Financial Statement Analysis 10Th

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					                                                                                         Language of Business




                                M ASTER I N B USINESS A DMINISTRATION
                     C O U R S E                    S Y L L A B U S

                                     L ANGUAGE O F B USINESS

Course Code:               LOB
Faculty :                  Prof. R. L. Cruz
Class:                     MBA 2005
Sessions:                  First Semester 20 sessions


Course Objectives:
               To equip the students with a working knowledge and skills in financial accounting.
               To provide students with the basic tools and techniques needed for financial management
                course.
               For those interested to pursue a CFA Charter, to cover most of the preliminary topics for
                Financial Statement Analysis indicated in the CFA Level I Learning Objectives.

Course Description

                 The Language of Business (LOB) course is designed to equip the students with a working
         knowledge of financial accounting. LOB is part of the Financial Management and Control
         module of the MBA course. Sufficient knowledge of financial accounting principles and concepts
         and the mastery of financial accounting analytical skills is a prerequisite for future financial
         management courses. Also, for those students interested to pursue a CF A Charter, the LOB
         course is designed to cover most of the preliminary topics for Financial Statement Analysis
         indicated in the CF A Level I Learning Outcomes.


Learning Methodologies and Approaches Used

         This course will use the following learning methods and approaches:

    a.          Lecture – This will be the predominant method as bulk of the learning objectives are
                knowledge and skill based at this early stage.

    b.          Case Analysis - This will be an important method as the objectives of this course focus on
                honing the use of financial accounting concepts, tools and techniques in the development of
                analysis for decision-making and policy formulation.



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    c.          Examinations - Examinations take two forms. First, multiple-choice examinations are given
                primarily to evaluate the students understanding of various concepts and formulas. Second,
                case analysis examinations are given to measure the ability of students to analyze business
                situations and to formulate recommendations which integrate all of the concepts discussed
                during the course.


Evaluation and Feedback Systems

         Students are evaluated on the following basis:

         a. Class Participation - This measures the quality of students' insight during case analysis and
             lecture-discussion sessions (30%).

         b. Examinations - Multiple choice exam and case analysis exam scores are weighed to arrive at a
             composite grade (40%).

         c. Quizzes- This is given to measure the performance of students with regards to understanding
             stand alone topics (30%).


Primary Textbooks

         a. Accounting: Text & Cases, 10th Edition, Robert N. Anthony, David F. Hawkins and Kenneth
            A. Merchant

         b. The Analysis and Use of Financial Statements, 2nd Ed., Gerald 1. White, Ashwinpaul C.
            Sondhi, and Dov Fried

         c. Other assigned reading which will be distributed as part of the students' casepack.




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Course Outline

                Session #                        Cases, Readings and Exercises
         Part 1: Introduction to LOB and the Accounting Cycle
                    1             Topic: Overview of LOB and the Accounting Spectrum

                                 Read: 1. Chap. 1: Anthony, Hawkins and Merchant, 10th Ed.
                                       2. Chap. 1: White, Sondhi and Fried, 2nd ed.
                                       3. Conceptual Framework for Financial Reporting

                                 Learning Mode: Lecture

                                 TEACHING PURPOSE: To impress upon the students the relevance
                                 of financial accounting information in day-to-day decision making
                                 within the firm and to provide the context in which financial accounting
                                 will be studied during the course.

                   2             Topic: Understanding the Balance Sheet

                                 Read: 1. Chap. 2: Anthony, Hawkins and Merchant, 10th Ed.
                                       2. Chap. 2: White, Sondhi and Fried, 2nd ed.
                                       3. The Accounting Framework, Financial Statements and
                                              Some Accounting Concepts
                                       4. Asset Reporting
                                       5. Liability Reporting

                                 Learning Mode: Lecture and Exercises

                                 TEACHING PURPOSE: To introduce the Balance Sheet, with
                                 emphasis on understanding the basic concepts that guide balance
                                 sheet construction, the format and terminology used in a balance
                                 sheet and the type of information the balance sheet offers.

                    3            Topic: Understanding the Balance Sheet

                                 Read: Review Session 2 Readings

                                 Learning Mode: Quiz and Case (Case 2-3 Lone Pine Cafe (A), ATC)

                                 TEACHING PURPOSE: To drill the students in understanding how
                                 business transactions affect balance sheet accounts.

                    4            Topic: Understanding the Income Statement

                                 Read: 1. Chap. 3: Anthony, Hawkins and Merchant, 10th Ed.
                                       2. Chap. 2: White, Sondhi and Fried, 2nd ed.
                                       3. The Accounting Framework, Financial Statements, and
                                       Some Accounting Concepts
                                       4. Revenue Recognition and Reporting
                                       5. Expense Reporting

                                 Learning Mode: Lecture and Exercises

                                 TEACHING PURPOSE: To introduce the Income Statement, with
                                 emphasis on understanding the basic concepts that guide income



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                                  statement construction, the format and terminology used in a income
                                  statement and the type of information the income statement offers.

                   5              Topic: Understanding the Income Statement

                                  Read: Review readings from Session 4

                                  Learning mode: Quiz and Case (Case 3-4 Pinetree Motel, ATC)

                                  TEACHING PURPOSE: To drill the students in understanding how
                                  business transactions affect income statement accounts.

                   6              Topic: The Accounting Cycle

                                  Read: Chap. 4: Anthony, Hawkins and Merchant, 10th Ed.

                                  Learning Mode: Lecture/Discussion and Exercises

                                  TEACHING PURPOSE: To explain how financial statements are
                                  constructed from a list of business transactions.

                   7              Topic: Accounting Cycle

                                  Read: Review reading from Session 6

                                  Learning Mode: Case (Case 4-1 PC Depot, ATC)

                                  TEACHING PURPOSE: To drill the students in the various accounting
                                  cycle skills.

                   8              Topic: B/S and I/S Construction: Complete Cycle

                                  Read: Review reading from Session 6

                                  Learning Mode: Case: Immaculate Conception Bookstore

                                  TEACHING PURPOSE: To drill the students in the various accounting
                                  cycle skills.

                   9              Topic: B/S and T/S Construction: Complete Cycle

                                  Read: Review reading from Session 6

                                  Learning Mode: Case (Octane Service Station)


                                  TEACHING PURPOSE: To drill the students in the various accounting
                                  cycle skills

                        EXAM 1: The Complete Accounting: Cycle (To be scheduled)

         Part 2: Analysis of Accounts

                   10             Topic: Revenue Recognition and Short Term Monetary Assets

                                  Read: 1. Chap. 7: Anthony, et.al



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                            2. Accounting for Current Assets
                            3. Revenue Recognition and Reporting

                     Learning Mode: Lecture and Exercises

                     TEACHING PURPOSE: To delve into the issues surrounding revenue
                     recognition and to analyze the measurement of short-term monetary
                     assets.

                11   Topic: Inventories

                     Read: 1. Chap. 6: White, Sondhi and Fried, 2nd ed.
                                                  th
                           2. Chap. 6: Anthony, 10 ed. *
                           3. Review Accounting for Current Assets from Session
                               10

                     Learning Mode: Exercises (Inventory Exercises) and Case (Rent-
                     Way, Inc.)

                     TEACHING PURPOSE: To explore various inventory valuation
                     methods and to relate these methods with the calculation of Cost of
                     Goods Sold (Sales).

                12   Topic: Long Lived Assets

                     Read: 1. Chap. 7: Anthony, et.al.
                                                                   nd
                           2. Chap. 7&8: White, Sondhi and Fried, 2 ed.
                           3. Accounting for Property, Plant and Equipment and
                           Other Assets

                     Learning Mode: Lecture and Exercises

                     TEACHING PURPOSE: To explore the various methods in calculating
                     depreciation and understanding the economic, tax and financial
                     implications of choosing any of these methods.


                13   Topic: Long Lived Assets

                     Read: Review readings from Session 12

                     Learning Mode: Quiz and Case (Depreciation at Delta Air Lines and
                                           Singapore Air Lines (A))

                     Case: Depreciation at Delta Air Lines and Singapore Air Lines (A)

                     Depreciation policies at Delta Air Lines and Singapore Airlines are
                     compared and contrasted against a summary of operating data from
                     each airline. Questions focus attention on differing depreciation
                     policies of the two airlines.

                     TEACHING PURPOSE: Introduction to depreciation policies and
                     choices. To explore the various methods in calculating depreciation
                     and understanding the economic and financial implications of
                     choosing any of these methods.




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                                  SUBJECT: Accounting policies, Accounting procedures, Aerospace
                                  industry, Aircraft, Airlines, Business policy, Financial reporting,
                                  Manufacturing industry, Service industry, Transportation industry.

                                  COPY YR: 1997
                                  SETTING: United States & Asia
                                  LENGTH: 10

                   14             Topic: Short-Term Liabilities

                                  Read: 1. Chap. 8: Anthony, et.al.
                                                                              nd
                                        2. Chap. 10: White, Sondhi and Fried 2 ed.

                                  Learning Mode: Quiz and Lecture/Discussion

                                  TEACHING PURPOSE: To understand the various types of short-
                                  term debt.

                   15             Topic: Long Term Liabilities, Leases and Off-Balance Sheet Debt

                                  Read: 1. Chap.11: White, Sondhi and Fried, 2nd ed.
                                                                 th
                                        2. Chap. 8: Anthony, 10 ed. *
                                        3. A Note on Liabilities and Time
                                        4. Lease Accounting

                                  Learning Mode: Lecture and Exercises

                                  TEACHING PURPOSE:                 To explore the various types of
                                  liabilities that are considered to be long term in nature and
                                  understand how the liabilities are measured.

                   16             Topic: Stockholder's Equity

                                  Read: Chap. 9: Anthony, et.al.
                                        Introduction to Owners' Equity

                                  Learning Mode: Case (Case 9-1 Xytech Inc., ATC)

                                  TEACHING PURPOSE: To understand the various sources of equity
                                  financing to the firm and to calculate the amount of equity.

                   17             Topic: Net Income and Earnings Per Share

                                  Read: 1. Chap. 6 & 10: Anthony, et.al.
                                        2. Chap. 4 White and Sondhi
                                        3. Review Expense Reporting

                                  Learning Mode: Quiz and Case (Case 9-4 Hicorp, Inc.)

                                  TEACHING PURPOSE: To understand the concept of earnings per
                                  share explore various expense issues and its impact on the
                                  calculation of EPS.

         Part 3: The Cash Flow Statement
                    18            Topic: The Gash Flow Statement
                                  Read: 1. Chap. 11: Anthony, etal.


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                                                                    nd
                              2. Chap. 3:White, Sondhi and Fried, 2 ed.
                              3. Solving the Puzzle of the Cash Flow Statement

                       Learning Mode: Lecture and Quiz

                       TEACHING PURPOSE: To introduce the concept of the cash flow
                       statement and understand its usefulness in financial statement
                       analysis.

                19     Topic: The Cash Flow Statement

                       Read: Chap. 11: Anthony, et.al.
                                                                nd
                             Chap. 3: White, Sondhi and Fried, 2 ed.
                             Chap. 7: Bernstein and Wild, 6th ed. **

                       Learning Mode: Case (Case 11-2 Amerbran Company)

                       TEACHING PURPOSE: To drill skills in constructing and analyzing
                       cash flow statements

                20     Topic: The Cash Flow Statement

                       Read: Review readings from Session 19

                       Learning Mode: Case (Case 11-4 Big Value Variety Stores)

                       TEACHING PURPOSE: To drill skills in analyzing cash flow
                       statements


                     FINAL EXAM: Coverage: Parts 2 and 3 of LOB




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Knowledge, Competencies, Skills, Values and Attitudes Sought


Session                Knowledge                 Skills & Competencies           Values & Attitudes
   1        Understand the following:         Identify the various types of    Appreciate the
            Objectives of financial           information needed to aid in    importance of financial
            statements                        corporate decision-making.      accounting information in
            Assumptions of financial                                          day-to-day corporate
            accounting                                                        decision-making.
            Desired characteristics of
            financial accounting
            information
            Basic accounting principles
            Constraints of financial
            accounting

    2       Understand the following:         To understand the effects of    All business transactions
            Basic concepts that guide the     various business                has a financial impact,
            construction of the balance       transactions on the balance     some of which are
            sheet. The definition of the      sheet.                          measured in the balance
            various balance sheet account                                     sheet
            terminology.
            The organization and format of
            the balance sheet.
            To understand the
            fundamental equation of the
            balance sheet
            (Assets = Liabilities + Equity)

    3       Review students                   To understand the effects of    All business transactions
            understanding of knowledge        various business                has a financial impact,
            objectives in Session 2.          transactions on the balance     some of which are
                                              sheet.                          measured in the balance
                                                                              sheet

    4       Understanding the following:      To understand the effects of    All business transactions
            Basic concepts that guide the     various business                has a financial impact,
            construction of the income        transactions on the balance     some of which are
            statement.                        sheet.                          measured in the balance
            The definition of the various                                     sheet
            income statement account
            terminology.
            The organization and format of
            the income statement.
            To understand the
            fundamental equation of the
            income statement (Revenues
            – Expenses = Net Income).

    5       Review students                   To understand the effects of    All business transactions
            understanding of knowledge        various business                has a financial impact,
            objectives in Session 4.          transactions on the balance     some of which are
                                              sheet.                          measured in the balance
                                                                              sheet

    6       Understand the practice and       Journalize business             Useful financial


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            the mechanisms used to                 transactions.                   statements are developed
            collect, organize and present          Set-up T-Accounts to            only from the proper
            financial accounting                   determine ending account        analysis and organization
            information.                           balances.                       of business transaction
                                                   Prepare the various financial   information.
                                                   statements.

    7       Review students                        Journalize business             Useful financial
            understanding of knowledge             transactions.                   statements are developed
            objectives in Session 6.               Set-up T-Accounts to            only from the proper
                                                   determine ending account        analysis and organization
                                                   balances.                       of business transaction
                                                   Prepare the various financial   information.
                                                   statements.

    8       Review students                        Journalize business             Useful financial
            understanding of knowledge             transactions.                   statements are developed
            objectives in Session 6.               Set-up T-Accounts to            only from the proper
                                                   determine ending account        analysis and organization
                                                   balances.                       of business transaction
                                                   Prepare the various financial   information.
                                                   statements.

    9       Review students                        Journalize business             Useful financial
            understanding of knowledge             transactions.                   statements are developed
            objectives in Session 6.               Set-up T-Accounts to            only from the proper
                                                   determine ending account        analysis and organization
                                                   balances.                       of business transaction
                                                   Prepare the various financial   information.
                                                   statements.

   10       Understand the conditions              Calculate recognized            The methods used to
            under which revenue can be             revenue using different         calculate revenue and
            recognized.                            recognition methods.            bad debt may lead to
            Understand the various                 Calculate allowances for        numbers with different
            revenue recognition methods.           doubtful accounts and bad       meanings.
            Understand the concepts                debt expense.
            behind the calculation of
            accounts receivable and bad
            debt.
            Understand the criteria used to
            account for cash, cash
            equivalents and short term
            investments.

   11       Understand the various                 Calculate the value of          Corporate managers
            inventory valuation methods            inventory and cost of goods     have latitude in choosing
            (specific, average, first-in, first-   sold using the different        which inventory valuation
            out (FIFO), and last-in, first-out     valuation methods.              method to use. To
            (LIFO).                                                                correctly assess a firm’s
            Understand quality issues in                                           balance sheet, analysts
            relation of the valuation of                                           must understand why and
            inventories.                                                           under what conditions
                                                                                   managers may choose a
                                                                                   specific method.



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   12       Understand how the                 Determine the cost of fixed      Depreciation accounting
            depreciation for PPE is            assets, its useful life, and     has a significant impact
            estimated using various            salvage value.                   on the analysis of quality
            methods.                           Estimate depreciation            of earnings over time and
            Understand the economic, tax       expense using the various        assets deployed by a
            and financial implications of      methods.                         firm.
            each method.
            Understand how other assets
            are amortized or depleted.

   13       Understand how depreciation        Determine the cost of fixed      Depreciation accounting
            is estimated using various         assets, its useful life, and     has a significant impact
            methods.                           salvage value.                   on the analysis of quality
            Understand the economic, tax       Estimate depreciation            of earnings over time and
            and financial implications of      expense using the various        assets deployed by a
            each method.                       methods.                         firm.

   14       Understand the nature of           Calculate trade payables,        Short-term liability
            various short-term liabilities.    various types of accrued         analysis is critical in
            Understand how short term          expenses, unearned               assessing short-term
            liabilities are measured.          revenues, etc.                   risks and exposures.

   15       Understand difference              Calculate the liability due to   The long-term liabilities
            between term loans, bond           a term loan.                     has a major impact on the
            liabilities, and capital leases.   Calculate the liability due to   financial risk profile of a
            Understand the definition of off   a bond floatation.               firm and thus careful
            balance sheet debt and the         Calculate the payment            analysis and
            issues surrounding its use and     schedule and liability due to    understanding of these
            analysis.                          a capital lease.                 accounts is necessary in
                                                                                assessing a firm’s
                                                                                financial health.

   16       Understand the various             Calculate the effect of share    The choice of where
            classes of owners in a firm and    sales, share and cash            equity is sourced has an
            their economic rights and          dividends, stock splits and      impact on the risk profile
            responsibilities.                  share repurchases on             of the firm as well as on
            Understand the impact of           owners' equity.                  the returns of equity
            share sales, share and cash                                         earned by the various
            dividends, stock splits and                                         owners.
            share repurchases on the
            calculation of owners’ equity

   17       Understand the relevance of        Calculate EPS in a situation     EPS and EPS growth
            EPS to financial statement         where a firm has either a        play a major role in the
            analysis and determine how         simple or complex equity         valuation of corporate
            EPS is calculated.                 structure.                       stock. It is critical to
            Understand how operating                                            understand how EPS is
            expenses, non-operating                                             calculated and reported
            expenses, extraordinary items                                       and how analysts should
            and other adjustments to                                            react to a particular EPS
            equity affect the calculation of                                    calculation.
            net income and earnings per
            share.

 18 - 20    Understand the basic concepts      Construct the cash flow          The cash flow statement
            that guide the construction of     statement (using both the        is perhaps the most


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            the cash flow statement.          direct and indirect methods)   powerful tool in assessing
            Understand how business           from existing balance sheets   a firm's financial health.
            transactions affect the cash      and income statements.         Understanding how net
            flow statement.                   Be able to reconcile net       income (calculated using
            Understand the analytical         income and net cash using      accrual accounting) and
            power of the cash flow            the direct method.             net cash is reconciled
            statement in assessing a firm’s                                  gives significant insight
            liquidity, solvency and overall                                  into the firm's current
            financial health.                                                condition and may be
            Understand the different parts                                   used to forecast future
            of the cash flow statement                                       performance.
            (operations, investing and
            financing).
            Differentiate between the
            direct and indirect method of
            reporting cash flows from
            operations.




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