Accunting 510; Spring 2018 Intrductin t Financial Statement Analysis 10:30am-12:20pm Mnday and Wednesday PCAR 293 Prfessr: Sarah McVay Office: PCAR 553 Office Hurs: By appintmen Email: smcvay@uw. edu Web Page: canvas.uw.edu Curse Descriptin Over the next ten weeks we will discuss financial reprting frm a user s perspective, use a variety f tls t break apart financial reprts int meaningfull units fr analysis, frecast financial statements, and value a firm. We will als cver the cntext f financial reprting t understand hw GAAP rules and manageriall incentives affect the quality and interpretatin f financial statements. The Curse Diagram The curse is divided int 2 sectins: (1) Cllectingg and Prcessing Infrmatin and (2) Frecasting, Valuatin and Decisin-Making. Curse Objective The brad bjectivee f this curse is t prvide yu with the knwledge and skills necessary t analyze, interpret, understand, and use publicly available financial infrmatin t make infrmed decisins. Specifically, this curse examines the rle f crprate financial reprting in financial analysis. The fcus is n the analysis f public cmpanies perfrmed by external parties, with a particular fcus n equityy valuatin. Tls learned will als be useful fr credit analysis, predicting financial distress, and evaluating managerial perfrmance. The curse is designed t achieve the fllwing bjectives: A510 Curse Syllabus Page 1
T develp skills in analyzing financial infrmatin fund in annual (10-K) and quarterly (10-Q) SEC filings. T develp an appreciatin fr the usefulness and limitatins f this financial infrmatin; T develp an understanding f, and appreciatin fr, fundamental financial statement analysis; T use the abve knwledge t frecast a firm s financials and generate an estimated value f the firm. Curse Materials I will make cases and slides available n ur Canvas curse web site. If yu wish t explre a tpic mre deeply please see me fr references. Cmmunicatin I will use canvas and UW e-mail t cmmunicate. Please be sure yu have access t Canvas (email me if nt), and be sure t check yur UW e-mail regularly (I will pst annuncements n Canvas, and if yu have yur email frwarded these annuncements may nt frward). Pint Distributin Percentage Cases 30% Quizzes 20% Analyst Reprt (including presentatin) 40% Prfessinalism and Participatin 10% Ttal 100% * I cnsider all written wrk as prfessinal writing assignments. Please prf yur wrk. Cases: There are nine cases. Cases must be upladed t canvas by 10:30am n the date we cver the tpic (see Canvas Assignments). Please attempt every case because it will be difficult t fllw alng in class if yu have nt dne s. Generus partial credit will be awarded fr attempts (i.e., yu will get at least half credit fr turning in any attempt.) I will drp yur lwest case scre. Quizzes: Yu will cmplete eight weekly quizzes n canvas (with n quizzes the last tw weeks f class). The quizzes will cnsist f questins designed t assess yur cmprehensin f the material we have cvered. Quizzes are pen ntes, but clsed peple. I will drp yur lwest quiz scre. Analyst Reprt: The purpse f the analyst reprt is t have yu apply the varius tls and techniques we cver t a publicly-traded firm f yur chsing. Yu have the ptin t wrk with up t tw thers (fr a ttal f three maximum per grup). I suggest that yu A510 Curse Syllabus Page 2
avid banks, firms that have recently been invlved in large mergers, and firms with negative equity (these will be mre challenging t frecast and value). The analyst reprt cnsists f five deliverables. Analyst Reprt Deliverable #1, Identify Yur Grup and Firm. Firm Sheet Due April 10. Analyst Reprt Deliverable #2, Written Reprt Part I; Due n May 1 (Tuesday) by midnight. UNDERSTANDING YOUR FIRM: Overview f what yur firm des, and the biggest challenges it faces; a discussin f vertical and hrizntal statements; calculate the cre ratis fr yur firm and discuss changes ver time. FINANCIAL STATEMENT ANALYSIS: Cmpare the cre ratis fr yur firm t their industry and clsest cmpetitr, acknwledge and adjust fr at least ne GAAPdriven accunting distrtin, analyze the quality f earnings. A checklist fr each cmpnent f the written reprt is available n Canvas. Analyst Reprt Deliverable #3, Written Reprt Part II; Due n May 17 (Thurs) by midnight. FINANCIAL STATEMENT FORECASTS: Frecast financial statements fr yur firm. FIRM VALUATION: Use the financial statement frecasts t frm a valuatin. Analyst Reprt Deliverable #4, Final Prject, Due n May 30 th at midnight (tw files) Yu will revise yur excel sheet with the frecast and valuatin feedback received n analyst reprt deliverable II, including a tab highlighting yur key changes. Yu will then create a ne-page summary f yur analyst reprt, ending with a buy, sell r hld recmmendatin (this shuld lk prfessinal, as if yu are trying t sell yur research t investrs; a template will be prvided).. Analyst Reprt Deliverable #5, Grup Presentatin, Due n May 21, 23 r 30 th in class (uplad pwerpint presentatin) Yur shrt presentatin will highlight the key issues yur cmpany faces, a unique accunting feature f yur firm (and why it exists and what it means), and the mst uncertain cmpnents f yur frecast and valuatin (apprximately ten minute presentatins; exact time allcatin t be determined nce grups are finalized). Prfessinalism and participatin: I expect yu t treat this class as yu wuld treat any prfessinal respnsibility. Fr example, I expect yu t be n time and prepared t discuss all materials relevant t the tpic f the day. Learning is an active prcess. Hence, yur high-quality participatin will be evaluated n a daily basis. A510 Curse Syllabus Page 3
COURSE OUTLINE 1 March 26 March 28 2 April 2 April 4 3 April 9 Sectin 1: Cllecting and Prcessing Infrmatin Class 1: Intrductin and framewrk fr the curse. Class 2: Earnings annuncements. Case: Q&A with Starbuck s Executives Class 3: Using rati analysis t understand the business (a review) Case: Starbucks v. McDnalds Class 4: Adjusting ratis fr accunting distrtin; lease review Revisit Starbucks v. McDnalds and adjust ratis; leasing case Class 5: Industry and strategy analysis; intrducing deferred taxes Case: Incrprating Cmpetitin Firm Sheet due n Canvas by midnight April 100 April 11 4 April 16 April 18 5 April 23 April 25 Class 6: Understanding accunting disclsure versus recgnitin Case: Assessing Apple s Revenue Class 7: Understanding incentives cmpensatin disclsures Reading: Freaknmics - Schl Teachers (Canvas) Case: Incentives Class 8: Understanding and identifying earnings management; intrducing investments in ther cmpanies Reading: Financial Shenanigans (Canvas) Class 9: Understanding accunting disclsures (nn-gaap earnings) Case: Grupn (Canvas) Class 10: Overview f frecasting and accunting-based valuatin A510 Curse Syllabus
COURSE OUTLINE 6 Sectin 2: Frecasting, Valuatin and Decisin-Making April 30 Class 11: Guest Speaker First deliverable f analyst reprt due n Canvas by midnight May 1 May 2 7 May 7 May 9 8 May 14 May 16 Class 12: Fine-tuning ur frecast; incrprating management guidance C Class 13: Implementatin f a detailed frecast Case: Netflix: A Frecasting Case using Vluntary Disclsures (Canvas) Class 14: Using frecasts t cnstruct valuatin estimates Class 15: Differences f pinin and shrt-sellers Case: Herbalife: Battle f the Billinaires (Canvas) Class 16: A summary using Apple Secnd deliverable f analyst reprt due n Canvas by midnight May 17 9 May 21 Class 17: Final presentatins (1 f 3) May 23 Class 18: Final presentatins (2 f 3) 10 May 28 Class 19: Memrial Day Hliday (N class) May 30 Class 20: Final Presentatins (3 f 3) A510 Curse Syllabus