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Spring 2009

NBA 5060
Lecture 1 - Introduction

I. Administrative details
II. Course Description and Introduction
III. Ratio Detective Exercise

For 1/22/08:
Read Chapter 11, pages 812-815 and 828-834; read Chapter 13, pages 932-945.
Read Nichols and Wahlen (2004) handed out in class today.

Lecture 1 – Introduction

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I. Administrative Details
Handouts will be available at the front of the classroom, prior to the
start of each class. Extra copies will be put on the 5060 shelves across
from 304 at the end of the day, and made available on the course home
page.

Syllabus and Course Outline
Note -- all items in the course schedule are subject to change
depending on the speed at which we cover the material.

Lecture 1 – Introduction

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II. Course Description and Introduction
The purpose of this course is to introduce the tools for effective analysis of
financial statements. We will analyze financial statements in the context of
equity valuation for the purpose of making well-informed investment
decisions.

STEP 1
Understand the past

STEP 2
Forecast the Future

STEP 3
Estimate Value

1. Collect Information

1. Structured Forecasting

1. Cost of Capital

2. Understand the
Business

2. Income Statement
Forecasts

3. Accounting Analysis

3. Balance Sheet
Forecasts

2. Valuation Models
• Residual Income
Model
• Free Cash Flows
Model

4. Cash Flow Forecasts

3. Valuation Ratios

4. Financial Ratio Analysis
5. Cash Flow Analysis

4. Additional
considerations

** The assignments are intended to develop the application of the material,
while the final exam for the course integrates all of these dimensions.

Lecture 1 – Introduction

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~~ Ratio Detective Exercise ~~
Listed below are selected financial ratios for nine publicly traded companies for fiscal 2007. The figures presented are common-sized and, hence, are a
percentage of sales. Using your knowledge about the operating and financial structure of these companies, identify the ninecompanies. The companies are as
follows: Best Buy Co., Inc. (BBY); Wells Fargo & Co. (WFC); Brinker International, Inc. (EAT) – operator of restaurants such as Chili’s and Macaroni Grill;
Nike, Inc. (NKE); Bidz.com, Inc. (BIDZ) – an online jewelry retailer; Plum Creek Timber Co., Inc. (PCL) – a producer of lumber products; Google, Inc.
(GOOG); Bristol-Myers Squibb Co. (BMY); and Molson Coors Brewing Co. (TAP).
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COMPANY:
Cash & Mkt Securities
Accounts Receivable
Inventories (Total):
RM
WIP
FG
Property, Plant & Equip:
At Cost
Accum. Dep
Net PP&E

85.7%
13.9%
0.0%
0.0%
0.0%
0.0%

11.5%
21.9%
11.2%
2.2%
4.3%
4.7%

71.5%
35.2%
0.0%
0.0%
0.0%
0.0%

3.8%
1.4%
11.8%
0.0%
0.0%
0.0%

1.9%
1.1%
0.7%
0.0%
0.0%
0.0%

17.4%
15.3%
13.0%
0.0%
0.0%
0.0%

14.3%
2.7%
5.2%
2.0%
0.3%
2.9%

2.6%
2.8%
30.3%
0.0%
0.0%
0.0%

6.1%
14.1%
6.5%
2.7%
0.7%
3.1%

33.3%
-8.9%
24.3%

52.8%
-23.6%
29.2%

37.3%
-16.0%
21.3%

14.0%
-5.8%
8.3%

52.9%
-19.0%
33.9%

22.2%
-11.9%
10.3%

259.6%
-11.8%
247.8%

1.1%
-0.4%
0.7%

87.4%
-43.9%
43.6%

Other Assets
Total Assets

28.7%
152.7%

61.5%
135.3%

1542.2%
1670.2%

6.7%
31.9%

15.3%
53.0%

9.5%
65.5%

8.4%
278.4%

2.4%
38.7%

147.0%
217.3%

Current Liabilities
Long-term debt
Other non-curr liab
Owners' Equity
Total Liab. + Equity

12.3%
0.0%
15.9%
136.7%
152.7%

44.7%
22.6%
80.7%
54.6%
135.3%

1244.0%
287.8%
1531.9%
138.2%
1670.2%

16.9%
1.0%
20.7%
11.2%
31.9%

12.4%
17.8%
34.6%
18.4%
53.0%

15.8%
2.5%
22.4%
43.0%
65.5%

18.1%
141.9%
165.0%
113.5%
278.4%

21.2%
0.0%
21.2%
17.5%
38.7%

28.0%
36.5%
101.8%
115.5%
217.3%

Sales
Cost of Goods Sold or
Operating Expenses
Advertising and Promotion
Research & Development
Depreciation & Amortization
Interest Expense (Revenue)
Income Taxes, net
Other Expenses, net
Net Income

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

40.1%
1.4%
12.7%
5.8%
3.4%
8.9%
2.4%
25.3%

31.2%
7.6%
16.1%
4.3%
-0.9%
4.2%
26.4%
11.2%

0.0%
1.2%
0.0%
4.4%
0.0%
10.4%
60.6%
23.4%

76.1%
1.7%
0.0%
1.4%
0.2%
2.0%
15.0%
3.5%

83.6%
3.1%
0.0%
4.3%
-0.7%
2.0%
2.4%
5.3%

56.1%
11.7%
0.0%
1.7%
0.4%
4.3%
16.5%
9.1%

67.0%
0.0%
0.0%
7.8%
-8.8%
-0.2%
17.3%
16.8%

70.9%
6.7%
0.0%
0.3%
-0.1%
1.4%
11.2%
9.7%

59.8%
13.9%
0.0%
5.6%
-1.6%
0.1%
14.3%
8.0%

Lecture 1 – Introduction

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