Course Title: Financial Reporting and Analysis

Course Code: FIN-454

Credit Hours: 3+0
Course Instructor:

Prerequisites:
Fundamentals of Accounting, Financial Accounting, Cost Accounting, Introduction to Finance, Financial
Management

Course Description:
This course is an introduction to financial statement analysis, aiming to provide you the basic
skills and techniques to analyse financial statements for the purpose of valuation. You will learn
how to evaluate financial statements and perform prospective, credit, and equity analyses.
Students will also learn how to recast and adjust financial statements to obtain a better estimate
of earning power.

Course Objectives:
Financial reports are the primary means by which managers communicate company results to
investors, creditors and analysts.  These parties use the reports to judge company performance, to
assess creditworthiness, to predict future financial performance, and to analyse possible
acquisitions and take-overs.  Users of financial statements must be able to meaningfully interpret
financial reports, construct measures of financial performance and analyse the reporting choices
made by companies.  Also, since company managers choose accounting techniques when making
their reports, users must learn to undo the effects of these accounting choices.  The purpose of
this course is to give the foundation for such analysis.

LEARNING OUTCOMES:
On completion of this course unit, successful students will be able to:
 Calculate and interpret a range of accounting ratios from the financial statements of large
companies;
 Appreciate the complex nature of real life financial statement ratio calculations;
 Understand the role of, and draw upon, the strategic (competitive and sustainability)
context of a business in interpreting that business's financial statements;
 Effectively interpret financial statements from the perspective of the forward-looking
information needs of different stakeholders;
 Understand a range of factors that can indicate the quality and reliability of financial
statement information;
  Appreciate the various sources of data that may be useful in analyzing the position,
performance and future prospects of a firm

TEXTBOOKS (OR COURSE MATERIALS):

 The Analysis and use of Financial Statements (3 rd Edition) By:Gerald I. White, Ashwinpaul C. Sondhi, and Dov
Fried.
 Financial Statement Analysis Using Financial Accounting Information (7 th Edition) By: Charles H. Gibson

ASSESSMENT INSTRUMENTS WITH WEIGHTS:

S.NO Items Marks

1. Mid Term Exam 30
2. End Term Exam 50

3. Internal Evaluation Breakdown

Quiz(s) 5
Assignements(s) 5
Class Participation/Presentations 5
Case Discussion 5
Total 20
Grand Total 100

Week #Lecture # TOPICS TO BE COVERED

1. Introduction to Analysis of Financial Statements,
1.
Utilization and Practicality of the Course
2. Framework for Financial Statements Analysis
Need for financial statement analysis, Users of financial statements
Principal financial statements
Qualitative characteristics of accounting data
Chapter # 1 (Sondhi) Chapter # 1 (Gibson)
3. Framework for Financial Statements Analysis….
2. GAAP
Chapter # 1 (Sondhi) Chapter # 1 (Gibson)
4. Accounting Policies and their Impact on Financial Analysis….
Overview of Accounting Cycle
Auditor’s Report and its types
Chapter # 2 (Sondhi) Chapter # 2 (Gibson)
 5. Accounting Policies and their Impact on Financial Analysis….
The accrual concept of income
Revenue recognition methods
3.
Percentage-of-Completion Method
Completed contract method
Chapter # 2 (Sondhi) Chapter # 2 (Gibson)
6. Accounting Policies and their impact on Financial Analysis…….
Nonrecurring items
Adjustments for Nonrecurring items
Management Discretion and Earnings Manipulation
Chapter # 2 (Sondhi)
7. Cash Flow Statement Analysis
Need for a Cash Flow Statement
4.
Importance of Cash Flow Statement
Chapter # 3 (Sondhi) Chapter # 11 (Gibson)
8. Cash Flow Statement Analysis….
Basic Elements of Cash Flow statement
Cash Flow Classification Issues
Chapter # 3 (Sondhi) Chapter # 11 (Gibson)
9. Cash Flow Statement Analysis….
Direct and Indirect cash flow method
5.
Preparation of Cash Flow Statement
Chapter # 3 (Sondhi) Chapter # 11 (Gibson)
10. Cash Flow Statement Analysis….
Analysis of cash flow information
Free Cash Flows and Valuation
Chapter # 3 (Sondhi) Chapter # 11 (Gibson)
11. Foundations of Ratio and Financial Analysis
Purpose and use of ratio analysis
6.
Cautionary Note
Chapter # 4 (Sondhi) Chapter # 5 (Gibson)
12 Foundations of Ratio and Financial Analysis…..
Common size statements
Vertical and Horizontal Analysis
Case Study: Cooper Tire & Rubber Company.
Chapter # 4 (Sondhi) Chapter # 5 (Gibson)
13. Foundations of Ratio and Financial cont…
Categories of ratios:
7.
Liquidity analysis
Chapter # 4 (Sondhi) Chapter # 5 & 7 (Gibson)
14. Foundations of Ratio and Financial cont…
Activity analysis
Profitability analysis
Chapter # 4 (Sondhi) Chapter # 5 & 7 (Gibson)
 MID TERM EXAMS
MID TERM BREAK
15. Foundations of Ratio and Financial cont…
Long-term debt and solvency analysis
8.
Ratios: An integrated analysis
Chapter # 4 (Sondhi) Chapter # 8 & 9 (Gibson)
16. Foundations of Ratio and Financial cont…
Earnings per share and other ratios used in valuation
Trend Analysis
Chapter # 4 (Sondhi) Chapter # 10 (Gibson)
17. Foundations of Ratio and Financial cont…
Operating and financial leverage
9.
Leverage and its effect on earnings
Chapter # 4 (Sondhi) Chapter # 6 & 10 (Gibson)
18. Foundations of Ratio and Financial cont…
Operating and financial leverage
Leverage and its effect on earnings
Case Study: “The Case of the Beleaguered, Burgled Balance Sheet”
Chapter # 4 (Sondhi) Chapter # 6 & 10 (Gibson)
19. Statement Analysis for Special Industries:
Banks, Utilities, Oil and Gas,
10.
Transportation, Insurance, Real Estate Companies
Chapter # 15 (Gibson)
20. Statement Analysis for Special Industries:
Banks, Utilities, Oil and Gas,
Transportation, Insurance, Real Estate Companies
Chapter # 15 (Gibson)
21. Statement Analysis for Special Industries:
Banks, Utilities, Oil and Gas,
11.
Transportation, Insurance, Real Estate Companies
Chapter # 15 (Gibson)
22. Statement Analysis for Special Industries:
Banks, Utilities, Oil and Gas,
Transportation, Insurance, Real Estate Companies
Chapter # 15 (Gibson)
23. Analysis of Inventories
Inventory and cost of goods sold: Basic relationships
12.
LIFO Versus FIFO: Income, Cash flow, and working capital effect
Chapter # 6 (Sondhi) Chapter # 7 (Gibson, p. 265)
24. Analysis of Inventories
Inventory and cost of goods sold: Basic relationships
LIFO Versus FIFO: Income, Cash flow, and working capital effect
Chapter # 6 (Sondhi) Chapter # 7 (Gibson, p. 265)
13. 25. Analysis of Inventories cont…
Adjustments from LIFO to FIFO
 Financial ratio: LIFO Versus FIFO
Chapter # 6 (Sondhi) Chapter # 7 (Gibson, p. 265)
26. Analysis of Inventories cont…
Adjustments from LIFO to FIFO
Financial ratio: LIFO Versus FIFO
Chapter # 6 (Sondhi) Chapter # 7 (Gibson, p. 265)
27. Financial Planning and Forecasting
Introduction to basic financial planning models
14. A simple financial planning model
The Percentage of sales approach
Chapter # 4 (Ross/Westerfield/Jordan) Chapter # 18 (Brealey/Myers/Marcus)
28. Financial Planning and Forecasting…….
Additional/External fund needed
Additional/External financing and growth
Chapter # 4 (Ross/Westerfield/Jordan) Chapter # 18 (Brealey/Myers/Marcus)
END TERM EXAMS