NEW YORK UNIVERSITY
Leonard N. Stern School of Business Administration
Fall 2007
B10.2303.11
Financial Statement Analysis
Tu 6-9
Classroom: K-MEC 3-110
Web page: www.stern.nyu.edu/~jlivnat
Prof. Joshua Livnat
Office Hours: M Tu 5-6
and by appointment
Office: 10-76 K-MEC
Phone: 998-0022
Fax: 995-0004
E-mail: jlivnat@stern.nyu.edu
Course Description:
The objective of this course is to illustrate the application of information communicated
in financial statements about the operating, investing, and financing activities of business entities
within the USA and abroad. The course will concentrate on accounting disclosure standards, the
differential effects of alternative accounting principles, and the interpretation of financial
information. Traditional and nontraditional methods of financial statement analysis will be
discussed and evaluated. The course is designed to develop financial analysis skills, as well as
an appreciation for the limitations of these skills in various contexts.
Pre-requisites:
Students are assumed to have a working knowledge of accounting principles comparable
to materials covered in the core financial accounting course.
Classroom Procedures:
The basic approach to class sessions will be a combination of discussions and lectures. A
wide variety of examples will be used to discuss the different topics addressed. Another
important objective is to foster a debate with and among students. Current events, reported in the
Wall Street Journal and other financial periodicals, will be discussed.
The class materials and communications will be handled through BlackBoard. To log in,
you need to use your E-mail ID and password. You can log in to Blackboard with your Stern
netID and password! Go to:
http://sternclasses.nyu.edu
Please feel encouraged to contact me through E-mail or phone if you have any questions.
Texts:
Required:
The Analysis and Use of Financial Statements, H.D Fried, A. Sondhi and G. White,
John Wiley, Third edition, 2003.
Recommended:
1.
.
2.
Kenneth S. Hackel and Joshua Livnat, Cash Flow and Security Analysis, Business-One
Irwin, Second Edition, 1995.
Intermediate Accounting, Latest Edition, Kieso & Weygandt, John Wiley.
Grade:
Quizzes (at least 10)
Group Project
80%
20%
Course Schedule
Date
1
Subject
2
9/25 Introduction
The economic environment of a firm
10/2 Accruals, Revenue Recognition
3
Statement of cash flows
10/9 Components of cash flows
4
5
6
7
8
9
10
11
12
Free cash flow
10/16 Ratio analysis
10/23 Inventories
Long-lived assets
10/30 Leases
11/6 Pensions, other post-retirement benefits
11/13 Income taxes
11/27 Investments in other firms
Intangibles
12/4 Stock options to employees
Derivatives
12/11 Various definitions of earnings
12/18 Market anomalies- PEAD, accruals
Reading
1
HL2
2, Thousand
Trails I
3
Thousand
Trails II
HL5
4, pp.648-665
6
7,8
11
12
9
13
14
pp. 438-442
16
Group Project
(5 students per group)
1.
Choose a manufacturing, merchandising or a service firm for an in-depth analysis. Make
sure the firm has at least 3 segments.
2.
Analyze the economic environment of the firm. Use the check-list provided in class.
Make sure to include an analysis of segments.
3.
Provide analysis of the industries in which the firm operates, including future
expectations.
4.
Analyze financial ratios of the firm. List some questions you would have wanted to ask
management.
5.
Estimate components of operating cash flows. Analyze the statement. Provide a list of
questions you would have wanted to ask management.
6.
Find the free cash flow for the most recent year and the four-year average free cash flow.
Estimate the free cash flow multiple.
7.
Provide an estimate of net assets for the most recent balance sheet date, taking into
account such items as leases, deferred taxes, etc..
8.
Try to find answers to your questions through the management letter or discussion of
operations. If you still have unanswered questions call up the firm and get their replies.
Incorporate that in your report.
Expected length - 5 typewritten pages and
as many appendices as
needed