RUTGERS UNIVERSITY

Rutgers School of Business—Camden

Financial Statement Analysis

Accounting 565 – Section 01
Spring 2018

Instructor Professor Edward M. Werner

Email: edward.werner@rutgers.edu
Office: Business & Science Building (BSB) 215
Phone: (856) 225-6978
Hours: T 5:00 - 6:00pm or by appointment

Lecture Schedule
6:00pm – 8:50pm Tuesdays in BSB 132

Required Text

Easton, P.D., M.L. McAnally, G.A. Sommers, and X.J. Zhang, Financial Statement Analysis and
Valuation, Fifth Edition, Cambridge Business Publishers, 2018 [ISBN: 978-1-61853-233-6].

You are strongly encouraged to read The Wall Street Journal (and/or similar business publications) to
assist in acquainting yourself with financial markets topics.

Course Content and Objectives

The focus of this course is on analysis and interpretation of financial statements. This includes, among
other topics, profitability and returns analysis, operating versus non-operating performance evaluation,
credit analysis (liquidity and solvency), reformulation of financial statements, forecasting of financial
statements, analysis of off-balance-sheet financing, equity valuation techniques, assessing earnings
quality and earnings management, and credit ratings of debt securities.

The major emphasis of this course is on evaluation, interpretation, and use of accounting data for decision
making, yet explicit focus is on the analysis of accounting measurements and disclosures. This entails a
focus on current financial accounting reporting requirements, with consideration of their strengths and
weaknesses. Such knowledge will enable you to participate in and manage important business decisions
drawing on (reformulated) financial statements and footnote disclosures.

Key objectives of this course are: (1) to provide an understanding (including limitations) of accounting
measurement and reporting for analysis purposes, (2) to instill an appreciation for the crucial separation of
operating and non-operating activities and their implications, (3) to reformulate GAAP-based financial
statements and adjust financial statement amounts for more effective financial statement analysis and
valuation, (4) to forecast financial statements over multiple years, and (5) to consider equity valuation
modeling techniques.

Method of Instruction

Class sessions entail a mixture of lecture, as well as class and team problem analysis and discussion. The
content of each class presumes and expects that each student has carefully studied the assigned reading
and completed all assignments. Completing, or at least attempting, all assignments by their due dates is
essential for complete success in the course. Lectures emphasize major topics and readings, yet each
student is responsible for all assigned materials. Students are encouraged to ask questions and to
stimulate discussion on topics that are difficult to understand. It is important that each student be able to
effectively articulate their understanding from analyses of financial statements.

This approach should be key to your continuous learning goals generally as well as to your achievement
of our course objectives. To get the most out of our course (and life, generally), you must be active
participants in your learning process.

Class Attendance

Regular class attendance is important. You are expected to attend class and contribute to a quality
discussion. Individual and team discussions of the materials (such as readings and assignments) are a
significant part of the learning process. If unforeseen circumstances prevent attendance at a class
meeting, please recognize that each student is responsible for all materials discussed, handouts
distributed, assignments covered, and announcements made.

Coursework and Grading

Grades are determined on the basis of your relative class performance over a cumulative point total. The
allocation of point totals consists of the following components:

Participation 10%
Quizzes 10%
Project 20%
Midterm Exam 30%
Final Exam 30%

Total 100%

It is a simple fact that your success in this course is highly correlated with your critical thinking and
problem solving ability, your familiarity with the terminology, and your ability to communicate both
effectively. Therefore, I strongly suggest that you work through all of the homework assignments early
and often to gain mastery over the topics we will cover even though I will not collect assignments for
grading. If you have questions about the homework, you should come see me during my office hours. I
will post solutions to the homework on Sakai. The solutions, if used properly, should facilitate your
learning process by serving as feedback on your assignment attempts. As a general guideline, you can
expect to spend 3-4 hours outside of class for each class hour. Do not let yourself get behind. The pace
of this course is fast, and you will find that each concept tends to build upon previous concepts.

Participation: I expect each student to express opinions on our course material in a manner so as to
contribute to a penetrating and insightful classroom discussion. Performance on this dimension is based
on the quality of your input to class discussion.

Successful completion of this class will require extensive class participation. You are required to read all
of the assigned exercises/problems/cases/requirements and to prepare the material as directed in the
syllabus prior to our coverage each day. I expect you all to prepare yourselves for class such that you can
participate actively, whether you are listening, taking notes, or communicating respectfully with the class.
You will earn a high participation score for making insightful comments or questions that relate to and
add substantively to class activities.
Quizzes: Four quizzes will serve as a basis for determining whether students are preparing themselves
for course success by completing the required chapter readings and homework and keeping up generally.
You must attend class to take the quizzes. Depending on the schedule, one or more quizzes might be
distributed at the end of class for completion at home. Students can prepare and refer to a hand-written
8½ x 11 formula sheet for quizzes.

Project: Students will combine into teams to prepare a course project. Your team will create a project
objective, collect relevant financial data, conduct accounting and financial analyses, prepare
interpretations, and render decisions regarding preferred investor/creditor actions related to your
objective. Teams will also present their analyses to the class. A separate handout on this requirement is
available on Sakai.

Examinations: Successful performance on examinations is integral to this course. Exams are

administered during class (with no notes, books, or calculators). Each student is required to sit for an
exam on the day and time it is scheduled. In general, there are no make-up exams. If you are unable to
resolve conflicts with scheduled exams, you should withdraw from the course. Exams will be demanding
of both one’s efficiency and effectiveness in addressing the course material, so you must prepare yourself
accordingly to perform at your intended level. There are two examinations during the semester, a
midterm and a final. Exams generally consist of concept-based essay questions. Please see the course
schedule for examination dates.

Academic Integrity

Academic integrity is an important part of all of the classes you take at Rutgers University, and this one is
no exception. I take charges of academic misconduct very seriously. Suspected violations will be
pursued in line with the policy prescriptions, which include course failure. Please read the academic
integrity policy at the following link: http://www.camden.rutgers.edu/RUCAM/Academic-Integrity-
Policy.php

Student Code of Conduct

Violations of the Student Code of Conduct are considered serious infractions of student behavior and
students who violate the code are subject to penalties relative to the level of the matter. In general,
students may not disturb normal classroom procedures by distracting or disruptive behavior. Threats or
violence Violations of the code should be reported to the Dean of Students office deanofstu-
dents@camden.rutgers.edu or 856-225-6050. Please read the code of conduct at the following link:
http://studentconduct.rutgers.edu/disciplinary-processes/university-code-of-student-conduct/.

Disability Accommodation

Students with disabilities who believe that they may need academic adjustments in this class are
encouraged to contact me as soon as possible (preferably within the first week of class) to ensure that
documented accommodations are implemented in a timely fashion. All discussions will remain
confidential. To begin this process, please complete the Registration form on the Office of Disability
Services web site at: https://ods.rutgers.edu/students/registration-form.
Tentative Class Schedule*

Week Date Coverage Topic Homework Also

Assignment Due Due
Framework for Analysis and Optional reading
1 1/16 Module 1 Valuation (pp. 1-33) prior to course start
Review of Business Activities and Module 2: 40, 48,
2 1/23 Module 2 Financial Statements (pp. 1-36) 51, 54
Profitability Analysis and Module 3: 21, 50, Project
3 1/30 Module 3 Interpretation (pp. 1-29) 51, 52 Intro and
Objective
Credit Risk Analysis and Module 4: 16, 17,
4 2/6 Module 4 Interpretation (pp. 1-31) 29, 31, 36 Quiz #1
Forecasting Financial Statements (pp. Module 11: 23, 30
5 2/13 Module 11 1-44)

Data
6 2/20 Module 14 OI-Based Valuation (pp. 1-16) Module 14: 12, 24, Progress
28 Report
Quiz #2

7 2/27 MIDTERM EXAM

Revenue Recognition and Operating Module 5: 22, 23,
8 3/6 Module 5 Income (pp. 1-33) 31, 43, 52, 55

9 3/13 SPRING BREAK!!!

Asset Recognition and Operating Module 6: 28, 40, Writing
10 3/20 Module 6 Assets (pp. 1-32) 41, 43, 44 Progress
Report
Liability Recognition and Non-owner Module 7: 10, 30,
11 3/27 Module 7 Financing (pp. 1-27) 39, 41, 48 Quiz #3
Equity Recognition and Owner Module 8: 38, 40,
12 4/3 Module 8 Financing (pp. 1-24) 48, 55, 60
Inter-corporate Entities (pp. 1-30) Module 9: 14, 34,
13 4/10 Module 9 36, 42, 48
Analyzing Leases and Taxes (pp. 1- Module 10: 15, 22,
14 4/17 Module 10 10; 25-32) 30, 38, 43, 47 Quiz #4
Final
15 4/24 Project Presentations Project

5/1 Reading Day

16 5/8?? FINAL EXAM

* I may make changes to the schedule based on actual progress.