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Course outline of Financial Statement Analysis

Course Code: ACT 410


Prerequisites: ACT 202, FIN254

Course Name: FINANCIAL STATEMENT ANALYSIS


Course Code: ACT 410
Instructor: Muin Uddin Ahmed
Email: muin.ahmed@northsouth.edu
Prerequisite: ACT 201, ACT 202, FIN 254, BUS 172

Office Room NAC 754

Office Hours:
Office Phone: +880 2 55668200 Ext: 1745

Class Time &


Location

Course Description:
Financial statement analysis deals with information and strategies required to examine past
and present performance and financial position of a company in order to form expectations
and make recommendations about future prospects of the company.
The course first provides an overview of financial reporting and the nature of financial
statements. Tools and techniques required to perform an analysis of financial statements will
then be introduced. Major areas of financial statement analysis such as inventories, long-lived
assets, liabilities, employee compensation and intercorporate investments will be discussed in
detail. The course concludes with techniques useful for the evaluation of a firm’s financial
reporting and earning quality.

Course Objective:

The objective of this course is to provide students with an advanced perspective on how to
analyze, adjust and interpret financial statement information in order to understand the
economic reality underlying the firm. Students will acquire a solid grasp on the tools and
techniques necessary to analyze major categories of assets, liabilities and equity within the
financial statements. Additionally, this course will help students to prepare for the Level I and
Level II Chartered Financial Analyst (CFA) examinations. Prerequisites: ACT202 & FIN254

1 |Spring 2019 20 July 2020


Key Learning Outcome:
On successful completion of the course, students should be able to:

 Read, analyze and interpret financial statements.


 Adjust the reported numbers in financial statements in order to reflect the firm’s
economic reality and analyze how the adjusted numbers affect the financial
performance of the firm.
 Provide written work that clearly demonstrates understanding of issues in a coherent
manner.
 Communicate ideas in a succinct and clear manner.

Learning Resources & Textbook(s):


 Robinson, T. R., Henry, E., Pirie, W. L. and Broihahn, M. A., 2015, International
Financial Statement Analysis, Third Edition, John Wiley & Sons Inc., New Jersey.

 Robinson, T. R., Henry, E., Pirie, W. L. and Broihahn, M. A., 2015, International
Financial Statement Analysis Workbook, Third Edition, John Wiley & Sons Inc.,
New Jersey.
Grade Distribution:

Quiz 20
Assignment 5
Project 5
Mid1 20
Mid2 25
Final 25

Course Content & Lecture Schedule

Week 1 Framework for Financial Statement Analysis Chapter 3


(L1 & L2) Topics for the session
 Brief discussion about financial reporting standards,
standard setting bodies & regulatory authorities
 The conceptual framework for financial reporting 2010
 Evaluating quality of financial reports
 Brief demonstration of how to measure Financial
Reporting and Earning Quality (FREQ) of an institution

2 |Spring 2019 20 July 2020


Week 2 Financial Analysis Techniques (Ratio Analysis) Chapter 7
(L3 & L4) Topics for the session
 Computation and analysis of Activity Ratios, Liquidity
Ratios
 Review of Solvency Ratios, Profitability Ratios and
Valuation Ratios
 DuPont analysis: the decomposition of ROE with real-life
application
Week 3 Understanding Income Statement Chapter 4
(L5 & L6) Topics for the session
 Understanding earning results
 How predictability/persistence ensures earnings quality
 Case base analysis of earning management
 EPS management
 Earnings perception management
Week 4 Long Term Financial Planning and Growth
 Pro forma Statements
 SGR & IGR
 External Fund Needed
Mid-term 1
Week 5 Understanding Balance Sheet, Inventory Chapter 5
(L7 & L8) Topics for the session
 Solvency/bankruptcy risk analysis
 Balance sheet quality measures
 Case base analysis of inventory
 3 limitations of balance sheet - asset quality, off-balance
sheet items & derivatives

Week 6 Cash flow Statements Chapter 6


(L9 & L10) Topics for the session
 Basics: analysis of sources and uses of fund
 Four step analysis of cash flow statements
 Understanding risk factors in cash flows
 Negative cash flow from operation (- CFO)
 Cash Burn and Free Cash flow (FCF)
 Crisis management through funding - real-world
journals/articles
Week 7 Long-lived Assets, Lease Chapter 9
(L11 & L12) Topics for the session
 Distinguish between expensing and capitalizing cost
 Earning management by time shifting of expense (case
analysis)

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 Biases on initial recognition of intangible assets
 Impairment as an asset quality issue
 Revaluation of tangible assets
Leases and its implications
Mid-term 2
Week 8 Corporate Investment- Passive Chapter 15
(L15& L16) Topics for the session
 Corporate investment categories
 Investment in financial assets-HTM, HFT, AFS
 Understanding derivative risk by reviewing financial
reports of global corporates
 Discretionary reclassification of financial liabilities as
assets
Income statement and balance sheet adjustments by a Financial
Analyst
Week 10 Evaluating Quality of Financial Reports Chapter
(L21 & L22) Topics for the session 11 & 17
 Relationship between Financial Reporting Quality (FRQ)
and Earning Quality (EQ)
 Quality spectrum of financial reports
Detail discussion on how to measure and evaluate Financial
Reporting and Earning Quality (FREQ) of a company
Week 11 Enterprise Valuation
 Growth Rates (SGR, IGR, CAGR etc.)
 Discount Rates
 Terminal Value
 Perpetual Growth Rates
 Fair Value
 Stock Valuation

Final Exam

4 |Spring 2019 20 July 2020