Course Syllabus

Financial Statement Analysis

Course Details

Course Title Financial Statement Analysis

Course Code
Credit Hours 3
Semester & Year Spring Semester, 2017- 2018
Pre-requisites Financial Accounting

Contact Hours

Class Type Days Time Classroom

Lecture M, TH 13:00 pm to 16:00 pm IBS 306

Instructor details

Instructor: Song Yanheng

Room IBS929
Office Hours Wednesday - 1:00 pm to 3:00 pm
Email songyanheng@bfsu.edu.cn
Telephone +86 13621236083

Course Introduction

This course targets professional master students major in corporate finance. Financial statements analysis
plays an important role in both investment and financing jobs in business operation, and the knowledge
about analyzing financial statements helps evaluate companies from financial perspective, and therefore has
a very unique pillar in the knowledge system of the students in the above two arenas. The core contents of
this course includes understanding the financial reports, ratio analysis, cash flow analysis, and trend
analysis. This course also provides guidance on the analysis for quality of assets, asset structure, earnings
and cash flows. This course is designed and arranged by topics, case studies and team assignments. Students
are expected to analyze and evaluate profitability, operating efficiency, and the impact of leverage on
business risk and return on equity.

Course Objectives

The course will explore basic financial statement analysis methods via the cases of Chinese listed companies.
The specific objectives are:
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 1. To evaluate economics of a business, including industry characteristics, competitive strategy, past
performance, risk, the quality of accounting numbers, etc.
2. To adjust reported accounting numbers to make it more meaningful for understanding the past
performance and predicting the future performance
3. To forecast future performance and estimate the fundamental value of the company's common
equity using valuation frameworks
4. To understand some of the unique characteristics of Chinese public companies.

Contribution to Mission & program learning goals

Contribution to £Global vision ■ Social responsibility£Cross-cultural competence

Mission £ Multi-region studies ■Professional Knowledge and Competency
■1. Students have professional knowledge and competency in
applying theoretical knowledge. (Professional Knowledge and
Competency in Research)

£ 2. Students have business expertise with local knowledge and global

Contribution to
vision. (Global Vision)
learning goals:
Master of Finance
■3. Students will have an awareness of ethic behaviors and social
responsibility. (Social Responsibility)

£ 4. Students have the ability to communicate and conduct business in

a cross-cultural context. (Cross-cultural Communication Skill)

Teaching Methodology

Based on the previously described course objectives, each session aims at acquiring a deep understanding of
financial accounting concepts and their meanings in specific context. Therefore, the structure of each
meeting is different. I emphasize group learning, communication skills and self-study. Since the course’s
success is largely depending on your commitment and input, I expect an active and positive learning
attitude.

Course Materials and Readings

We are using the PPT slides delivered by the instructor. The following textbooks is also recommended:

1) Financial Statement Analysis and Security Investment, Jiang Guohua, Peking University Press.
2) Stephen H. Penman, Financial Statement Analysis and Security Valuation, 5th edition,
3) Online website: To be determined
4) The cases will be provided in the class.

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Assessment Method
Your grade will be determined by your performance on individual and teamwork participation. The final
grade will be determined as exhibited in Table 1.

Table 1. Assignments and percentage

Team work %
Group analysis report 20%
Group presentation 10%
Group quality of answering questions 5%
Group participation (peer evaluation) 5%
Individual work
Final report 40%
Homework 10%
Attendance 10%
Total 100%

This class also follows the rules and expectations regarding letter grades provided by Beijing Foreign
Studies University(BFSU) and it also follows the grading curve policies. See table 2.

Table 2. Number and letter grade correspondence

Points Grades Grade points
90-100 A 4.0
85-89 B+ 3.7
82-84 B 3.3
78-81 B- 3.0
75-77 C+ 2.7
72-74 C 2.3
68-71 C- 2.0
64-67 D+ 1.5
60-63 D 1.0
0-59 F 0

1. Team work

1. Group Analysis report

The class will be divided into teams, each consisting of 2/31 people. During the period, each team will
development a financial analysis report for a Chinese public company (not including financing company).
The financial analysis report will consistent of the following part:

（1） Introduction
a. why you want to study this company
b. what's your focus.

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To be determined depending on the number of students registered in the class.
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 c. what's your conclusion
（2） Description of the company studied
a. Description of industry
b. Company's position in the industry
c. Description of the company's operating strategy and market strategy
（3） Problem recognition
a. Why this problem is important?
b. Problem description
c. Effect of this problem on the company's financial position and operating result.
（4） Conclusion: Specify suggestions to investors; or suggestions to the company; or suggestions
to auditors.

2. Group presentation
Each group should present your financial analysis report in class. The presentation should be within 10
minutes, and include a brief introduction of the company, your conclusion and methodology.

3. Group quality of answering questions

We will discuss the case presented after each group's presentation. Other students and the instructor would
ask questions related to the group presentation, and the group members should try to answer these questions.

Note: Although the tendency is for all the team members to have the same grade across the different
activities, I reserve the right to make individual adjustments (higher or lower) for individual team
members depends on effort and participation.

4. Group participation
Active participation is very important for this course. Because there is a lot of team work, we will do a peer
evaluation and this evaluation can affect your individual grade in your group participation.

5. Individual Final Report

Each student should submit a personal financial statement analysis report by yourself. You should choose
another company in the same industry as your group analysis report. The report structure and content
requirement are similar with that of the group analysis report.

6. Homework
Each student should submit individual homework assigned before each due date. I do accept late homework,
but you will lose half of the grade associated with that homework.

7. Attendance
Following University policies, it is expected that students attend to all sessions. Documented excuses need
to follow the respective policies developed in IBS.I won’t accept excuses presented to me after the missing
session.

Course Outline
week Date Topic Reading Activity
Team formation
Course Introduction and Ch 1 Introduction of
1 M 5-Mar
analysis framework (Jiang) financial statement
analysis
2 TH 8-Mar Review of Basic PPT

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 Techniques 1
Review of Basic
3 M 12-Mar PPT
Techniques 2
Analysis of Accounts
4 TH 15-Mar PPT Konka
Receivable
Chaodong Cement
5 M 19-Mar Analysis of Investments PPT
and Fujian Cement.
6 TH 22-Mar Analysis of Inventory PPT Konka
Analysis of long-lived
7 M 26-Mar PPT
assets
8 TH 28-Mar Financial structure quality PPT
Ch 8
9 M 2-Apr Earnings quality analysis 1
(Jiang)
Ch 8
10 M 9-Apr Earnings quality analysis 2
(Jiang)
11 TH 12-Apr Cash flow analysis PPT
Analysis of business
12 M 16-Apr PPT
combinations
13 TH 19-Apr Group Case Presentation Group PPT due
14 M 23-Apr Group Case Presentation
15 TH 26-Apr Group Case Presentation Group paper due
Sun 6-May Individual final report due

Session Details

Session 1, Mar 5

In the first hour, we will have a brief introduction of the course requirement, including course objective,
study method, course material and grading policy. In the second part, we discuss the general guidelines for
the team project, including how to select a company, how to search information etc. We will discuss what is
financial statement analysis and discuss the structure of this course.

Homework:
1. Download the annual report of Jiuzhoutong (600998), Guoyao(600511), Shanghai Yiyao(601607).
2. Read the financial statements and discuss the operating model of Jiuzhoutong, and consider how these
operating characteristics are reflected in their financial statements.

Session 2,Ma 8

For this session, we will review basic financial statement analysis techniques, including ratio analysis,
structure analysis and trend analysis. We will use Jiuzhoutong as an example, and compare it with Guoyao
and Shanghai Yiyao and discuss how we can analyze its core competitive power through its financial
statements.

Session 3, Mar 12

In this session we will continue the discussion of Jiuzhoutong using structure analysis in the first hour. In the
second hour we will study market ratios, and in the third hour we will study DuPont analysis method and
conclude what we can learn from financial statements. We will also discuss problems of ratio analysis.
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Session 4, Mar 15

In this session we will start the discussion of assets. The first asset we are going to discuss is accounts
receivable. First we will discuss what is asset quality, then we will discuss how to analyze the quality of
accounts receivable. We will discuss the quality of accounts receivable with the quality of revenue
recognition We will also discuss the quality of accounts receivable according to its business model. At last,
we will discuss the implications of other types of receivables, including notes receivable, other receivable,
prepayments, and the management of receivables.

Homework:
1. Download the annual report of Konka from 2012-2016.
2. Analyze the accounts receivable of Konka. You should use the balance of accounts receivable, the
balance of allowance for doubtful accounts, annual sales and the gross margin of each year.

Session 5, Mar 19

In this session we will first discuss the case of Konka. Then we will start a new session, the analysis of
investment quality. We will discuss the quality of financial instruments first. Using the case of Jiaoda Liang,
we will discuss how to analyze the implications of the difference between trading securities and available for
sale securities. We will discuss how to understand the effect of investment impairment using the case of
Fujian Nanzhi. At last, we will discuss how to analyze investment properties and evaluate the company's
future performance based on its major investments.

Homework:
1. Chaodong Cement and Fujian Cement.

Session 6, Mar 22

In this session, we will discuss how to analyze inventories of manufacturing companies. We will start with
characteristics of inventories, and discuss the cost calculation of Chaodong Cement and Fujian Cement.
Then we will discuss special problems of inventories for different industries. At last, we will discuss how to
consider the relationship between accounts receivable and inventory, and evaluate the company's future
operating performance based on the trend of these important current assets.

Session 7, Mar 26

In this session we will cover the topic of analyzing long-lived assets. We will discuss Property, Plant and
Equipment first. We will discuss why it is so important to distinguish capital expenditure and revenue
expenditure, and discuss the special problems of constructing in progress. Then we will discuss the special
problems in making capitalization decision. At last, we will discuss how to analyze deferred tax asset.

Session 8, Mar 29

In this session we will discuss how to analyze the capital structure of the company. In the first hour, we will
discuss how to analyze current liabilities and how to evaluate the company's liquidity. In the second hour,
we will discuss how to evaluate the composition of noncurrent liabilities and what are important financial
and nonfinancial resources to consider in evaluating the company's solvency. At last, we will discuss how to
analyze contingent liability and ownership structure.

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Session 9, Apr 2

In this session, we will discuss the first part of earnings quality. First we will discuss what is earnings
opacity and how to analyze earnings opacity. Then we will discuss what is earnings conservatism and how
to evaluate earnings conservatism. At last, we will discuss what is earnings consistency and the implications
of earnings consistency on future performance.

Session 10, Apr 9

In this session, we will discuss the second part of earnings quality. First, we will discuss what is the
relationship of accounting earnings and cash flow. Then we will discuss how to analyze the reliability of
accounting earnings. At last, we will discuss common accounting methods used to manipulate earnings.

Session 11, Apr 12

In this session, we will discuss how to analyze the statement of cash flows. First we will go over statement
of cash flows and discuss the characteristics of statement of cash flows. Then we will discuss how to use
statement of cash flows to analyze merger and acquisition and financial flexibility.

Session 12, Apr 16

In this session, we will discuss how to analyze consolidated financial statements. We will start with why
companies conducted merger and acquisition, then the accounting treatment of merger and acquisition and
how to analyze special accounts associated with business combination.

Session 13-15,Group case presentation

In these sessions, each group is invited to present their group homework, and we will discuss these cases
together.

Miscellaneous issues
• I will set up a WeChat group in class. All course materials, requirements and announcements will be
disclosed in the WeChat group.
• If I need to communicate with you outside of class, I will @you in WeChat group. You are responsible
for checking this group message periodically.
• I reserve the right to make adjustments in course requirements. Classes are somewhat organic and
changes are to be anticipated.
• I have expectations that students in my class will behave in a generally professional and courteous
fashion. However, I still make emphasis in some key points:
a. Please, do not be late. If you have a work schedule or other conflict that will consistently involve you
coming late to class, please drop this section and add another.
b. Please, do not read a newspaper or magazine during class. Do not read or study material for another
class during this one.
c. Please, do not surf the internet on your laptop during class. Do not IM others if you are using your
laptop to take notes.
d. Please, do not talk amongst yourselves unless you are participating in a group activity in class.
e. Be prepared with the readings and assignments that are indicated on the syllabus.
f. Turn your cell phones ringers off. Do not text messages during class.

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 g. Your grade is based on the points that you earn and your effort and participation during the whole
semester. Please do not ask for special dispensations or extra credit opportunities once the semester
is complete.

Plagiarism and Academic Dishonesty

I. Plagiarism is the unauthorized use of another’s work or ideas and the representation of these as one’s own.

Definition of Plagiarism: “The practice of taking someone else’s work or ideas and passing them off as
one’s own”. (OED)
This includes among others but not limited to
(a) copying another individual’s or group’s ideas and work, copying materials from the internet and other
published sources and producing such materials verbatim,
(b) Using others’ ideas and work without proper citation of the original proponent or author of the idea.
Students are expected to produce original work of their own for assignments and examinations.

BFSU considers plagiarism as a serious breach of professional ethics. Plagiarism will not be tolerated in any
form at BFSU. Penalties can be as severe as expulsion from the university. To avoid plagiarism it always
best to do your own work or cite the work of others appropriate. Refer to your student handbook for a more
detailed description of plagiarism and the associated penalties.
In this class, the rules are:
1. The first instance of plagiarism will result in a “zero” for the assignment in question.
2. The second instance of plagiarism will result in a fail grade for the entire course.
3. The third cumulative instance of plagiarism, academic dishonesty and violation of school disciplinary
rules in this and other classes will result in serious disciplinary action which could include expulsion
from BFSU.
4. The instructor will report each instance of plagiarism, academic dishonesty and violation of school
disciplinary rules to the disciplinary officer.

II.Academic dishonesty
Academic Dishonesty includes but not limited to: (a) plagiarism, (b) cheating during examinations,
(c) obtaining/ providing information for reports, assignments and examinations by fraudulent means, (d)
falsification of information or data, and (e) false representation of others’ effort as one’s own. Some
examples of academic dishonesty are: copying from other students during examinations; copying material
from other students’ reports/ assignments and submitting the same as one’s own report; creating fictitious
interview materials for assignments or reports. These are just a few examples and not exhaustive.
The rules on plagiarism, copying and academic dishonesty are non-negotiable.