DRAFT – NOT FOR CLASS USE

HARVARD UNIVERSITY

Division of Continuing Education

MGMT S-2600 S2010 Financial Statement Analysis (13385)

Location and times: Sever 103

Tuesday and Thursday 12 noon to 3 pm

This course is conducted between the dates of June 22 through August 5.

Course Description: Financial Statement Analysis is about financial information: how it is derived, how it is used, how it can be appropriately altered to get a better view of the current performance and future prospects of for - profit companies. Financial statement analysis is one important step in business analysis. Business analysis is the process of evaluating a company’s economic prospects and risks. This includes analyzing a company’s business environment, its strategies, and its financial position and performance. Business analysis is useful in a wide range of business decisions such as investing in equity or debt securities, extending credit through short or long term loans, valuing a business in an initial public offering (IPO), and evaluating restructurings including mergers, acquisitions, and divestitures. Financial statement analysis is the application of analytical tools and techniques to general-purpose financial statements and related data to derive estimates and inferences useful in business analysis.

Text

Financial Statement Analysis, 10th edition. KR Subramanyam and John J. Wild. McGraw Hill (2009).

Plus articles and teaching notes as noted in the syllabus.

Faculty

Professor George Hachey, Associate Professor of Finance, Bentley University.

ghachey@bentley.edu Phone: 781.891.2514

Evaluation

Write-ups of problems and cases 33%

Late Mid term exam 33%

Term project 33%

Problem and Case Write ups

The write-ups are due at the beginning of the class in which the case/problem discussion is scheduled. Analytical rigor is more important than the elegance of the write-up. While some problems and cases are computation-intensive, some are more issues-oriented. The length of your write-up will vary depending upon the problem/case. I envision a typical write-up not to exceed 2-3 double-spaced pages. Please provide direct answers to the questions asked; you do not need to summarize facts of the case. Answers in handwritten form are acceptable. Should you prefer to have your answer available to you while the case is being discussed in class, make sure to have two copies; one for submission to me, the other one for your use.

Term Project

Each student group (consisting of not more than three members) will be required to complete a business analysis project using the corporate financial reports and analytical tools covered in the course. They will select a US company from a list provided by the instructor. Further project guidelines and submission deadlines will be announced later.

SCHEDULE

June 22 Session Number 1

Motivating the course: Why you need to understand how to adjust financial statements: How companies distort financial results and EVA.

Reading Assignment: Chapter 1: Overview of Financial Statement Analysis

Question/Problem Assignment: TBD

“The Earnings Game: Everyone Plays, Nobody Wins,” Collingwood, Harris, Harvard Business Review, June 2001.

“Corporate Budgeting is Broken—Let’s Fix It, Jensen, M.” Harvard Business Review, November 2001.

Understanding Economic Value Added. Desai and Ferri.

A review of financial statement analysis

Reading Assignment: Chapter 2: Financial Reporting and Analysis

Question/Problem Assignment: TBD

June 24 Session Number 2

Reading Assignment: Chapter 3: Analyzing Financial Activities

Question/Problem Assignment: TBD

Leases

Pensions

Special Purpose Entities

Shareholders Equity

Case Assignment Due: Costco Wholesale Corporation Financial Statement Analysis A. Stanford Graduate School of Business.

June 29 Session Number 3

Reading Assignment: Chapter 4: Analyzing Investing Activities

Question/Problem Assignment: TBD

Current Assets

Inventory adjustments

Long Term Assets

Asset Write downs and Impairment

Intangible Assets (The Balanced Scorecard Approach)

July 1 Session Number 4

Reading Assignment: Chapter 5: Analyzing Investing Activities: Intercorporate Investments

Investment Securities

Business Combinations

Derivative Securities

Fair Value Options

Question/Problem Assignment: TBD

July 6 Session Number 5

Reading Assignment: Chapter 6: Analyzing Operating Activities

Question/Problem Assignment: TBD

Income Concepts

Nonrecurring Items

Revenue Recognition

Deferred Charges

Employee Benefits

Interest and Taxes

July 8 Session Number 6

Reading Assignment: Chapter 7 Cash Flow Analysis

Question/Problem Assignment: TBD

Statement of Cash Flows

Cash from Operations

Cash Flow Analysis

July 13 Session Number 7

Catch up and/or review session

July 15 Mid Term Exam

July 20 Session Number 9

Reading Assignment: Chapter 8: Return on Invested Capital and Profitability Analysis

Question/Problem Assignment: TBD

Importance of ROIC

Components of ROIC

Analyzing RONA

Analyzing ROCE

July 22 Session Number 10

Reading Assignment: Chapter 9: Prospective Analysis

Question/Problem Assignment: TBD

Long term Forecasting

Forecasting and Equity Valuation

July 27 Session Number 11

Reading Assignment: Chapter 11: Equity Analysis and Valuation

Question/Problem Assignment: TBD

Earnings Persistence

Earnings Based Valuation

Earnings Power and Forecasting

July 29 Session Number 12

Paper Presentations are Scheduled

August 3 Session Number 13

Paper Presentations are Scheduled

August 5 Session Number 14

Paper Presentations are Scheduled