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Air University Faculty of Administrative Sciences Department of Business Sciences Course Plan 2012

Course Title: Financial Reporting and Business Valuation Course Instructor: Ms. Bushra Ghufran This course aims to gear students towards development of deep understanding of some very important concepts and ideas in financial reporting and to enhance their problem solving skills and analytical capabilities. Moreover, it gives an insight into the world of corporate valuation. The specific learning objectives of the course are; 1. To use financial statement information in a variety of business and valuation context 2. To integrate accounting concepts and principles with those of concepts of finance. Weekly Lecture Plan Week Topic Financial Reporting Mechanics The Classification of Business Activities Financial Statement Elements and Accounts The Accounting Process Accruals and Valuation Adjustments Accounting Systems Flow of Information in an Accounting System Using Financial Statements in Security Analysis The use of Judgment in Accounts and Entries Misrepresentations Practice Problems for Reading Introduction to Income Statement Components and Format of the Income Statement Revenue Recognition Expense Recognition Nonrecurring Items and Non-operating Items Discontinued Operations Extraordinary Items Unusual or Infrequent Items Non-operating Items: Investing and Financing Activities Earnings Per Share Simple versus Complex Capital Structure Basic EPS Diluted EPS Analysis of the Income Statement Comprehensive Income Understanding the Balance Sheet Components and Format of the Balance Sheet Measurement Bases of Assets and Liabilities Current Assets Current Liabilities Tangible Assets Intangible Assets Financial Instruments: Financial Assets and Financial Liabilities Equity Components of Equity Statement of Changes in Shareholders’ Equity Inter-corporate Investments Basic Corporate Investment Categories Reading Reference

1

International Financial Statement Analysis (Chapter 2)

2

International Financial Statement Analysis (Chapter 4)

3

International Financial Statement Analysis (Chapter 5)

4,5

International Financial Statement Analysis (Chapter 15)

Designated at Fair value Reclassification of Investments Investments in Associates Equity Method of Accounting: Basic Principles Investments Costs that Exceed Book Value of the Investee Amortization of Excess Purchase Price Joint Ventures Business Combinations Pooling of Interest Method Impact of Acquisition Method on financial Statements. Post Acquisition Consolidated Statements Financial Statement Presentation Subsequent to Business Combination Variable Interest and Special Purpose Entities Qualifying Special Purpose Entities Illustration of an SPE for a Leased Asset Securitization of Assets Consolidated versus Nonconsolidated Securitization transactions Practice Problems for Reading Misc Discussion Topics Inventories and Long Lived Assets: implications for Financial Statements Multinational operations Employee Compensation: Postretirement and Share-Based Equity Valuation: Applications and Process Value Definitions and Valuation Applications Applications of Equity Valuation The Valuation Process Understanding the Business Forecasting Company Performance Selecting the Appropriate Valuation Model Converting Forecasts to a Valuation Applying the valuation conclusion: The Analyst’s Role and Responsibilities Practice Problems for Reading Discounted Dividend Valuation Present Value Models Valuation Based on the Present Value of FCF The Dividend Discount Model The expression for a Single Holding Period The Expression for a Multiple Holding Period The Gordon Growth Model The Links among Dividend Growth. Earnings Growth and Value Appreciation in the Gordon Growth Model The Implied Dividend Growth rate Gordon Growth Model and the Price-to-Earnings Ratio Estimating a Required Return using the Gordon Growth Model Multistage Dividend Discount Models Two-Stage Dividend Discount Model International Financial Statement Analysis 8 Equity Asset Valuation (Chapter 1) 9.6.7 Investments in Financial Assets Held-to-Maturity.10 Equity Asset Valuation (Chapter 2) . Available-for-sale. Held for Trading.

Three Stage Growth Models Practice Problems for Reading 43 Market-Based Valuation: Price and Enterprise Value Multiples Price and Enterprise Value Multiples in Valuation Price Fundamentals Price to Earnings. Retention Rate and ROE Analysis Financial Models and Dividends Practice Problems for Reading 42 Free Cash Flow Valuation FCFF and FCFE Valuation Approaches Single-Stage FCFF and FCFE Models Forecasting Free Cash flow Computing FCFF from Net Income Computing FCFF from Statement of Cash Flows Computing FCFE from FCFF Finding FCFF and FCFE from EBIT and EBITDA Other issues in FCF Analysis FCF Model Variations An International Application of the Single-Stage Model Sensitivity Analysis of FCFF and FCFE Calculations Two-Stage FCF Models. Price to Book Value.Valuing Non-Dividend-Paying Company The H-Model Three Stage Dividend Discount Models Spreadsheet Modeling Estimating a Required Return using and DDM The Financial Determinants of Growth Rates Sustainable Growth Rate Dividend Growth rate. Price to Dividends and Dividend Yield Enterprise Value Multiples Enterprise Value to EBITDA and other Enterprise Value multiples Price and Enterprise Value Multiples in Comparable Analysis: Some Illustrative Data International Considerations when using Multiples Momentum Valuation Indicators Valuation Indicators: issues in Practice Practice Problems for Reading 44 Residual Income Valuation The use of Residual Income in Equity Valuation Commercial implementations The Residual Income Model Fundamental Determinants of Residual Income Single-Stage Residual Income Valuation Multi-Stage Residual Income valuation Accounting and International Considerations Violations of the Clean Surplus Relationship Balance Sheet Adjustments for Fair Value Intangible Assets Nonrecurring Items 11 Equity Asset Valuation (Chapter 3) 12 Equity Asset Valuation (Chapter 4) 13 Equity Asset Valuation (Chapter 5) . Price to Sales. Price to Cash Flow.

Other Aggressive Accounting Practices International Considerations Practice Problems for Reading 45 Valuation in Emerging Markets Exchange Rates. Bruce Johnson International Financial Reporting A Practical Guide 3rd Edition Alan Melville Business valuation Discounts and Premiums Shannan P. 16 Equity (CFA Text Book) Recommended Books: International Financial Statement Analysis CFA Investment Series Equity Asset Valuation CFA Investment Series Financial Reporting and Analysis (CFA Program Curriculum) Equity (CFA Program Curriculum) Other Reference Books: Financial Reporting and Analysis International Edition Lawrence Revsine. Inflation and Interest Rate Gaps Factoring Inflation into Historical Analysis and forecasts Historical Analysis Financial projections and Real and Nominal Terms Five-Step Approach to combined Nominal and Real-Term Financial Projections Consuco Case Example: Inflation Adjustments Incorporating Emerging-Market risks in the Valuation Scenario DCF Approach Country Risk Premium DCF Approach Scenario DCF as Prime Valuation Approach Constructing Cash Flow Scenarios and Probabilities ConsuCo Case Example: Cash Flow Scenarios and Probabilities Estimating Cost of Capital in emerging Markets Practice Problems for Reading 41 Industry and company Analysis in a Global Context Private Company Valuation Revision of Previous Discussions Problem Solving 14 CFA Text Book (Reading 41) 15. Pratt John Wiley and Sons . W. Daniel Collins.

Late assignments will be penalized by drop in grade for each late day.g. The assignment is due by the end of the class period on the due date. test information. This course outline is only tentative. 3. assignments and presentations will not be entertained once the deadline is set. Request for change in deadlines of various class activities. Sharing other resource material is appreciated. some topics may be covered in greater depth and for longer periods. schedule and/or assignment changes) made any time during scheduled class periods regardless of whether or not you are in attendance. There will be No Retake of Quizzes. Depending upon our progress. . and some topics may be dropped altogether. Note: 1. Students are free to consult any other book or material on the relevant topics for better comprehension.Market Approach to Valuing Businesses Second Edition Shannan P. Pratt John Wiley and Sons Administrative Detail: You are responsible for knowledge of any administrative announcements (e. 2. some topics may be given less coverage and less time.