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Course Outline – Financial Statement Analysis [ACCT90002] Semester 2, 2021

ACCT90002 Financial Statement Analysis

SUBJECT GUIDE

Semester 2, 2021

Prepared by A/Professor Yu Flora Kuang

Department of Accounting Faculty of Business and Economics

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Course Outline – Financial Statement Analysis [ACCT90002] Semester 2, 2021

Subject Outline Introduction Welcome to ACCT90002 Financial Statement Analysis for Semester 2, 2021. Financial statements are relevant to the decisions of many individuals and organizations including investors, creditors, consultants, managers, auditors, directors, analysts, regulators, and employees. Financial statement analysis is presented in this course as an integral part of the broader framework of business analysis. Subject Aims The course has several key objectives: 

The development of students’ general knowledge of the theory and practice of financial statement analysis with a clear emphasis on placing it in its broad business, financial, and accounting context.



The development of students’ understanding of the environment in which financial reporting choices are made, what the options are, how these options are used for various types of decisions and - most importantly - how to avoid misusing financial statement data.



The development of a critical thinking approach to the analysis of financial statement information encompassing, inter alia, an appreciation of how alternative accounting methods affect earnings and key financial ratios.



The development of a theoretical and practical appreciation of how business strategy analysis, accounting analysis, and financial analysis can feed into the development of company valuation models, particularly accounting-based valuation models based on the abnormal earnings (residual income) valuation framework.

Learning Outcomes Learning Outcomes and Generic Skills To view the subject objectives and the generic skills you will develop through successful completion of this subject, please see the University Handbook: https://handbook.unimelb.edu.au/view/2021/ACCT90002 At the end of the course, students should possess a working knowledge of the tools and frameworks necessary to understand, analyze, and evaluate financial statements. They should be able to use and transform financial statement data in order to conduct fundamental valuations of companies. They should also be able to understand, analyze and evaluate a range of accounting and finance issues relating to the analysis of financial statements and appreciate the sources of data that may be useful in analyzing the position, performance, and future business prospects of companies.

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Course Outline – Financial Statement Analysis [ACCT90002] Semester 2, 2021

Generic skills In this subject, students will have the opportunity to enhance generic skills while considering issues related to the financial reporting environment. These skills include the ability to:  critically evaluate financial reporting and disclosure problems  seek, evaluate, adjust, analyze, and interpret relevant accounting information  utilize problem solving skills  access data and research information from a variety of sources  communication skills via contribution to class discussion, presentations of assigned tasks, and group tasks  enhancement of collaborative learning skills be participation in group assignments Awareness issues At a broader level, students studying this subject should be aware of the following:    

the relationship between market expectations and reported accounting numbers the importance of accounting information in the economy to the making of resource allocation decisions the opportunity and incentives for accounting policy choices the consequences for information contained in financial reports and end users.

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Course Outline – Financial Statement Analysis [ACCT90002] Semester 2, 2021

The broad framework adopted on the course is outlined in Table 1 below. TABLE 1:

ANALYSIS USING FINANCIAL STATEMENTS

Financial Statements

Business Application Context

Managers’ superior information on business activities Noise from estimation errors Distortions from managers’ accounting choices

Credit analysis Securities analysis Mergers and Acquisitions analysis Debt/Dividend analysis Corporate communication strategy analysis General business analysis

Other Public Data Industry and Firm data Outside financial statements

ANALYSIS TOOLS

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Course Outline – Financial Statement Analysis [ACCT90002] Semester 2, 2021

The textbook used for this subject is: - Palepu, K., P. Healy, S. Wright, M. Bradbury, and P. Lee. 2015 [Second Asia-Pacific Edition]. Business Analysis and Valuation: Using Financial Statements – Text and Cases. Cengage Learning. ISBN: 978-0170261951 Please note that it is not a required reading. The inclusion of a textbook is for students’ references in learning.

Eligibility and Requirements To view the eligibility and requirements, including prerequisites, corequisites, recommended background knowledge and core participation requirements for this subject, please see the University Handbook: https://handbook.unimelb.edu.au/subjects/acct90002/eligibility-and-requirements

Academic Staff Contact Details A/Professor Yu Flora Kuang (Subject coordinator and seminar leader) Email: [email protected] Office: Level 8, Department of Accounting, Faculty of Business and Economics Building, ‘The Spot’, 198 Berkeley Street, Carlton 3010. Phone: 834 49806 Dr. Qingbo Yuan (seminar leader) Email: [email protected] Office: Level 7, Department of Accounting, Faculty of Business and Economics Building, ‘The Spot’, 198 Berkeley Street, Carlton 3010. Phone: 903 55899 Consultation Hours: 2.30pm - 3.00pm, Friday (for Weeks 5-12; TBA for Weeks 2-4) Email Protocol Please note that we are only able to respond to student emails coming from a University email address. Please do not use personal email addresses such as Yahoo, Hotmail or even business email addresses. Emails from non-University email addresses may be filtered by the University’s spam filter, which means that we may not receive your email. All correspondence relating to this subject will only be sent to your University email address. Note that you must first activate your University email address before you can send or receive emails at that address. You can activate your email account at this link:

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Course Outline – Financial Statement Analysis [ACCT90002] Semester 2, 2021

http://accounts.unimelb.edu.au/. While academic staff endeavor to address queries received via email, it is more appropriate to resolve substantive questions during lectures and tutorials and during normal consultation hours. With this in mind, we encourage students to attend all lectures and tutorials and to familiarise themselves with the consultation hours offered by the lecturer in this subject.

Seminars activity_group_code

day_of_week start_time

Lecture1 Seminar1 Seminar1 Seminar1

Mon Tue Tue Wed

12:00 PM 11:00 AM 2:15 PM 3:15 PM

duration

60 120 120 120

location X-Scheduled delivery via LMS X-Online PAR-The Spot-4007 X-Online

All students are required to attend weekly lectures (with a duration of 60 minutes and lecture recordings available online in the Canvas before the start time for the lecture each week); Students are advised to attend one of the seminars each week (as per your registration at the enrollment). Following a directive from the University, due to COVID-19 seminars will be delivered in a dual manner, where seminar recordings will become available in the Canvas after the seminars each week. Content-wise speaking, there are no variations across two delivery methods. The resources for this subject are provided via the University’s Learning Management System (LMS) and can be accessed at: http://www.lms.unimelb.edu.au The front page is a notice board section, which will be updated from time to time with important information. Changes to material, notices about additional material as well as information about assessment will all be posted here and it is essential that all students visit this page regularly to ensure they have the most up-to-date information for the course. Students may also, from time to time, receive emails from staff relating to the subject. Students are expected to complete the assigned tasks for each week. Each week a set of questions will be discussed to extend students understanding of the accounting concepts and issues and to provide a greater depth of comprehension and continuity to the subject matter. Group work exercises and assignments will form part of the learning process in this subject.

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Course Outline – Financial Statement Analysis [ACCT90002] Semester 2, 2021

Lecture Schedule Week 1

Date Commencing 26/Jul/2021

2

2/Aug/2021

3

9/Aug/2021

4

16/Aug/2021

5

Topic Introduction and overview of financial statement analysis framework Theoretical framework & Business strategy analysis

Recommended Reading Chapter 1 In Palepu et al. (2015)

Further Reading

Chapter 2 In Palepu et al. (2015)

In-class case discussion (1): The role of capital market intermediaries in the dot-com crash of 2000 In-class case discussion (2): Anacomp Inc. In-class case discussion (3): Marks and Spencer’s accounting choices In-class case discussion (4): Manufactured Homes Mid-term revision

Accounting analysis (1): Accounting analysis framework Accounting analysis (2): Income statement, Balance sheet, and OCI

Chapters 3-4 In Palepu et al. (2015) Chapters 3-4 In Palepu et al. (2015)

23/Aug/2021

Financial analysis (1): DuPont equation and an alternative method

Chapter 5 In Palepu et al. (2015)

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30/Aug/2021

Chapter 5 In Palepu et al. (2015)

7 8

6/Sept/2021 13/Sept/2021

9

27/Sept/2021

10

4/Oct/2021

11

11/Oct/2021

12

18/Oct/2021

Financial analysis (2): Ratio analysis and cash flow analysis basics Mid-term examination Prospective analysis (1): Forecasting and fundamental analysis basics Prospective analysis (2): Fundamental analysis in details Valuation implementation (1); communication and governance Valuation implementation (2): Writing equity research reports Review of course

Chapter 6 In Palepu et al. (2015)

In-class case discussion (5): Thermo Electron

Chapter 7 In Palepu et al. (2015) Chapters 8&12 In Palepu et al. (2015)

Assignment

In-class case discussion (6): Harnischfeger Inc. In-class case discussion (7): Porsche vs VW

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Course Outline – Financial Statement Analysis [ACCT90002] Semester 2, 2021

In-class Exercises In-class exercises will be posted on the LMS. Students are required to prepare answers based on the previous seminar for the exercises and problems assigned. Seminar Cases During seminars as of Week 2, cases in financial statement analysis are analyzed and discussed. Case questions will be made available on LMS at least one week in advance, unless mentioned otherwise. It is essential for students to prepare for the cases before the discussions in order to obtain a good comprehension of the topics. Lecture and Seminar Slides Lecture and seminar slides will be placed on the Canvas prior to each seminar. The slides will be located under the heading “Seminars” (or similar). Please note that amendments and adjustments might be made after seminars. Lecture and Seminar Capture Video recordings of lectures and seminars delivered in this subject will be made available for review. These recordings allow you to revise lectures during the semester, or to review them in preparation for the end of semester exam. You can access recorded lectures by clicking on the Lecture Recordings (or similar) menu item on the LMS page for this subject. The University has recently moved to a new Lecture Capture platform with additional features. Please review the Lecture Capture Student Guides page for more information: https://lms.unimelb.edu.au/support/guides/students/lecture-capture-student-guide Important notes:  Face-to-face teaching is subject to pandemic restrictions and protocols, as well as the number of students enrolled in the session. Should face-to-face teaching cease to be a viable option, the teaching mode will revert to being conducted fully online. Please refer to the LMS for more specific details and status updates.  Adjustments might be made during the semester.

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Course Outline – Financial Statement Analysis [ACCT90002] Semester 2, 2021

Private Tutoring Services Faculty has become increasingly concerned about the existence of a number of private tutoring services operating in Melbourne that heavily target University of Melbourne students enrolled in FBE subjects. Students are urged to show caution and exercise their judgement if they are considering using any of these services, and to please take note of the following:  Any claim by any of these businesses that they have a “special” or “collaborative” or “partnership” style relationship with the University or Faculty is false and misleading.  Any claim by a private tutoring service that they are in possession of, or can supply you with, forthcoming University exam or assignment questions or “insider” or “exclusive” information is also false and misleading. The University has no relationship whatsoever with any of these services and takes these claims very seriously as they threaten to damage the University’s reputation and undermine its independence. It is also not appropriate for students to provide course materials (including University curricula, reading materials, exam and assignment questions and answers) to operators of these businesses for the purposes of allowing them to conduct commercial tutoring activities. Doing so may amount to misconduct and will be taken seriously. Those materials contain intellectual property owned or controlled by the University. We encourage you to bring to the attention of Faculty staff any behavior or activity that is not aligned with University expectations or policy as outlined above.

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Course Outline – Financial Statement Analysis [ACCT90002] Semester 2, 2021

Assessment Your assessment for this subject comprises the following: Assessment Task Mid-term exam Assignment End-of-semester exam

Individual /Group Individual Individual/ Group

Hard copy or Electronic TBA Electronic copy

Due

Weighting

Week 7 TBA

25% 20%

Individual

TBA

Exam period

55%

NOTE: There is a hurdle requirement in this subject. Students are required to achieve at least 50% on the final examination to receive a pass in this subject. Mid-term Test In Week 7, a mid-term test will be conducted to determine a student’s progress in the course. The mid-term test will have a time allocation of one hour and 45 minutes, inclusive of reading time. The first 6 weeks of the course will be assessed. Further details will be advised during the semester. Assignment The assignment can be conducted in a group or individually. If the former option is preferred and selected, the assignment will involve group or team work of max four students. Once determined, students are not allowed to change groups or switch between an individual- and group-based format. Group composition needs to be registered by the end of Week 5. More details will be given in due course. The assignment (a research report) is to be completed by the end of Week 11 and submitted via the Assessment Submission link on the LMS. The report is to be approximately 4,000 words (not including any references or appendices). It is worth 20% of the total marks. Full details of the assignment task will be provided in Week 8 or 9. Assignment Submission Assignment submission is via the LMS Assignment Submission link for all written assignments. Please refer to the Turnitin section of the LMS website via for detailed submission instructions if needed (http://go.unimelb.edu.au/zax6). Please note that you are required to keep a copy of your assignment after it has been submitted as you must be able to produce a copy of your assignment at the request of teaching staff at any time after the submission due date. Penalties for Late Submission Students with a genuine and acceptable reason for not completing an assignment (or other assessment task), such as illness, can apply for special consideration (see policy below).

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Course Outline – Financial Statement Analysis [ACCT90002] Semester 2, 2021

Subject Resources Other Recommended Reading A list of other recommended reading for further study may be made available on the LMS. Company annual reports Use Baillieu Library database - Annual Reports Collection, for Australian, ASX listed companies. Type Annual Reports Collection into the Electronic Resources Search box on the Library Home Page - http://www.lib.unimelb.edu.au/ Financial newspapers, broker & analyst reports, etc. Use Baillieu Library database Factiva. Type Factiva into the Electronic Resources Search box and set the drop-down menu to Exact Title. Other resources Other resources will be found by searching the internet. One that may be useful is: http://au.finance.yahoo.com/ for various news items and business data. Also, the company website of the assigned company will provide mush useful information.

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Course Outline – Financial Statement Analysis [ACCT90002] Semester 2, 2021

Academic Integrity Academic Honesty The University maintains high academic standards in its courses and subjects and expects students to conduct themselves in a manner which is fair, honest and consistent with the principles of academic integrity, particularly when undertaking assessment and research. http://academicintegrity.unimelb.edu.au/ Referencing All sources used for a written piece of assessment must be referenced. This is to acknowledge that your material is not based entirely on your own ideas, but is based, in part, on the ideas, information, and evidence of others. This is desirable as you are attending University in order to learn from others. You will be required to use the APA system or Harvard system of referencing. The library has prepared a website to help students correctly reference: http://www.lib.unimelb.edu.au/recite/citations/harvard/generalNotes.html It is important that all material you present for assessment is referenced correctly. Material that has not been referenced correctly may be considered to be plagiarised, and as such may be penalised. We will also look for evidence that material included in the bibliography has been used in the assignment. Including references that have not been used may also result in your assignment being penalised The Academic Skills Unit has produced resources to assist students with referencing https://services.unimelb.edu.au/academicskills/undergrads/top_resources The Library also provides advice on referencing: http://library.unimelb.edu.au/cite

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