Course Description: Course Syllabus FI 305 Financial Reporting and Analysis This course combines theoretical concepts underlying the presentation of financial statements with the practical techniques of financial analysis. Topics include accounting processes; examination of the components of the balance sheet, the income statement and the statement of cash flows; application of the various quantitative techniques of financial analysis, such as ratio interpretation and EPS evaluation; the meaning and significance of the auditor s opinion, and current SEC reporting regulations. Students will be required to complete worksheet assignments using analysis techniques, prepare a brief written industry report, participate in group discussions analyzing financial reporting issues, and prepare and present a comprehensive financial analysis of a select company including a valuation of the stock. By the end of the course, the student should be able to read a set of financial statements in conjunction with other available information about the company s industry, products and/or services, calculate a fair market value of the stock using the residual income model, and formulate an opinion on the validity of the current market value relative to the calculated intrinsic value. Prerequisites: All students must complete FI300. In addition, students should have a good working knowledge of basic accounting theory and principles. This course concentrates on more intermediate and advanced accounting principles. The student will be required to comprehend, interpret, and apply these more advanced principles to a target company as part of a valuation project. Objectives of the course: Analyze financial statements using knowledge of the underlying accounting principles, and financial analysis techniques. Demonstrate concisely presented financial results in written format. Recognize the impact of operating, investing, and financing decisions on financial statements and how financial analysts interpret results. Identify SEC rules affecting financial reporting and disclosure. Apply the principles of business combinations and how they affect analysis of financial performance and valuation of the company. Demonstrate the ability to prepare prospective financial information. Be able to present the financial results and position of a company relative to its industry and peer group in oral and written format. Required Text and Materials: Wild, John J., K.R. Subramanyam, and Robert F. Halsey. Financial Statement Analysis. New York: McGraw-Hill Irwin, 2001. The new 10th Assignment and problems are from the 10 th Edition. SEC Rules: Regulation FD, Regulation G, Sarbanes-Oxley Act. Provided in doc share Grading and Homework Assignments Students must complete worksheet and/or writing assignments as required. These assignments are designed to help the student understand material in the text and prepare for the final term project. These assignments are rigorous, and must be completed on a timely basis. Students who do not Page 1 of 7
complete assignments as the course progresses will have a difficult time completing the final term project. In addition, students must participate in group discussions weekly. Grading will be done on a point system as presented below. Extra credit may be awarded for specified assignments. These opportunities, if any, will be described in class. All assignments must be turned in on the due date in order to be eligible for credit. No late assignments will be accepted. Drop Box Date Session Due Points % Total Group Work None Weekly 300 15.0% 1.Industry Study 2 TBD 200 10.0% 2.Pro Forma Balance Sheet 5 TBD 200 10.0% 3.Exam 8 TBD 200 10.0% 4.Pro Forma Income Statement 7 TBD 200 10.0% 5.Prospective Analysis 12 TBD 200 10.0% 6.Executive Summary Work 14 TBD 100 5.0% 7.Term Paper 15 TBD 600 30.0% 2,000 100.0% 1) Worksheet Assignments All worksheets must be prepared using Excel and the basic format techniques described below. As a financial professional, presentation of numbers is an important skill. Management is more likely to review your work if it is presented in a clear, concise format. Part of your grade will be based on the clarity of your work throughout the term. The print preview scale should be at least 70%. Worksheets should be clearly labeled with appropriate descriptive headings. Columns should have proper headings and be segregated with space columns with a width of at least 2.0. Column totals should have double underlines. Numbers should all have a, (comma) denoting thousands and should be rounded to at least the nearest dollar. Negative amounts should be in parentheses. Spelling should be accurate. Abbreviations should be defined or clearly understood. All schedules should indicate the date or period of time for the data presented and the date the schedule was prepared. Assignment 2: Prepare a pro forma balance sheet for your company using the worksheet format prescribed in class. You will need to adjust the balance sheet for any off balance sheet assets/liabilities or other net worth items deemed necessary, and then answer the assigned questions. Assignment 3: Using the 5-year income statement history for your term project company, prepare a preliminary pro forma income statement. Use the most recent income statement for the company and make the appropriate adjustments for transitory and non-operating items. The resulting income statement along with forecast assumptions will be used for future value computations. Be sure to include the 5-year income statement history for your company with the assignment when submitted. Assignment 4: Prepare a 5-year prospective analysis for your term project company. The end result will be a preliminary value for your company. Use the residual income model discussed in class to value your company. Follow the steps prescribed in the lecture handout. Page 2 of 7
2) Writing Assignments Grading will be based upon the student s a) knowledge of material, b) analytical skills, and c) writing skills. Students should write concise responses to these assignments using proper grammar, spelling and formats prescribed in class. Assignment 1: The purpose of this assignment is to gather information for your term project regarding the industry sector and general economy, which might impact the valuation of your company. Your goal is to prepare a 2-3 page summary presenting this information. Term Project/Executive Summary 5&6: Details regarding this paper and the related executive summary are described below. Analytical data will be prepared throughout the course, which will be used to compile the paper. 3) Group Discussions Group projects will be assigned weekly throughout the term in anticipation of group discussions during the following week. No written submissions are due, however, students are expected to prepare in advance for these sessions by reviewing assigned materials. You will simply be asked to participate in discussions. On-Line Discussions: During an on-line, threaded discussion session, you must participate in group discussions by offering opinions regarding the questions raised for the week. You must make a minimum of three discussion entries throughout the week on at least 3 different days, not just at the end of the week. Your first response must be posted by Thursday of the session week and by Sunday, no later than 6:00 pm/pst. You must respond to at least three classmates postings. You should post a substantive response, which is more than saying I agree with your response or good answer. You should be able to offer an opinion to the discussion by sharing a related experience, commenting on others experiences, or taking an idea being discussed and offer a different perspective/approach on the issue. Group discussion postings will be evaluated as follows: Points Skills 21-25 Contributions are prompt, timely, relevant and self-initiated. Remarks are posted freely on all issues throughout the course. 16-20 Student generally keeps up with the discussion; needs an occasional prompting to contribute and may participate in some discussions more than others. 6-15 Participation is spotty. You pick and choose topics to get involved in and offer short perfunctory postings when prompted. You take limited initiative. 0-5 Student rarely participates freely; makes short, irrelevant remarks. General Discussions (On-line): Students can initiate discussion and ask questions about the text material and homework assignments in the General discussion area on the cyber campus. Page 3 of 7
4) Term Project During the first few weeks of class, students will select a company to analyze, investigate and evaluate throughout the course. This company must be a public company from a non-regulated industry and there must be at least 5 years of financial statement information available. Students will study this company throughout the course. They will analyze its financial health and ultimately compute its value using techniques and analytical tools learned in class. Most homework assignments will be aimed at this target company. In lieu of a final exam, students will prepare a comprehensive written report with financial exhibits. This report will include an executive summary, a detailed evaluation of historical financial results, an analysis of intrinsic value relative to the market, and conclusions regarding credit, solvency, and value of the company. A detail outline of specific requirements will be provided to the class on-line. In addition, students must present their executive summaries to the class. A format will be provided for this presentation. These summaries will be available to all class members during the final 2 weeks of the course. Students will be asked to review these summaries and answer a series of prescribed questions in a group format. A total of 100 points will be awarded for this group work and the written summary. Instructor s Biography: Gary Mingle C.P.A. is an investment advisor and is a consultant to various for profit and not-for-profit organizations. Gary has worked as a CEO/ CFO for public and private firms and has been involved in numerous public and private debt and equity offerings. Gary started his career at Coopers & Lybrand and has a Bachelor of Science degree in mathematics, MA in accounting, MST in Taxation, and an MBA from the University of Chicago and is currently finishing his dissertation in the doctoral program at GGU. Contact Information: Email: gary.mingle@hamlinharkins.com Fax: 510.6473625 Cell: 773.255.9955 (Chicago Number) Work: 510.647.5089 (Extension 1) Course Design: The course is being updated to include international accounting standards. Page 4 of 7
Course Outline Note: Please see due dates and drop boxes for assignments in the table above. Week Class Activities 1 (1) Overview financial statement analysis (Analysis process, dissection of financial statements, capital market review) Introduction to course Group 1-. Financial statement issues for Luminent. 2 Recent SEC Regulations (Overview of Sarbanes Oxley, SEC FD Act and Reg G) - Sarbanes -Regulation G Group 2: Sarbanes Oxley discussion Group 3: Regulation G discussion 3 (2) Financial reporting and analysis (Reporting environment, public reporting disclosure requirements from IR standpoint, accounting purpose, accruals) -FD - Reporting Environment Group: FD discussion Group: Loose Lips 4 (3) Analyzing financing activities (Capital leases, pension obligations, commitments, contingencies, off balance sheet financing) Group 5- Enron Reporting Issues 5 (4) Analyzing investing activities (Current assets, capitalization vs. expense, investment securities, valuation of long-lived assets, depreciation, intangible assets) Group 6-Present Enron off balance sheet issues. Assignments Read chapter 1 and review chapter 12 (8 th Edition) or 11 (9 th Edition) prior to the first session. Assigned problems Assigned Problems Skim the Sarbanes Oxley Act and Regulation G. Read the lectures. Group - Sarbanes Oxley Act. Group - Regulation G Read chapter 2, Presentation Problems and skim the Fair Disclosure Act. Read the lectures. Writing1: Industry Analysis. Group: Fair Disclosure Act Group Loose Lips Read chapter 3 problems and review Enron financial statements. Group: Enron financial statement concerns Read chapter 4 and presentation problems Group: Enron off balance sheet issues Read chapter 5. Problems 7 presentation Worksheet 2: Off balance sheet liabilities for your target company Group : Ace Consulting 6 (5) Investing activities-special topics Read chapter 6. Problems and Page 5 of 7
Week Class Activities (Consolidations, equity method, purchase accounting, foreign currency, international accounting standards) Partnership investment account analysis Group 7- Ace Consulting 7 (6) Analyzing operating activities (Revenue recognition, deferrals, employee benefits, interest & taxes, nonrecurring items) Review % complete project accruals. Group 8: Stock Options Assignments Group : Stock Options Read chapter 7. Problems & Worksheet 2: Pro forma income statement Group : Enron cash flow concerns Prepare for exam. 8 (7) Cash flow analysis (Constructing the CF statement, limitations in reporting, cash flow vs. NOI, free cash flow) Group: Enron cash flow Read chapter 8. Problems & Group: Cookie Jar Accounting 9 Mid-Term Open Book Exam 10 (8) Return on invested capital (Return on debt & equity, return on assets, financial leverage Cookie Jar Accounting Group: Balance Sheet Checklist work 11 (9) Profitability analysis (Gross profit, revenue, expense and variation analysis, tax expense) Mid term results Group: Income Statement Checklist 12 (10) Prospective analysis (Short-term/long-term forecasting) Review results of mid-term. Group: Peet s Coffee Analysis Group: Checklist-Additional items Read chapter 9. Problems & Group: Income Statement Checklist ROI analysis (term paper) Read chapter 10. Problems & presentation Group: Checklist work-additional items Group: Peet s Coffee Analysis Profitability Analysis- term paper Read chapter 11. Problems & Worksheet 3: 5-year prospective analysis for your target company. Group: Credit Analysis Page 6 of 7
Week Class Activities 13 (11) Credit analysis ONLINE (Liquidity, capital structure and solvency) Group: Credit analysis Assignments Read chapter 12. Problem & Credit analysis (Term paper) Group 13: Analysis and Valuation 14 (12) Equity analysis and valuation (Earnings persistence, earnings based valuation, earning power and forecasting) Group- Analysis and valuation 15 Final Analysis Student projects 16 Final Analysis Student projects Executive summaries due Written projects due Group: Executive Summaries Page 7 of 7