FINANCIAL STATEMENT ANALYSIS (ACCTG 663)
FALL 2013
Professor David DeBoskey
Teaching Assistants: Judy Ying and Lena Altman
SSW 2501
E-mail: debocpafa2005@aol.com
OFFICE HOURS:
Tuesdays
1:40 P.M. – 2:40 P.M. and by
appointment
COURSE DESCRIPTION AND OBJECTIVES
The goal of this course is for you to develop skills and abilities in using financial
statement information and related disclosures to understand and evaluate the underlying
economics of a company. This course explores in greater depth financial reporting topics
introduced in the core course in financial accounting and also examines additional topics
including PowerModules™ not covered in that course. Financial information and
disclosures are collected from company’s Form 10-K, 10-Q, and proxy statements.
These SEC filings are the primary source of information about the company’s past and
current performance, business strategy, and competitive environment—and serve as the
foundation for estimating the fundamental value of a company. This course is designed to
prepare you to interpret and analyze financial statements effectively. The viewpoint is
that of the user of financial statements. This course is designed primarily for students
who expect to be intensive users of financial statements as part of their professional
responsibilities.
STUDENT LEARNING OUTCOMES (SLOs)
 Develop and understanding of key financial statement relationships
 Analyze and decipher cash flow statement information
 Understand company product and pricing strategy on financial performance
 Analyze and decipher risk from the balance sheet and other disclosures
 Evaluate and interpret earnings quality
 Analyze, calculate and interpret profitability, liquidity and solvency ratios
 Present and discuss financial statement performance and industry trends
PREREQUISITE
This course is designed for students that have a working knowledge of financial
accounting. The minimum pre-requisites for this course are the core course in financial
accounting (Acctg 620, BA650 or Acctg 201) and a core course in managerial/cost
accounting.
WHO SHOULD TAKE THIS COURSE?
This course should be of interest to students pursuing the following careers:
 Financial accounting and reporting (from staff accountants to analysts,
controllers, CFOs)
 External and internal auditing
 Equity research (sell-side, buy-side)
 Investment banking
 Management consulting
 Private equity and venture capital
TEXT AND MATERIALS
 Whalen, Baginski, and Bradshaw. Financial Reporting, Financial Statement
Analysis, and Valuation, 7th Edition. South-Western, Cengage Learning.
 Cases and other materials posted on Blackboard or handed out in class
Assignments
 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.

Ten percent of your grade will be based on “class preparation.” You can receive
these points either from actively discussing the cases and problems in class or
handing in the assignment at the beginning of the class. No late assignments will
be accepted nor will I accept e-mailed or faxed assignments.

All assignments should be prepared using word processing software with type
size no smaller than 12 point. You can include tables or spreadsheets as well, as
long as they are carefully labeled and defined. 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 discussion 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.

Additional assignments either will be discussed in class or are extra problems for
your benefit. I will tell you the assignments that will be discussed in class prior to
that class.
Group Project
You will self-select yourselves into groups of 5 or 6 in class on September 25. In total, I
would like to see 8 groups. On October 16, each group will choose an industry to
analyze, for example, fast food or women’s clothes. Each person in the group will
choose his/her own firm in the industry. Your group will present orally a 15 minute
industry analysis using the firms in your industry, followed by 5 minutes of Q &A. The
15 minutes will be strictly adhered to – like the NFL football draft, you will be on the
clock and cut-off after the 15 minutes. There will be four presentation dates: November 6
& 13 and November 20 & November 27.
On October 16, each group will choose the presentation date (tie breakers will be decided
in class). The analysis should cover the relevant topics discussed up to the presentation
date. You are to summarize the economics and current conditions in the industry and
each firm in your industry. Describe the strategies each of the firm pursues, perform a
profitability and risk analysis, a cash flow statement analysis, and talk about any other
relevant items. The oral presentation will be accompanied by either your power point
slides or a 5-10 page report. Each person will attach a 1-2 page analysis of his/her firm
including tables and graphics – attached to that put the firm’s most recent annual report.
More details of the project will be given as the semester progresses.
Timetable
Select group of 5-6 in class
Select industry and firms
Select presentation date
September 25
October 2
October 16
Examinations
There will be two examinations: one on October 16 and the other on December 11.
Grading
Grading will be based on the following weights:
Class Preparation
Exam 1
Oral Presentation/Industry Report
Firm Analysis
Exam 2
20%
20%
15%
5%
40%
In addition, I will be taking attendance on group presentation dates.
Seating Chart
I will be using a seating chart to get to know your names. I will bring the chart to class
on September 4, so please select your seat on that date. You must remain in that seat for
the entire class – unless you expressedly ask me for a changed seat.
Assignments and cases. The class assignments (QEs, Problems and Cases) serve as a
basis for class discussion and/or in-class activities. The assignments vary in length and
are not all equally weighted. Careful and thoughtful completion of the assignments will
contribute to your understanding of the material and performance on the exams and final
project. All QE assignments (see schedule below) should be completed before class and
hardcopies should be brought to each session, as indicated. All homework (QE and other
assignments MUST be handed in at the beginning of class to receive credit). Please bring
a second hardcopy for your own review during that week’s lecture and for exam
preparation etc. Generally, there are two intensively graded cases. All of this factors into
your class preparation grade. My independent evaluation of your classroom participation
is also factored in.
Exams. There will be two in-class exams during the course. The exams are individual
work and are to be completed without unauthorized assistance.
ACADEMIC HONESTY
The SDSU Standards for Student Conduct (http://www.sa.sdsu.edu/srr/conduct1.html)
states that unacceptable student behavior includes cheating, plagiarism, or other forms of
academic dishonesty that are intended to gain unfair academic advantage.
Unprofessional conduct adversely impacts your fellow students, the accounting faculty,
the Charles W. Lamden School of Accountancy, SDSU, and the accounting profession.
The Charles W. Lamden School of Accountancy takes academic honesty very seriously
and vigorously enforces university policy related to any such infractions. Any student
suspected of academic dishonesty will be reported to the SDSU Center for Student Rights
and Responsibilities; if found responsible, the student will receive an F in ACCTG 663.
The following examples illustrate how the SDSU Standards for Student Conduct applies to this
course:




Exams (both in-class and take-home) are individual work only. No collaboration
of any kind is allowed.
Collaboration is permissible and encouraged on any group assignments.
However, the final write-up of cases or other assignments should be exclusively
your own (as required). For example, after discussing a case with your in-class
group, you should form your own opinion and submit your own analysis.
All course materials are for your use only. It is a violation of the student conduct
policy to share these materials with other class members or others outside the
class, especially future ACCTG 663 students.
If at any time you are unclear about the any aspect of your responsibilities
pertaining to the student conduct policy, please contact me rather than make
assumptions.
MEDIA AND TECHNOLOGY
Class materials (e.g., lecture notes) will be posted on the Blackboard course site
(http://blackboard.sdsu.edu). Some of the work for this class requires the use of word
processing (e.g., MS Word), spreadsheet (e.g., MS Excel), and Internet (e.g., Firefox)
software applications. Also, you must have your own email account and check it on a
regular basis. Make sure that you have the correct email address listed in Blackboard.
All emails will be sent to the address listed in Blackboard.
SPECIAL CIRCUMSTANCES
If you are a student with a disability and believe you will need accommodations for this
class, it is your responsibility to contact Student Disability Services at (619) 594-6473.
To avoid any delay in the receipt of your accommodations, you should contact Student
Disability Services as soon as possible. Please note that accommodations are not
retroactive, and that I cannot provide accommodations based upon disability until I have
received an accommodation letter from Student Disability Services. Your cooperation is
appreciated.
CHANGES
You are expected to check your email and the Blackboard site for any changes. If you
are not in class when changes to the course or schedule are made, you are still responsible
for new/updated material. Changes can be made any time at the discretion of the
instructor.
Syllabus
August 28
Introduction to Course: What is Financial Statement Analysis
Learning Objectives:
1. Overview of financial reporting and financial statement analysis
2. Understand most effective means of mastering the course
3. Debits/Credits/Financial Statement Mechanics
4. Game Theory
5. Ratio Analysis Tutorial
6. Earnings vs. Cash Flows
September 4 Letter to Shareholders and Preliminary Analysis of Starbucks
Read through the Starbucks Annual Report (pp. 72-77)
(http://www.sec.gov/Archives/edgar/data/829224/000095013408021134/v50316e
10vk.htm#113). Read through the CEO’s letter to shareholders.
http://www.sec.gov/Archives/edgar/vprr/09/9999999997-09-002286
Preparation Hand-In #1: Answer the following questions and bring them to class in
hardcopy form (keep a copy for your review and to take notes on during class):
Answer the following questions
1. What type of a business is Starbucks?
2. Are they a growth company, a mature company, a start-up or a company
nearing bankruptcy?
3. How have they grown in the past few years?
4. What is the CEO’s message to shareholders?
5. What data is given in support of this message?
6. How would you analyze (moving forward) if Starbucks is successful in its
new strategy?
Preparation Hand-In #2: Bring in one article from the financial press or from an
analyst about Starbucks that was published within the past 6 months. Be prepared
to discuss this article. Hint: Use lexus/nexus online resource from the library
resources to search for press releases.
September 4
Overview of Financial Reporting
Read: Chapter 1: Bring in the Starbucks 10-K report *See link above*
Preparation Hand-In #3: Case 1.1 (Starbucks): questions a) and b) only. Note the
questions are on page 77.
We will go over Starbucks’ three main financial statements, as well as some of
the relevant footnotes.
September 11
Tools 1 and 2: Common Size Statements and Percentage Changes
Read: Chapter 1: pp. 42-49
In class: We will do problem 1.12
Preparation Hand-In #1: Bring in common size and percentage balance sheets and
income statements for Starbucks from the 10-K provided in the links above. Be
prepared to put yours on the class computer. How has the company changed since
2005? (See exhibits 1.27 and 1.28 in your textbook).
Preparation Hand-In #2: Case 1.1 (Starbucks): questions c) thru k) only. Note the
questions are on pp 77-81.
September 18 and 25
Tool 3: Statement of Cash Flows
September 18: Indirect Method
Read Chapter 3: 172-201
In class: We will go over problem 3.23 in class. Not a hand-in.
We will go over Case 1.1 (Starbucks) l-q in class on page 81.
Not a hand-in.
September 18 and 25: Patterns of Cash Flows
Read Chapter 3: 155-165
Preparation Hand-In #1: Problems 3.9, 3.10, 3.11
In class: we will go over Starbucks’ SCF, Coca-Cola (3.15), XM Satellite (3.18),
Sunbeam (3.19), and Montgomery Ward (3.20)
September 25: Select groups for project and do in-class case (Zhang) that you can find
on blackboard.
Preparation Hand-In #1: Case 3.3 (PowerModule ™ W.T. Grant): *See
Blackboard for help on how to do this case.
October 2 and 9
Tool 4: Profitability Analysis - Using ROA and ROCE
October 3: ROA and its Components
Read: Chapter 4 (through 294)
October 2: Preparation Hand-In #1- Problem 4.10. After class, I will post
the answers on blackboard. I will assume for these two classes that you can
do the computations to derive the components.
October 2: Select industry and firms for group project
In class: we will go over QEs: 4.11, 4.12, 4.13, and 4.15. Please calculate these
ratios prior to class (not a hand-in).
October 9: ROCE and relating ROA to ROCE
Read: Chapter 4: pp. 295-298; 299-305
Preparation Hand-In #1: problem 4.11. After class, I will post the answers
on blackboard. I will assume that you can do the computations to derive the
components.
In class: we will go over problem 4.20 (parts b and c only). Please calculate the
ROCE for this firm. We will also relate the ROA to the ROCE for Starbucks
October 16: Midterm
October 23: Tool 5
Risk Analysis – Using Ratios and Comparisons Among Statements
Read: Chapter 5
Preparation Hand-In #1: Problems 4.24 and 5.13 (They both relate to
Abercrombie and Fitch). In particular, relate the risk implied in the ROCE
to the risk for A&F.
October 30
Putting it all Together
Preparation Hand-In #2: Case 4.2 (Wal-Mart- Parts A & B)
Bloomberg Lab Tutorial (5-630 PM)
*November 6, 13, 20, 27 and Dec 4
Group Presentations (2 Groups on Each Day)*
November 6
Tool 6: Pro-forma Earnings
Read: Chapter 6: You need to skim this chapter – that is, do not sweat the details.
November 7: We will go over problem 6.10 in class. Not a hand-in.
Preparation Hand-In #1: Problem 6-11
November 13
Financing Activities
Read: Chapter 6
In class: 6-12 and 6-13
Preparation Hand-In #1: Problem 6-20
Investing Activities
Read: Chapter 7
In class: 7-14
Preparation Hand-In #1: Problems 7-15 and 7-19
November 20
Operating Activities
Read: Chapter 8 (you may find this chapter a little confusing – just go
with it).
In class: 8-7 and 8-8
Preparation Hand-In #1: Problems 8-21 and 8-22 and 8-23
In class: we will discuss what a pension is, how pension plans work, what other
post-retirements benefits, and how firms can change their assumptions to present
different net assets and liabilities
Accounting Quality
Read: Chapter 9
In class: Starbucks Case 9.1 (Integrative)
Preparation Hand-In #1: Problems 9-9, 9-11 and 9-13
November 27
NO CLASS HAVE A GREAT THANKSGIVING (prepare short analysis found on
bb and hand in on Nov 27)
*December 4: Problem Session
As time allows
*December 4: Putting it all Together:
PowerModule™ Analysis of a Company (to be determined by class vote)
All information including questions will be put on blackboard
December 11: Final (Same time as our usual class time) (chapters 1,3,4,5,6,7, 8 & 9)