Fall 2015

Financial Reporting and Analysis

Course Syllabus

Dan Li, Ph.D.

Office: 201G Weilun Building Phone: 86-10-62796620
Office Hours: 1:00 – 2:00p.m. Wednesday Email: lidan@sem.tsinghua.edu.cn

TA: Wang, MuZhi wangmzh.14@sem.tsinghua.edu.cn

Course Description
The objectives of this course are to gain a more thorough understanding of financial
accounting techniques and to explore the accounting theory underlying such techniques.
Assets, revenue recognition, and income items, investments in other companies and
stockholders’ equity will be covered in this course. Students will also learn how to apply the
skills of financial analysis to realistic situations, such as, valuations decisions or forecasting.

Course Method
Class meetings involve lectures, discussions and exercises. Class attendance is required in
this class. The easiest way to let me know that you are making effort and engaging in this
course is your participation. Students are encouraged to involve in class discussions. Since
this course is rather technical in some sections, I believe consistent work and attendance are
crucial to words understanding and passing the course. I hope every one (including me) will
get more out of the class.

Target Audience
Knowledge of financial accounting is useful to all management students. My course is
designed to meet the needs of students who are interested in a more in-depth knowledge of
financial accounting (beyond that obtained from introductory financial accounting) and
students who are interested in careers in finance and accounting, including those seeking a
professional designation in accounting (e.g., Certified Public Accountant or Certified
Management Accountant).

Course Materials
1. Required Textbook:
Financial Statement Analysis by K.R.Subramanyam and John.J.Wild. 11th edition, 2014,
McGraw-Hill.
2. Lecture slides will be available for you on course discussion board.

Course Evaluations

1. Course Grading
Class Participation 10%
Individual Assignments 20%
Midterm Exam（I） 25%
Midterm Exam（II） 25%
Final Project (group) 20%
Total 100%
2. Class Participation
I strongly encourage each student to read assigned materials before class and get well
prepared for class discussion and analysis. Your active participation in class will be credited
to your class performance.

3. Assignment
All students are strongly recommended to do the assigned text problems to thoroughly
understand the material. For all homework, you should work independently and each one
hands in an individual homework. Late submission WILL NOT be accepted!

4. Final Project
The final project will be done by group. You have options to select your group members after
the first class. Assignment will be due exactly as required date. Each group will select one
publicly traded firm that you are most interested in. Your grade on group final project will be
based on your group oral presentation and the written report, which will be adjusted by each
individual’s contribution (including presentation). For the details of project, please refer to
the end part of the document.

Warning: Some of the material covered in this class is, at times, rather technical. In addition,
the course can move at a brisk pace. DO NOT get behind! DO NOT try to cram for exams
the day before!

Note: Instructor reserves the right to make changes to the syllabus when appropriate.

Class Schedules (subject to revision)

WEEK 1 (Sep 16)

Overview of Financial Statement Analysis (Reading: Chapter 1)
In-class case study: General Mills, Inc. – Understanding Financial Statements

Homework (1): (a) Problem 1-9; (b) Problem 1-12

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WEEK 2 (Sep 23)

Financial Reporting and Analysis (Reading: Chapter 2)
In-class case study: Google Inc. – Earnings Announcements and Information Environment

Homework (1): (b) Problem 2-13; (b) Problem 2-17

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WEEK 3 (Sep 30)

Analyzing Financing Activities (Reading: Chapter 3)
In-class case study: Continental Airlines, Inc. – Leases

Homework (2): (a) Problem 3-2 Capital Lease for Financing Statements;

2
Homework (1) DUE!
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WEEK 4 (Oct 7)
No class, National Holiday
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WEEK 5 (Oct 14)

Analyzing Investing Activities (Reading: Chapter 4)
In-class case study: Alcatel – Accounts Receivable

Homework (2): (b) Please identify one public firm which reports a goodwill account. Explain
how the goodwill occurs and the company accounts for the goodwill
account annually. Provide your view on whether the firm accounts for this
account appropriately.
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WEEK 6 (Oct 21)

Analyzing Investing Activities (Reading: Chapter 5)
In-class case study: Abbott Laboratories – Equity Method Investments

Homework (2) DUE!

Homework (3): (a) Problem 5-5 Analyzing Financial Statement Effects of Intercorporate
Investments;
(b) Please identify one public firm which uses equity method to account for
investment, discuss how is the investment reflected in company’s
financial statement, and briefly state how management discuss the
investment.
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WEEK 7 (Oct 28)

Midterm EXAM (I)
Analyzing Operating Activities (Reading: Chapter 6)

Homework (3): (c) Problem 6-8 (show the calculating process);

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WEEK8 (Nov 4)
Analyzing Operating Activities (Reading: Chapter 6)
In-class case study: Bausch & Lomb, Inc. (A)

Homework (3) DUE!

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WEEK 9 (Nov 11)

Cash Flow Analysis (Reading: Chapter 7)
In-class case study: Problem 7-11 Preparing and interpreting statements of cash flows;
LanTian Stock
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3
WEEK 10 (Nov 18)
Prospective Analysis (Reading: Chapter 9)
In-class exercise: Problem 9-1 Preparing Pro Forma Financial Statements
Problem 9-4 Using Prospective Analysis to Value Securities

Homework (4): (a) LinkedIn Corporation: Using two valuation methods to value LinkedIn’s
stock.
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WEEK11 (Nov 25)

Equity Analysis and Valuation (Reading: Chapter 11)
In-class case study: LinkedIn Corporation
Baidu.Com, Inc: Valuation at IPO
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

WEEK 12 (Dec 2)
Return on Invested Capital and Profitability (Reading: Chapter 8)
In-class case study: Case 8-2 Analyzing Return on Invested Capital (Disney)

Homework (4): (b) Reading the most recent financial reports and using DuPont analysis
and/or other methods we have learned in class, please analyze the Baidu
Inc’s profitability and briefly discuss the future prospects and challenges
the company may face.
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WEEK 13 (Dec 9)
Credit Analysis (Reading: Chapter 10)
Midterm Exam (II)

Homework (4) DUE!

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WEEK 14 (Dec 16)

Guest Speaker Lecture
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WEEK 15 (Dec 23)

Group Project Presentations
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WEEK 16 (Dec 30)

Group Project Presentations
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4
 Description of Group Final Project

General Requirement

The project requires you to conduct a complete and thorough analysis and valuation of a
publicly-traded firm based on what you have learned through this course. You are also
required to obtain any relevant information outside of the class for this business to finish this
project. Any analysis should provide necessary and sufficient support for your assumptions,
forecasts, and conclusions that you came to.

Analysis Report Content

Your analysis report should cover the following contents:

1. Business Background: You need briefly introduce the company’s background and its
business strategy. Using your own knowledge, you can discuss whether business strategy
is workable for their business target. Please do not simply copy the company overview
from annual report.
2. Important Accounting Treatment: I hope when you collect company materials, you can
identify some important or different accounting treatments that make you doubt the
quality of their financial information.
3. Financial Analysis: Based on what you have learned in this course, you are required to
analyze the company’s financial condition at least from the aspects of profitability,
growth and liquidity.
4. Forecasting: Forecast the company’s future balance sheet and income statements using
full information tools.
5. Valuation: You are required to use at least two models to product an estimate of the
company’s value. Then compare to the market price at the time and provide possible
explanations for any inconsistencies. You may also want to conduct some sensitivity
analysis by varying some assumptions.

Report format and Presentation Evaluation

Financial statement analysis is a professional and decent work. Hence, I suggest your
presentation to be professional and analysis is clear and rigorous. Your first page should be
similar to a sell-side analyst report. I will forward one report for your reference.

The analysis report to be submitted should be a readable and condensed version of your work.
I suggest your main text of write-up limited to 25 pages, double spaced, and supporting tables
at the back of the report. Please cite any documents and articles you referred in your work. I
will evaluate your presentation individually and judge your overall performance accordingly.

Due Date
We will arrange final presentation at the last class. You need provide a copy of your project
write-up and overheads to me before the presentation. All students should participate the
presentation.