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Course Title: Financial Statement Analysis Course Code ... Course Title: Financial Statement Analysis Course Code ... Document Transcript

  • MSc. In International Banking and Finance Course Title: Financial Statement Analysis Course Code: IBF605 No. of Credits/Semester: 3 Mode of Tuition: Lectures Teaching Hours: 39 Category in Programme: MIBF Elective Pre-requisite: None   Brief Course Description: Financial statements are used by a variety of company stakeholders including investors, creditors, regulators, consultants, analysts, and auditors. This course is designed to provide a critical evaluation and interpretation of corporate financial reports from different users’ perspectives. In order to achieve this goal, the course is broadly structured into two analysis components: (1) accounting analysis that covers financing, investing and operating activities, and (2) financial analysis that covers cash flows, financial performance, liquidity and solvency, and valuation of the company that are relevant for decision-making. Aims: This course aims to equip students with the knowledge and skills to critically evaluate accounting information provided by companies in financial statements, and to use and draw inferences from such information for making decisions from different users’ perspectives. Learning Outcomes: After completing this course, students will be able to: 1. explain the role of business analysis and financial statement analysis, and the relationship between them 2. describe the financial reporting environment, concepts and assumptions for preparation of financial statements, and articulation of financial statements 3. describe the major differences between US GAAPs and HKFRSs 4. assess the value relevance of accounting information provided in financial statements 5. make adjustments for accounting distortions and meeting specific analysis objectives of different users of financial statements   1   
  • MSc. In International Banking and Finance 6. analyse major items in financial statements in order to evaluate risk and financial performances of companies 7. explain the conceptual framework of company valuation 8. produce value relevant information for equity valuation 9. understand the ethical implications of corporate governance and financial reporting practice and the social consequences of unethical corporate reporting. Measurement of Learning Outcome: 1. A mid-term test assesses students’ ability to articulate major principles of contemporary financial reporting and to evaluate the extent to which these would enhance, or otherwise infringe on, the informativeness and value relevance of financial statements. The test will also provide an opportunity for students to recapitulate on and consolidate what they have learnt in the first section of the course, while using an open book format will help students concentrate on understanding rather than memorizing the study materials. 2. Group projects allow students to work and consult with each other in processing accounting information and applying knowledge in analysing performance and contemplating valuation of the chosen companies. Deliverables in the form of project reports will be graded in terms of an array of criteria that tie in with the various learning outcomes. 3. An open book final examination is used to test students’ overall ability to apply appropriate techniques of both accounting and financial analyses in handling specific financial reporting issues and problems, and to use both primary and secondary accounting information in decision-making. Good Practice: 1. Examples and cases will be presented during lectures to enable students to better perceive the controversies arising from different accounting treatments, and to stimulate discussions from which students can thoroughly appreciate the crux of the issues. 2. The group projects will allow much flexibility to students in choosing the subject companies, and in identifying and addressing peculiar issues in the subject companies that emerge from internal and/or external environment. These will prompt student groups to self-navigate through the whole research process, from fact finding to problem identification and onward to analyses and decisions.   2   
  • MSc. In International Banking and Finance Indicative Contents: 1. Overview of Financial Statement Analysis 1.1 Nature and scope of business analysis 1.2 Nature and scope of financial statement analysis 1.3 Accounting for business activities 1.4 Purposes and articulation of financial statements 1.5 Analysing financial statements and valuation 1.6 Relevance of market efficiency   2. Financial Reporting and Analysis 2.1 Financial reporting environment 2.2 Principles and limitations of accounting 2.3 Accrual accounting versus cash flow accounting 2.4 Concepts of income 2.5 Emergence of fair value accounting 2.6 Importance of accounting analysis 3. Analysing Financing Activities 3.1 Analysing liabilities disclosed in balance sheet 3.2 Off-balance sheet financing 3.3 Accounting for leases, postretirement benefits, contingencies and commitments 3.4 Analysing shareholders’ equity disclosed in balance sheet 4. Analysing Investment Activities 4.1 Analysing current assets disclosed in balance sheet 4.2 Analysing long-term assets disclosed in balance sheet 4.3 Capitalising versus expensing investments 4.4 Depreciaton or depletion, and impairment 4.5 Analysing intangible assets disclosed or not disclosed in balance sheet 5. Analysing Operating Activities 5.1 Classification and measurement of income 5.2 Revenue recognition 5.3 Analysing nonrecurring items 5.4 Analysing interest, income taxes and deferred charges 6. Cash Flow Analysis   3   
  • MSc. In International Banking and Finance 6.1 Relevance of cash 6.2 Construction and use of cash flow statement 6.3 Analysing cash flow 6.4 Alternative cash flow measures 7. Profitability Analysis and Prospective Analysis 7.1 Importance of return on invested capital 7.2 Disaggregation of return on invested capital and hierarchy of ratios 7.3 Projections of financial statements 7.4 Residual income model and value drivers 8. Credit Analysis 8.1 Analysing liquidity by making reference to working capital items, operating activities, or other measures 8.2 Capital structure and solvency 8.3 Analysing solvency using capital structure measures, common-size statements, and asset-based measures 8.4 Earnings coverage for maintaining liquidity and solvency 9. Equity Analysis and Valuation 9.1 Earning persistence 9.2 Earnings-based equity valuation 9.3 Earning power and forecasting for valuation   Teaching Method: The course will be conducted in an interactive manner, using examples and short cases to encourage student participation in discussion. Assessment: Mid-term Test (Open Book) 15% Group project 35% Final Examination (Open Book) 50% Required/Essential Reading: K. R. Subramanyam and John J. Wild, Financial Statement Analysis, 10th edition, McGraw-Hill, 2009.   4   
  • MSc. In International Banking and Finance Recommended/Supplementary Readings: Penman, Stephen, Financial Statement Analysis & Security Valuation, 4th edition, McGraw-Hill, 2010. Robinson, Thomas R., Hennie van Greuning, Elaine Henry and Michael A. Broihahn, International Financial Statement Analysis, John Wiley & Sons, 2009. Useful websites providing updates on: Hong Kong Financial Reporting Standards www.hkicpa.org.hk Hong Kong Companies Ordinance www.legislation.gov.hk Hong Kong Listing Rules www.hkex.com.hk WARNING With regard to your group project in particular, you must acknowledge the sources of quotations, data and general information in the report. These sources/references should appear in alphabetical order in your list of references/bibliography. According to Lingnan University and Social Sciences Program policy, plagiarism is "presentation of another person's work without proper acknowledgment of the source". Plagiarism (unattributed copying) will be heavily penalized and may attract a zero mark and disciplinary action.     5   
  • MSc. In International Banking and Finance   IBF605 Financial Statement Analysis Teaching Plan (2nd Term, 2009/10) Date Lecture Topics Reading 14 Jan Overview of Financial Statement Analysis S&W Chap 1 21 Jan & Financial Reporting and Analysis S&W Chap 2 28 Jan 4 Feb & Analysing Financing Activities S&W Chap 3 11 Feb 18 Feb Analysing Investment Activities S&W Chap 4 Mid-term test 25 Feb Analysing Investment Activities (Cont’d) S&W Chap 5 4 Mar Analysing Operating Activities S&W Chap 6 11 Mar Cash Flow Analysis S&W Chap 7 18 Mar Profitability Analysis and Prospective Analysis S&W Chap 8, 9, 10 25 Mar & Credit Analysis S&W Chap 11 1 Apr 8 Apr Equity Analysis and Valuation S&W Chap 12 TBC Final Examination (Group project due)     6