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Course AIM 4336-001: Financial Statement Analysis and Valuation

Professor Stanimir Markov

Term Spring 2010
When: Mondays and Wednesdays, 2:30-3:45 pm
Meetings Where: SOM 2.103

Professor's Contact Information

Office Phone 972 883-4426
Office Location SOM 4.431
Email Address WebCT;
Office Hours Thursday, 10 AM-11:30 AM or by appointment

General Course Information

Pre-requisites, Co-requisites AIM-2301, AIM-2302, MATH-1325, MATH-1326, MATH-2333
Other Restrictions
The primary objective of the course is to advance your understanding of
how financial statements are analyzed and used in various decision
making and investment settings. In particular, the course provides a
framework and the tools necessary to analyze financial statements.

Conceptually, the course emphasizes that producers and users of

financial statements have different objectives and informational needs.
At the same time, the course is applied in that it teaches students how to
Course Description
analyze actual financial statements data to make informed business
decisions and assessments.

The course is challenging, yet manageable. It assumes a good command

of basic financial accounting and finance topics (present value
calculations and discounting). To reap significant benefits, you will have
to make a significant investment of time and energy.

In this course, you will learn how to

1. Integrate industry and business strategy analyses into financial

statement analysis,
2. Critically assess the quality of the financial statements and
make “adjustments”, when needed, to various financial
statement items,
Learning Objectives
3. Use financial ratios to draw inferences about risk and
4. Develop expectations about a firm’s future operating,
financing, and investing activities, and capture these
expectations in forecasts of future financial statements,
5. Assess firm value based on common valuation models and
Financial Statement Analysis and Valuation, Second edition, Easton,
Required Texts & Materials
McAnally, Fairfield, Zhang, and Halsey.
Suggested Texts, Readings & Class readings and homework assignments (WebCT). Please check
Materials WebCT daily for class announcements and assignments.
This syllabus describes a tentative plan to achieve the course’s
Other objectives. Keep in mind, however, that we may have to modify this
plan during the term to better meet the course’s objectives.

Assignments & Academic Calendar
Session Date Topic (Module)
1 1/11 Introduction; Framework for analysis and valuation (Module 1)

Framework for analysis and valuation (1)

2 1/13 E29, 33, 34; P41, 44; D51, 54

3 1/20 Overview of business activities and financial statements (2)

See module 2 problem handout

4 1/25 Profitability analysis (3)

5 1/27 Profitability Analysis (3)

Q1,3,4; M18; E27; P48

6 2/1 Credit risk analysis (4)

7 2/3 Credit risk analysis (4)

M17, 19; E23,27; D35

8 2/8 Test 1

Revenue recognition and operating income (5)

9 2/10 Read article “Yahoo, Google and Internet Math”

10 2/15 Revenue recognition and operating income (5)

Revenue recognition and operating income (5)

11 2/17 E28,32; P33,36,38

12 2/22 Asset recognition and operating assets (6)

Asset recognition and operating assets (6)

13 2/24 Read article “Sorry, Wrong Number…”
M13, 18;E24, 30; P41, 43; D44

14 3/1 Test 2

15 3/3 Liability recognition and non-owner financing (7)

Liability recognition and non-owner financing (7)

Read “Borrowing for dividends…”
16 3/8 M9,10, 14,15; E24, 27, 33; P38; D41

Equity recognition and owner financing (section on carve outs excluded) (8)
17 3/10 E46, 47; P48,52,54,56,57,58

3/15 Spring Break

3/17 Spring Break

Session Date Topic (Module)
Intercorporate entities (9)
18 3/22 Read “Putting Extra Fizz into Profits...”

Intercorporate entities (9)

19 3/24 M11, 14, 15; E21, 22, 26, 31, 35;P41

20 3/29 Off-balance sheet financing (10)

Off-balance sheet financing (10)

21 3/31 Q1- 9;M11,14,17; E21,24,26,27; P28,30,32

22 4/5 Test 3

23 4/7 Forecasting (11)

24 4/12 Forecasting (11)

Q2,3,5,6,7,9,10; E19,30;P33

Cost of capital and valuation basics (12)

25 4/14 Problems to be added

Cash flow-based valuation (13)

26 4/19 Problems to be added

Operating-income based valuation (14)

27 4/21 Problems to be added

28 4/26 Market-based valuation (15)

Market-based valuation (15)

29 4/28 Problems to be added

30 5/3 Test 4

Course & University Policies
Your course grade will reflect how you perform relative to your peers on
four in-class, non-cumulative tests, homework assignments, and class
participation. The weights of the tests, assignments and class
participation are as follows:

Tests: 72%.
Homework assignments: 20%
Course grade determination
Class participation: 8%

In case of a disagreement with how a test/homework is graded, you have

one week, from the day grades are posted to appeal. Appealing means
submitting the original paper with a written description of your
contention. However, I reserve the right to review your entire test. Thus,
your grade may go up or down.

The tests are in-class and non-cumulative. They may include multiple
choice questions, short problems, and open-ended questions. If you
cannot attend class on the day on which we have a test, notify me in
advance. At my discretion, either a make-up test will be scheduled, or
the weight of the test will be re-allocated to the other components of
your course grade.

There are fifteen short homework assignments – one from each module,
but only the ten assignments with the highest scores will count toward
your grade. The maximum score is two points. If your work does not
demonstrate sufficient progress in mastering the material or is
incomplete, you get one point. If your work shows a lack of effort or
understanding of the material, you get zero points.

Homework assignments and due dates will be announced on WebCT.

Late work will not be accepted as I allow for contingencies by counting
only ten homework assignments. A homework assignment may be a
textbook problem, a set of questions related to an article discussed in
class, etc. You may discuss an assignment with your classmates, but
each student will compose his or her answer. Identical assignments will
receive identical score of zero.

I do not offer extra credit assignments. Four tests and fifteen

assignments offer ample opportunities for students to distinguish

Each student is expected to come to class prepared. Prepared means

reading the assigned chapter before class and completing any assigned
work. I will cold call students at random, especially when discussing
cases or solving problems in class.

High quality participation includes not only answering my questions,

Participation but also making comments and observations pertinent to issues raised in
class, as well as asking questions that help clarify your classmates’
understanding of course topics. If you do not participate at all, 8% of
your course grade will be zero. I will not be taking attendance, but
please be aware that without attendance there is no participation. If you
miss a class, you are responsible for getting class notes and finding out
what was covered. I will be posting the notes on WebCT.

You can expect that I will (1) arrive on time for class, (2) be prepared
and organized for every class, (3) listen attentively, actively, and
respectfully to whomever is speaking in class, (4) maintain equity in all
course policies, (5) meet with you outside of class on an individual or
group basis at a mutually agreeable time, and (6) respond to your
suggestions to make this class more challenging, stimulating, and
Classroom Citizenship
I expect that you will (1) arrive on time for class, (2) complete the
course assignments and be prepared for every class, (3) listen
attentively, actively, and respectfully to whomever is speaking in class,
(4) thoughtfully participate in class discussion, (5) refrain from activities
that can distract other students such as chatting, checking email or
browsing the internet during the lecture, and (6) suggest ways in which I
can make this class more challenging, stimulating, and enjoyable.

Off-campus, out-of-state, and foreign instruction and activities are

subject to state law and University policies and procedures regarding
travel and risk-related activities. Information regarding these rules and
Field Trip Policies
regulations may be found at the website address
Off-Campus Instruction and
Course Activities
Additional information is available from the office of the school dean.
Below is a description of any travel and/or risk-related activity
associated with this course.

If you experience any problems with your UTD account you may send
Technical Support an email to: or call the UTD Computer Helpdesk at
972 883-2911.

The University of Texas System and The University of Texas at Dallas

have rules and regulations for the orderly and efficient conduct of their
business. It is the responsibility of each student and each student
organization to be knowledgeable about the rules and regulations which
govern student conduct and activities. General information on student
conduct and discipline is contained in the UTD printed publication, A to
Z Guide, which is provided to all registered students each academic
The University of Texas at Dallas administers student discipline within
the procedures of recognized and established due process. Procedures
are defined and described in the Rules and Regulations, Series 50000,
Board of Regents, The University of Texas System, and in Title V,
Student Conduct & Discipline
Rules on Student Services and Activities of the university’s Handbook
of Operating Procedures. Copies of these rules and regulations are
available to students in the Office of the Dean of Students, where staff
members are available to assist students in interpreting the rules and
regulations (SU 1.602, 972/883-6391) and online at
A student at the university neither loses the rights nor escapes the
responsibilities of citizenship. He or she is expected to obey federal,
state, and local laws as well as the Regents’ Rules, university
regulations, and administrative rules. Students are subject to discipline
for violating the standards of conduct whether such conduct takes place
on or off campus, or whether civil or criminal penalties are also imposed

for such conduct.

The faculty expects from its students a high level of responsibility and
academic honesty. Because the value of an academic degree depends
upon the absolute integrity of the work done by the student for that
degree, it is imperative that a student demonstrate a high standard of
individual honor in his or her scholastic work.

Scholastic Dishonesty, any student who commits an act of scholastic

dishonesty is subject to discipline. Scholastic dishonesty includes but is
not limited to cheating, plagiarism, collusion, the submission for credit
Academic Integrity
of any work or materials that are attributable in whole or in part to
another person, taking a test for another person, any act designed to give
unfair advantage to a student or the attempt to commit such acts.

Plagiarism, especially from the web, from portions of papers for other
classes, and from any other source is unacceptable and will be dealt with
under the university’s policy on plagiarism (see general catalog for
details). This course will use the resources of, which
searches the web for possible plagiarism and is over 90% effective.

The copyright law of the United States (Title 17, United States Code)
governs the making of photocopies or other reproductions of
copyrighted materials, including music and software. Copying,
displaying, reproducing, or distributing copyrighted works may infringe
the copyright owner’s rights and such infringement is subject to
appropriate disciplinary action as well as criminal penalties provided by
Copyright Notice
federal law. Usage of such material is only appropriate when that usage
constitutes “fair use” under the Copyright Act. As a UT Dallas student,
you are required to follow the institution’s copyright policy (Policy
Memorandum 84-I.3-46). For more information about the fair use
exemption, see

The University of Texas at Dallas recognizes the value and efficiency of

communication between faculty/staff and students through electronic
mail. At the same time, email raises some issues concerning security and
the identity of each individual in an email exchange. The university
encourages all official student email correspondence be sent only to a
student’s U.T. Dallas email address and that faculty and staff consider
email from students official only if it originates from a UTD student
Email Use
account. This allows the university to maintain a high degree of
confidence in the identity of all individual corresponding and the
security of the transmitted information. UTD furnishes each student
with a free email account that is to be used in all communication with
university personnel. The Department of Information Resources at U.T.
Dallas provides a method for students to have their U.T. Dallas mail
forwarded to other accounts.

The administration of this institution has set deadlines for withdrawal of

any college-level courses. These dates and times are published in that
Withdrawal from Class semester's course catalog. Administration procedures must be followed.
It is the student's responsibility to handle withdrawal requirements from
any class. In other words, I cannot drop or withdraw any student. You

must do the proper paperwork to ensure that you will not receive a final
grade of "F" in a course if you choose not to attend the class once you
are enrolled

Procedures for student grievances are found in Title V, Rules on Student

Services and Activities, of the university’s Handbook of Operating
In attempting to resolve any student grievance regarding grades,
evaluations, or other fulfillments of academic responsibility, it is the
obligation of the student first to make a serious effort to resolve the
matter with the instructor, supervisor, administrator, or committee with
whom the grievance originates (hereafter called “the respondent”).
Individual faculty members retain primary responsibility for assigning
grades and evaluations. If the matter cannot be resolved at that level, the
grievance must be submitted in writing to the respondent with a copy of
Student Grievance Procedures
the respondent’s School Dean. If the matter is not resolved by the
written response provided by the respondent, the student may submit a
written appeal to the School Dean. If the grievance is not resolved by
the School Dean’s decision, the student may make a written appeal to
the Dean of Graduate or Undergraduate Education, and the dean will
appoint and convene an Academic Appeals Panel. The decision of the
Academic Appeals Panel is final. The results of the academic appeals
process will be distributed to all involved parties.
Copies of these rules and regulations are available to students in the
Office of the Dean of Students, where staff members are available to
assist students in interpreting the rules and regulations

As per university policy, incomplete grades will be granted only for

work unavoidably missed at the semester’s end and only if 70% of the
course work has been completed. An incomplete grade must be resolved
Incomplete Grades within eight (8) weeks from the first day of the subsequent long
semester. If the required work to complete the course and to remove the
incomplete grade is not submitted by the specified deadline, the
incomplete grade is changed automatically to a grade of F.

The goal of Disability Services is to provide students with disabilities

educational opportunities equal to those of their non-disabled peers.
Disability Services is located in room 1.610 in the Student Union.
Office hours are Monday and Thursday, 8:30 a.m. to 6:30 p.m.; Tuesday
and Wednesday, 8:30 a.m. to 7:30 p.m.; and Friday, 8:30 a.m. to 5:30
The contact information for the Office of Disability Services is:
The University of Texas at Dallas, SU 22
PO Box 830688
Richardson, Texas 75083-0688
Disability Services
(972)883-2098 (voice or TTY)
If you anticipate issues related to the format or requirements of this
course, please meet with the Coordinator of Disability Services. The
Coordinator is available to discuss ways to ensure your full participation
in the course. If you determine that formal, disability-related
accommodations are necessary, it is very important that you be
registered with Disability Services to notify them of your eligibility for
reasonable accommodations. Disability Services can then plan how best
to coordinate your accommodations.

It is the student’s responsibility to notify his or her professors of the
need for such an accommodation. Disability Services provides students
with letters to present to faculty members to verify that the student has a
disability and needs accommodations. Individuals requiring special
accommodation should contact the professor after class or during office

The University of Texas at Dallas will excuse a student from class or

other required activities for the travel to and observance of a religious
holy day for a religion whose places of worship are exempt from
property tax under Section 11.20, Tax Code, Texas Code Annotated.
The student is encouraged to notify the instructor or activity sponsor as
soon as possible regarding the absence, preferably in advance of the
assignment. The student, so excused, will be allowed to take the test or
complete the assignment within a reasonable time after the absence: a
period equal to the length of the absence, up to a maximum of one week.
A student who notifies the instructor and completes any missed test or
assignment may not be penalized for the absence. A student who fails to
Religious Holy Days
complete the test or assignment within the prescribed period may receive
a failing grade for that test or assignment.
If a student or an instructor disagrees about the nature of the absence
[i.e., for the purpose of observing a religious holy day] or if there is
similar disagreement about whether the student has been given a
reasonable time to complete any missed assignments or test, either the
student or the instructor may request a ruling from the chief executive
officer of the institution, or his or her designee. The chief executive
officer or designee must take into account the legislative intent of TEC
51.911(b), and the student and instructor will abide by the decision of
the chief executive officer or designee.