Financial Statement Analysis: ACCT-UB.0003.002 (C10.0003)

Overview

This course helps you understand the flow of money in a business and its link to shareholder value and credit ratings. The course presents a framework for analysis and provides spreadsheets to implement the framework. All materials are available for free at http://www.godeohlson.com/. There are eight core spreadsheets that help addresses the following questions:

Financial Statement Analysis Spreadsheets

• FSA1:
  • Why is it useful to seprate the enterprise activities from the financial activities needed to support the enterprise activities?
  • What are the drivers of cash needs of a business? How do they affect the value of a business? Specifically, how do sales growth, profit margins, and level of supporting assets needed and liabilities available affect the cash generated or needed by a business?
  • How do the margins and investment needed affect the return on investment generated by the business? How does the stability of the cash flows allow a business to leverage the return on investment in the business to generate a higher return on equity for its shareholders?
• FSA2: How should one remove past non-recurring items to better forecast the future?
• FSA3: How does one measure the return on investment over horizons longer than one year? What are the advantages of doing so? This spreadsheet introduces two new mesures of long-term returns -- return on book equity (ROBE) and return on market equity (ROME).
• FSA4: How does measure quality of earnings? This spreadsheet introduces a measure of earnings called Adjusted Cash Earnings (ACE).

Valuation Spreadsheets

• VAL1: How does one forecast future cash flows using the cash flow drivers identified in FSA1? What additional inputs are needed to derive enterprise value? Why does one need to forecast financial activities?
• VAL2: How does one transform the discounted dividends model (DDM) to connect equity value to three bottomline numbers that investors care about, namely dividends, book values, and earnings. Specifically, VAL2 connects equity value to dividends and their growth, book value and its growth, and earnings and their growth.
• VAL3: How does one adjust analyst forecasts when one considers forecasts of margin expansion to be too optimistic?
• VAL4: How does the return implied by the stock price and earnigns forecasts compare to the return one should expect based on risk? VAL4 computes a new metric titled "Excess Implied Return" (EIR). EIR equals implied return less return required based on CAPM.

Prerequisites

• A very good background in financial accounting is required. If you think you struggled with the financial accounting course, this course may not be for you.
• You need to bring a laptop to class with sufficient battery power. If you have any technical questions, please contact the IT department (212-998-0180), NOT me.
• I will be using Excel 2010. Any version from Excel 2003 to 2010 should work for you.
• Make sure that you can connect your laptop to the Stern wireless network.

Help and Office

• Teaching assistant: Stella Chen (Ye Chen yc680@stern.nyu.edu) Contact TAs first. Please do NOT copy me on your messages to the TAs.
• Me: dgode@stern.nyu.edu, 212-998-0021, Office: KMEC 10-86.
• Administrative assistant: Halima Khan hkhan@stern.nyu.edu 212-998-0003, Office: KMEC 10th Floor

Materials

• I will not require a textbook. All materials are at http://www.godeohlson.com.

Assignments

• Please do not email me to reconfirm any of the statements below.
• The assignments count towards 20% of your grade. If you don't do them carefully, you will bomb the final. I glance at the assignment record before final grading.
• The assignments appear as tests on Almaris.
• See the grading section below. Some assignments are short, others are long. Please manage your time. Click on each assignment to see how to prepare for that assignment.
• NO EXTENSIONS will be granted for any reason except medical or family emergencies. If you have religious or personal conflicts, submit the assignments early. The related materials are covered well in advance of the assignments. Please do not email me to request extensions unless you have a medical or family emergency.
• You can learn concepts from others, but you must work on the actual assignment alone. You may be called upon in class to explain your answer to the assignments.
• All assignments are mandatory. To view the on-line assignments, login at http://www.almaris.com/assess/ using your official Stern email (no aliases) and most recent password emailed to you by Almaris. To retrieve the password, use your Stern email id as it appears in the registrar's records. If you were added to the class list after the initial registration date, see instructions on Blackboard.
• Assignments are marked "late" if you do not meet or exceed the passing score described below before the deadline. There is no additional penalty for lateness other than the low score.
• Assignments have a "passing score" of either 100% or less than 100%.
  • I set the passing score at 100% if I believe that you should be able to ace the assignment. In reality, there is no passing grade. Whatever you get on your last attempt is your final score. That is, you are graded on accuracy but not the number of attempts. If you are allowed five attempts, and you use them, then your score on the fifth attempt is your final score for the assignment. There is a difference between "passing" and getting full credit. If you get 70/100 on your fifth attempt, you "pass" but you don't score a 100.
  • On a few assignments, I set the passing score to be less than 100% if I believe that you may not be able to get every question right. Any score above that score is rounded up to 100%. For example, if the passing score is set at 90%, and you get 93%, then your score is rounded up to 100%. I do the rounding up in a separate spreadsheet. You will see only the raw score on line.
• Almaris is not affiliated with Stern in any way. It is offering these tests to Stern at no charge to Stern.
• Almaris staff is not authorized to extend deadlines under any circumstances. Only my TAs can do that. Almaris staff will reply to your emails only if they pertain to technical issues with the Almaris system. You should contact Stern IT for technical issues with your network.

Exams and Grading

• The class relies on your participation. However, you will not be penalized for missing classes. You need NOT email me if you plan to miss a class, be late, or leave early. All classes are videotaped and the link is posted to Blackboard.
• Students make the mistake of assuming that they can learn the material on their own or by watching the videos. You cannot learn this material by watching a video. I have noticed a high degree of correlation between attendance and grades. It is a terrible idea to miss a class.
• If you have a qualified disability and will require academic accommodation during this course, please contact me directly. I will arrange a separate room/time for you.

The grades will be based on the assignments (20%), midterm exam (30%), and final (50%). If your score on the midterm is poor but the final score is good, your final will count towards 100%. It is not necessary for you to get a full score on the assignments; any score above 80% is considered a passing score. The final exam will not be rescheduled for any reasons except medical or family emergencies.

Schedule

All classes will be held in KMEC 4-60 on Tu and Th from 9:30 AM to 10:45 AM except during the spring break.

Midterm: Thursday, March 8

Final: SUNDAY, May 6