religious observance or civic obligation, you must inform your instructor no later than the first week of class. Recruiting activities are not acceptable reasons for class absence. A maximum of two unexcused absences will be allowed.

I reserve the right to lower a grade or fail an individual if attendance is unsatisfactory.

Students are expected to arrive to class on time and stay to the end of the class period. Chronically arriving late or leaving class early will have an impact on a student's grade. Students may enter class late only if given permission by the instructor and must do so without disrupting the class.   

Assignments are due at the end of the class assigned. No late assignments will be accepted nor or emailed or faxed assignments.   


All assignments should be prepared using word processing software with type size no smaller that 12 point. During class discussions, please feel free to make changes to your solutions, but do so in a way that clearly indicates that they are the result of class discussion (e.g., using a different color of ink).  

You may work in groups to discuss homework assignments. However, each person should prepare his/her own individual homework solutions to be submitted. Ideally you should work through each day’s assignment on your own before discussing it with anyone. You can then make changes to your solution based on your learning in any discussion. Interpretations of the analysis should be in your own words.  
 

 

Assessment Components

PARTICIPATION  
 
Participation is an essential part of learning in this course. Students are expected to participate in all facets of classroom learning.

READING/HOMEWORK  
 
Students are expected to come to class prepared, having read text and/or assigned readings prior to class. Homework, case studies, and other assignments, are expected to be completed and handed in on time.
 
CLASSROOM NOTES  

 
Laptops, cell phones, Smartphones, and other electronic devices are a disturbance to both students and professors. All electronic devices must be turned off prior to the start of each class meeting.

 

Stern Policies

General Behavior
The School expects that students will conduct themselves with respect and professionalism toward faculty, students, and others present in class and will follow the rules laid down by the instructor for classroom behavior.  Students who fail to do so may be asked to leave the classroom. 

 

Collaboration on Graded Assignments
Students may not work together on graded assignment unless the instructor gives express permission. 

 

Course Evaluations
Course evaluations are important to us and to students who come after you.  Please complete them thoughtfully.

 

Academic Integrity

Integrity is critical to the learning process and to all that we do here at NYU Stern. As members of our community, all students agree to abide by the NYU Stern Student Code of Conduct, which includes a commitment to:

The entire Stern Student Code of Conduct applies to all students enrolled in Stern courses and can be found here:

Undergraduate College: http://www.stern.nyu.edu/uc/codeofconduct
Graduate Programs: http://w4.stern.nyu.edu/studentactivities/involved.cfm?doc_id=102505

To help ensure the integrity of our learning community, prose assignments you submit to Blackboard will be submitted to Turnitin.  Turnitin will compare your submission to a database of prior submissions to Turnitin, current and archived Web pages, periodicals, journals, and publications.  Additionally, your document will become part of the Turnitin database.

 

Recording of Classes

Your class may be recorded for educational purposes

 

Students with Disabilities

If you have a qualified disability and will require academic accommodation of any kind during this course, you must notify me at the beginning of the course and provide a letter from the Moses Center for Students with Disabilities (CSD, 998-4980, www.nyu.edu/csd) verifying your registration and outlining the accommodations they recommend.  If you will need to take an exam at the CSD, you must submit a completed Exam Accommodations Form to them at least one week prior to the scheduled exam time to be guaranteed accommodation.

 

Course Outline

SEPTEMBER 8TH & 13TH
 
TOPIC:  INTRODUCTION TO COURSE AND FINANCIAL STATEMENT ANALYSIS    
LEARNING OBJECTIVES:  
 
READ  CHAPTER  1    

1. Overview of financial reporting and financial statement analysis.   

2. Understand most effective means of mastering course and financial statement analysis.

3. Discussion of General Mills Financials. Prepare problem 1.12 (p. 65, 68, & 69).    


SEPTEMBER 15TH & 20TH  

TOPIC:  FINANCIAL  REPORTING  HIGHLIGHTS    
LEARNING  OBJECTIVES:  
 

1. Review the purpose, underlying concepts, and accounting principles related to the  balance sheet, the income statement, and the statement of cash flows.   

2. Use common size statements to make preliminary interpretations of the profitability and  risk of a firm.  

3. Review key principles that drive the preparation of financial reports.   

4. Understand the environment in which financial reporting principles are determined, as  well as the limitations presented when analyzing a firm using financial reports.    
READ:    FSA, Chapter 1,  
HAND  IN:    Case 1.2 – (NIKE: Somewhere Between a Swoosh and a Slam Dunk).  
 Questions on Pages 87, 91, & 95.  

 
 
SEPTEMBER  22ND &  27TH     
TOPIC:  STATEMENT  OF  CASH  FLOWS  
LEARNING  OBJECTIVES:  
   

1. Understand the relation between net income and cash flow from operations for firms in  various industries.  

2. Understand the relation between cash flows from operating, investing, and financing  activities for firms in various stages of their life cycles.   

3. Prepare a statement of cash flows from balance sheet and income statement data.   

READ:    FSA, Chapter 3, General Mills Cash Flow Statement  - hand in WT Grant case 3.3,   P. 226-243
PREPARE:    Problems 3.15 through 3.20, & 3.25       
 
 

SEPTEMBER  29TH, OCTOBER 4TH & 6TH      
TOPIC:  PROFITABILITY  AND  RISK  ANALYSIS  
LEARNING  OBJECTIVES:     
 

1. Analyze and interpret changes in the operating profitability of a firm using the rate of  return on assets and its components, profit margin and total assets turnover.   

2. Analyze and interpret changes in the rate of return on common shareholders’ equity  including the conditions when a firm uses financial leverage successfully.   

3. Understand the importance of effective working capital management and apply analytical  tools for assessing short-term liquidity risk.   

4. Understand the benefits and risks of financial leverage and apply analytical tools for  assessing long-term solvency risk.   

READ:    FSA, Chapter 4 & 5, Problem 4.15, 4.16, 4.17, 4.18, 4.19 (4.23 & 5.15)
PREPARE:    Case 4.2 Wal-Mart, Pages 331-344.

 

OCTOBER 13TH &   18TH
TOPIC:  DATA  ISSUES  IN  ANALYZING  FINANCIAL  STATEMENTS  
LEARNING  OBJECTIVES:      
 

1. Develop an understanding of the concept of “earnings quality,” with emphasis on the  sustainability, measurement and manageability of reported earnings.   

2. Master the ability for deciding when and how to adjust reported income in order to use it  in evaluating performance and in predicting future earnings of a firm.    

3. Understanding the differences of Specific Events & Conditions that affect Earnings' Equity.

READ:    FSA, Chapter 7, Pages 522-549; Chapter 8, Pages 630-649 & 650-657; Chapter 9
PREPARE:    Problem 9.9 & 9.10

 

OCTOBER 20TH                     MIDTERM
 

 

OCTOBER 25TH & 27TH
TOPICS:    INCOME  RECOGNITION,  LIFO  FOOTNOTE  ADJUSTMENTS,  FIXED  ASSETS,  INTANGIBLES,  SOFTWARE  DEVELOPMENT  COSTS 
INCOME  RECOGNITION  
LEARNING  OBJECTIVES:      
 

1. Observe the effects on the financial statements of recognizing income prior to the time of sale, at the time of sale, and subsequent to the time of sale.   

2. Observe the time series pattern of income when firms recognize income prior to the time of sale, at the time of sale, and subsequent to the time of sale.   

3. Review the accounting for inventories and depreciable assets.   

4. Examine the impact on assets and net income of capitalizing and amortizing intangibles development   

5. Identify the financial statement effects of alternative ways of organizing research and development activities and restate the income statement to a format that enhances analysis of the profitability of a technology-based firm.   

READ:    FSA, Chapter 8: Revenue Recognition, Pages 630-649

LIPO,  Pages 650-657

PREPARE:    Problem 8.15, 8.21, 7.15.
 
NOVEMBER 1ST & 3RD
ACCOUNTING  FOR  INCOME  TAXES  
LEARNING  OBJECTIVES  
 

1. Understand the need for recognizing deferred income tax expense when book income differs from taxable income because of temporary differences.   

2. Understand the conditions that give rise to deferred tax assets and deferred tax liabilities.   

3. Use disclosures of individual deferred tax assets and deferred tax liabilities to study  amounts recognized for financial and tax reporting.   

4. Use disclosures of the effective tax rate to understand why a firm’s average tax rate  differs from the statutory tax rate.   

5. Analyze the impact of income taxes on assessments of profitability.    

READ:    FSA, Chapter 2, pages 121-131, & Chapter 8, Pages 661-672.  
  General Mills Footnote 16.
PREPARE:    Problem 2.14, 8.26, In-Class Problem
 
NOVEMBER 8TH & 10TH
LIABILITY  RECOGNITION  AND  VALUATION  
LEARNING  OBJECTIVES:  
 

1. Understand and apply the concept of an accounting liability to various transactions  intended to keep debt off of the balance sheet.   

2. Observe the importance of identifying the entity bearing the risks and enjoying the  economic return when deciding liability recognition issues.    

READ:    FSA, Chapter 5 (pages 460 – 493)
PREPARE:    Problem 6.17, 6.18, 6.19, Hand-Out Problem 

TOPICS:    LEASES
LEARNING  OBJECTIVES:  
 

1. Understand the distinction between the operating lease method and the capital lease method, including the criteria for using each method and their financial statement effects.  

2. Convert firms using the operating lease method to the capital lease method.   

READ:      FSA, Chapter 8  


NOVEMBER 15TH & 17TH  
PENSION  AND  HEALTHCARE  BENEFITS  
LEARNING  OBJECTIVES  
 

1. Distinguish between the amounts that firms report on their financial statements with respect to a pension or healthcare benefit plan and to the amounts that appear on the financial statements of the pension or healthcare benefits fund and understand why the two differ.

2. Use pension and healthcare disclosures to measure the economic status and financial performance of a pension or a healthcare benefits plan.  

3. Observe the role of actuarial assumptions in accounting for pensions and healthcare benefits.  

4. Understanding reserves in the financial statements   

READ:    FSA, Chapter 8 (pages 672 – 684) Problem 8.22
CATCH  UP  &  REVIEW
 
 
 

NOVEMBER 22ND & 24TH
TOPICS:    FORECASTING FINANCIAL STATEMENTS

READ: Chapter 10, Problem 10. 15
 


NOVEMBER 24TH & DECEMBER 1ST                                    -              CATCH-UP

 


NOVEMBER  29TH, DECEMBER 7TH, 9TH, 13TH, & 15TH  -              GROUP PRESENTATIONS


REVIEW

DECEMBER 20TH                           -              FINAL EXAM:       SECTION 2 – 10AM,     SECTION 3 – 2PM

 

 

C10.0003.03

 

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