Course Outline

AIR UNIVERSITY Multan Campus

Spring 2020

Department of Business Administration

Course Title : Financial Statement Analysis

Class : MBA 4th semester Lab: not required

Credit Hrs : 3 Hours

Prerequisites For this Course: N/A

This Course is Prerequisite For: Financial Accounting and reporting

Instructor: Mr Allah Ditta

e-mail: [email protected] Address: Air University, Multan Campus

Web: http://www.au.edu.pk
Office Hours: Monday (10:00-14:00 hrs.)
Tel: 061-4780091,

Text Book (s)  Intermediate Accounting by Donald E. Kieso, Weygandt and

Warfield latest edition
Learning Resources Reference Book(s)  Accounting and Business Environment by Charles T. Horgren 6th edition
 Financial reporting and analysis by Charles H. Gibson latest edition

Other Resource(s) Companies Financial Statements

Course Description

Using a user-oriented approach, students in this course study the basic principles of accounting and the assumptions of
the financial accounting model. They learn how to apply general purpose financial statements and related data to
derive estimates and make inferences useful in business decisions.
Students analyze the role of the income statement, balance sheet, statement of cash flows, footnotes and the annual
report in the financial reporting process. They learn the techniques of computing ratios in preparation for financial
statement analysis, interpret the ratios and study the limitations of ratio analysis. They examine the past performance
of the firm by analyzing the efficiency, financial condition, profitability, liquidity, solvency and risk of a company
using ratio analysis, including vertical and horizontal common-size analysis, trend analysis and industry comparisons.
They make forecasts of future firm performance. Finally, students analyze the effects of earnings management,
financial shenanigans, and choice of accounting methods and variations in level of firm disclosures on financial
statement analysis.

Course Learning Objectives

At the end on this course the student will be able to understand:

 Explain the basic principles of accounting and the assumptions of the financial accounting and reporting
standards
 Explain the role of the income statement, balance sheet, statement of cash flows, footnotes and the annual
 report in the financial reporting process
 Compute ratios in preparation for financial statement analysis, interpret the ratios and explain the limitations
of ratio analysis
 Analyze the efficiency, financial condition, profitability, liquidity, solvency and risk of a company using ratio
analysis, including vertical and horizontal common-size analysis, trend analysis and industry comparisons
 Analyze the effects of differing accounting methods and management disclosures on financial statement
analysis.

Course Learning Outcomes

On completion of this course, students will have a thorough understanding of basics of accounting, develop analytical skills and
be able to formulate and present effective financial reports. Such knowledge and skill will be highly applicable in both academic
and business contexts. Specifically, after completing this course, the student will be able to:

 Apply and interpret International Accounting Standards;

 Understand the relevance of financial accounting to internal and external stakeholders.
 Identify and apply principles and regulations relating to financial accounting and the preparation of financial statements;
 Apply the processes of recognition, measurement and disclosure of accounting information in the preparation of general
purpose financial statements;
 Critically analyse and interpret case information and be able to develop a convincing argument to present their views on
relevant accounting issues;
 Work either individually or in a group to solve problems and communicate understanding of issues relating to the
preparation of financial statements.
The Learning Outcomes in this course also help students to achieve some of the overall Program Learning Goals and
Outcomes for the department of business administration. This course would enable students with integrated knowledge and
intellectual ability to think broadly and more deeply about the basic concept about internal accounting standards and their
application in financial reports.

Class/Lecture Format

This course adopts the principles of student-centered learning and dialectics. This involves a combination of providing
information to students and motivating them to use this information in problem-solving environments. The way students
present and argue the reasoning behind their solutions demonstrates their knowledge of the area, as one cannot convincingly
argue something that is not understood. Arguing an issue also expands one’s understanding of a topic as one is forced to
consider alternative points of view. Finally, dialectics empower students to collaboratively negotiate, rather than passively
learn, an area or topic.

The course undertakes the following activities for achieving the objectives.

 Lectures
 Class Discussions
 Assignments
 Quizzes
 Presentations
 Individual and group learning activities/projects
Each class will have a topic, specific tasks, and reading material set in advance. A class will typically involve a lecture/seminar –
presenting a new topic and related readings – followed by hands-on activities related to the topic for the week. Students will be
expected to present or discuss pre-specified reading material in the class. Please bring your printed preparation work to class
because these may be collected in selected weeks.
Weekly Lecture Plan:

Week Topic Reading Reference

Introduction to Financial Accounting and Reporting Intermediate
Development of Generally Accepted Accounting Principles (GAAP), Accounting by
1,2 Traditional Assumptions of the Accounting Model Kieso latest edition
Discussion

Financial Accounting and Accounting Standards Intermediate

Financial Statements, Reporting, need for FR, Users of accounting, Accounting by
3
issues in reporting, ethics in accounting and reporting Kieso latest edition
Quiz and Assignment
Introduction to Financial Statements and Other Financial
Reporting Topics
Forums of Business Entities
The Financial Statements
Income Statement and related information
Income statement formats, Multiple steps, single step, irregular items,
comprehensive income, retained earnings.
Balance Sheet (Statement of Financial Position) ,Statement of
stockholders’ Equity (Reconciliation of Stockholders’ Equity Intermediate
4,5 Accounts), Statement of Cash Flows (Statement of Inflows and Accounting by
and 6 Outflows of Cash) Kieso latest edition
The Accounting Cycle: Recording Transactions, Recording Adjusting
Entries, Preparing the Financial Statements, Tread way Commission
Auditors’ opinion: Auditor’s Report on the Firm’s Internal Controls,
Report of Management on Internal Control over Financial Reporting
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL
STATEMENTS, THE EFFICIENT MARKET HYPOTHESIS
CONSOLIDATED STATEMENTS, ACCOUNTING FOR
BUSINESS COMBINATIONS
Problems / Discussion/ Quiz

Financial statements and ratios Analysis

Balance Sheet: BASIC ELEMENTS OF THE BALANCE SHEET,

Assets _ Liabilities _ Stockholders’ Equity _ Quasi-Reorganization
_Accumulated Other Comprehensive Income _ Employee Stock Charles H. Gibson,
7 Ownership Plans (ESOPs) _ Treasury Stock _ Stockholders’ Equity in 12th Edition
Unincorporated Firms _ International Consolidated Balance Sheet
(IFRS)
Problems / Discussion (Case study Financial Policy at Apple and
Quiz )

Income Statement: BASIC ELEMENTS OF THE INCOME

STATEMENT, SPECIAL INCOME STATEMENT ITEMS,
INCOME TAXES RELATED TO OPERATIONS, EARNINGS PER
SHARE, RETAINED EARNINGS, DIVIDENDS AND STOCK Charles H. Gibson,
8 SPLITS, LEGALITY OF DISTRIBUTIONS TO STOCKHOLDERS, 12th Edition
COMPREHENSIVE INCOME, INTERNATIONAL
CONSOLIDATED INCOME STATEMENT (IFRS)
Problems / Discussion

9 Basics of Analysis: RATIO ANALYSIS, COMMON-SIZE Charles H. Gibson,

ANALYSIS (VERTICAL AND HORIZONTAL), YEAR-TO-YEAR 12th Edition
CHANGE ANALYSIS, FINANCIAL STATEMENT VARIATION
BY TYPE OF INDUSTRY, REVIEW OF DESCRIPTIVE
 INFORMATION, COMPARISONS, RELATIVE SIZE OF FIRM,
THE USERS OF FINANCIAL STATEMENTS
Problems / Discussion

Liquidity of Short-Term Assets; Related Debt-Paying Ability:

CURRENT ASSETS, CURRENT LIABILITIES, AND THE
OPERATING Charles H. Gibson,
10 CYCLE, CURRENT ASSETS COMPARED WITH CURRENT 12th Edition
LIABILITIES, OTHER LIQUIDITY CONSIDERATIONS
Problems / Discussion

Long-Term Debt-Paying Ability: INCOME STATEMENT

CONSIDERATION WHEN DETERMINING LONG-TERM DEBT-
PAYING ABILITY, BALANCE SHEET CONSIDERATION WHEN
DETERMINING Charles H. Gibson,
11 LONG-TERM DEBT-PAYING ABILITY, SPECIAL ITEMS THAT 12th Edition
INFLUENCE A FIRM’S LONG-TERM DEBT-PAYING ABILITY,
JOINT VENTURES
Problems / Discussion

Profitability: PROFITABILITY MEASURES, TRENDS IN

PROFITABILITY, SEGMENT REPORTING, REVENUES BY
MAJOR PRODUCT LINES, GAINS AND LOSSES FROM PRIOR Charles H. Gibson,
PERIOD ADJUSTMENTS, COMPREHENSIVE INCOME, PRO-
12 12th Edition
FORMA FINANCIAL INFORMATION,
INTERIM REPORTS
Problems / Discussion

For the Investor: LEVERAGE AND ITS EFFECTS ON

EARNINGS, EARNINGS PER COMMON SHARE,
PRICE/EARNINGS RATIO, PERCENTAGE OF EARNINGS
RETAINED, DIVIDEND PAYOUT, DIVIDEND YIELD, BOOK Charles H. Gibson,
13 VALUE PER SHARE, STOCK OPTIONS (STOCK-BASED 12th Edition
COMPENSATION), RESTRICTED STOCK, STOCK
APPRECIATION RIGHTS
Problems / Discussion/ Case study

Statement of Cash Flows: BASIC ELEMENTS OF THE

STATEMENT OF CASH FLOWS, FINANCIAL RATIOS AND THE
STATEMENT OF CASH FLOWS, ALTERNATIVE CASH FLOW, Charles H. Gibson,
14 PROCEDURES FOR DEVELOPMENT OF THE STATEMENT OF 12th Edition
CASH FLOWS
Problems / Discussion/ Case study

Expanded Analysis: FINANCIAL RATIOS AS PERCEIVED BY

COMMERCIAL LOAN DEPARTMENTS, FINANCIAL RATIOS
AS PERCEIVED BY CORPORATE CONTROLLERS, FINANCIAL
RATIOS AS PERCEIVED BY CERTIFIED PUBLIC Charles H. Gibson,
ACCOUNTANTS, FINANCIAL RATIOS AS PERCEIVED BY
15 12th Edition
CHARTERED FINANCIAL ANALYSTS,
FINANCIAL RATIOS USED IN ANNUAL REPORTS, DEGREE OF
CONSERVATISM AND QUALITY OF EARNINGS
Problems / Discussion/ Case study

Charles H. Gibson,
Quiz and Revision
16 12th Edition
 Class/Term/Semester Project/Assignment Outline

Assignment/Project Marks (20% Weightage)

6 quizes and 3 assignmnet will be assigned to students.

Grading and General Course Policies

(The grade you earn during the semester will come from the following work.)

Midterm 25 Marks (2 Hrs duration)

Project/Quizzes/Assignment/Discipline/ case study 30 Marks

Final Exam 45lll Marks (duration 3 Hrs)

Grading Criteria (a sample template)

Letter Grade Percentage Marks GPA

Instructor Responsibilities

First, the lecturer is responsible for creating a learning environment that is stimulating and interesting, and that encourages
collaboration, knowledge sharing, and co-creation by all participants. The learning environment includes both the physical and virtual
spaces where learning and teaching activities take place. The aim is to develop an atmosphere of cooperation and a spirit of learning,
inquiring, and innovating in all activities underpinned by a sense of responsibility for our individual and collective learning.

Student Responsibilities /Requirements

Students as active participants are expected to take responsibility for their individual and collective learning. While this course is
designed to foster students’ active participation and contribution to knowledge co-creation, this will not happen unless students take
seriously their roles and responsibilities. As active contributors’ students are expected to be prepared for each class and take an
active role in discussions and other learning activities. Students must ensure their…

 Timeliness in the class

 Professional/prescribed dress code
 Attendance
Eating, sleeping, reading, texting, listening to or working on unrelated materials, sidebar conversations, or “multi ‐tasking” using a
computer or other electronic device is not permitted. Laptops (and similar devices) may be used in class for course-related activities
such as taking notes. Students may bring drinks such as water.
I am always willing to see my students and will go out of my way to schedule meetings. Please make sure that if you make an
appointment that you keep it. Finally, as will quickly become apparent, e-mail is by far the easiest and most reliable method to reach
me.

Other Requirements

In terms of performance in this class, I have very high expectations and anticipate outstanding work from each of you. I hope for a
very positive experience for us all. Keep in mind that if you do not deliver outstanding work then you will be graded to reflect this. I
ask that you contact me directly and immediately if you ever have any questions or concerns regarding the class, and assignments, or
your grade(s). I am always willing to help.
I do ask that all students be respectful and courteous to other class members as well as the professor. This includes turning off cell
phones and other electronic devices before class begins and arriving to class on time, as walking in late is disruptive to other
classmates and the professor. Those who walk in late will likely not receive attendance credit for that day.

Academic Integrity

Integrity is a cornerstone of academia and permeates every aspect of academic discipline. AU Instruction 36-2609, Academic
Integrity defines academic integrity as “uncompromising adherence to a code of ethics, morality, conduct, scholarship, and other
values related to academic activity.” Every student enrolled in the university is responsible for adhering to this standard. Students
are warned that having knowledge of a violation and failing to report it is also a violation of academic integrity.
Students found guilty of academic integrity violations are subject to sanctions imposed by AU. These sanctions can affect student
credit for completed work as well as a student’s eligibility for academic opportunities. Collaboration and discussion in the online
environment among students in the same seminar are highly encouraged, but each student is expected to do his/her work. It is a
breach of integrity to use, receive, or give work to another student outside of the work course.
Original Work
Student work submitted for a grade must be composed solely by the student (or identified group of students for a group
assignment) except where documented following citation requirements, and it must be composed
specifically for the current assignment. No work previously submitted in any course, or elsewhere, will be resubmitted or
reformatted, in whole or in part, for submission in a current assignment without the prior written approval of the course instructor.
Additionally, students are prohibited from using the work of other students (current or former) in any way, including the
formulation of ideas or outlines, to complete assignments. The act of appropriating, or stealing, the literary composition of another,
or parts or passages of another’s writings, ideas, or language, and passing them off as one’s
work constitutes plagiarism. Every student must ensure quotations or paraphrased passages are properly cited within any written
work submitted.
Cheating
The act of giving or receiving improper assistance such as, but not limited to:
- Uploading and/or downloading study aids or notes (also known as “dirty purples,” “gouge,” or “the pony”) to or from
websites; or providing or receiving such notes via any other method
- Copying material from another’s assessment(test/paper/etc.)
- Using notes and issued materials, or other references not authorized for use during an assessment, or other assigned work.
- Knowingly permitting another to copy work or presentation materials, or excerpts/ideas/answers from an assessment.
- Collaborating with other persons on individual assignments, except as permitted
- Sharing study materials or any assessment information after completing an assessment. This is to preserve the integrity of
the assessment and ensure that all students have an equal opportunity at success in the program.
Cheating is a violation of academic integrity standards. Individuals who violate the academic integrity policy are subject to adverse
administrative and or disciplinary actions as described in AUI 36-2602.