Course Number : BA (H) – 633
Credit Hours: 03

1.Overview of Financial Reporting an Financial Statement Analysis

  • Overview of Financial Statement Analysis

  • Identify the Industry Economic Characteristics
  • Tools for Studying Industry Economics
  • Value Chain Analysis
  • Porter’s Five Forces Classification
  • Economic Attributes Framework
  • Identify the Company Strategy
  • Framework for Strategy Analysis
  • Asses the Quality of the Financial Statements
  • Balance Sheet – Measuring Financial Position
  • Income Statement – Measuring Operating Performance
  • Statement of Cash Flows
  • Summary of Financial Statements and Notes
  • Analyze Profitability and Risk
  • Tools of Profitability and Risk Analysis
  • Value the Firm
  • Role of Financial Statement Analysis in an Efficient Capital Market

2. Asset and Liability Valuation and Income Measurement

  • Asset and Liability Valuation
  • Historical Value: Acquisition Cost
  • Historical Value: Adjusted Acquisition Cost
  • Historical Value: Present Value of Cash Flows Using
  • Historical Interest Rates
  • Current Values: Current replacement Cost
  • Current Values: Net Realizable Value
  • Current Values: Present Value of Cash Flows
  • Using Current Interest rates
  • GAAP Valuations
  • Income Recognition
  • Treatment 1: Value Changes Recognized on the Balance Sheet and Income Statement When realized

3. Income Flows Versus Cash Flows

  • Key Relationships in the Dynamic of a Business
  • Income Flows, Cash Flows and Life Cycle relations
  • Net Income and Cash Flow from Operations
  • Investing and Financing Activities
  • Illustrations of Cash Flow Relations
  • Preparing the Statement of Cash Flows
  • Algebraic Formulation
  • Classifying Changes in Balance Sheet Accounts
  • Illustration of the Preparation Procedure

4. Profitability Analysis

  • Profitability Analysis
  • Rate of Return on Assets
  • Disaggregating ROA
  • Economic and Strategic Factors in the Interpretation of ROA
  • Analyzing the Profit margin for ROA
  • Analyzing Total Assets Turnover
  • Supplementing ROAs in Profitability Analysis
  • Rate of Return on Common Shareholders’ Equity
  • Earnings Per Common Share
  • Calculating EPS
  • Criticisms of EPS
  • Interpreting Financial Statement Rations
  • Comparisons with Corresponding Ratios of Earlier Periods
  • Comparisons with Corresponding Ratios of Other Firms

5. Risk Analysis

  • Framework for Risk Analysis
  • Analyzing Short-term Liquidity Risk
  • Analyzing Long-term Solvency Risk
  • Analyzing Credit Risk
  • Analyzing Bankruptcy Risk
  • The Bankruptcy Process
  • Models of Bankruptcy Prediction
  • Synthesis of Bankruptcy Prediction research
  • Market Equity Beta Risk
  • Financial reporting manipulation Risk
  • Motivation for Earnings Manipulation
  • Empirical Research on Earnings Manipulation
  • Application of Beneish’s Model to Sunbeam Corporation
  • Summary of Income manipulation Risk

6. Quality of Accounting Information and Adjustments to Reported Financial Statement Data

  • Accounting Quality
  • High Quality Reflects Economic Information Content
  • High Quality Signals Earnings Persistence Over Time
  • Discontinued Operations
  • Extraordinary Items
  • Changes in Accounting Principles
  • Items of Other Comprehensive Income
  • Impairment Losses on Long-lived Assets
  • Restricting and Other Charges
  • Changes in Estimates
  • Gains and Losses from Peripheral Activities
  • Restated Financial Statement Data
  • Account Classification Difference
  • Financial reporting Worldwide
  • Warnings Management
  • Accounting for Fixed Assets
  • Fixed Asset Valuation
  • Depreciable Life
  • Depreciation Method
  • Impairment of Fixed Assets
  • Persistent Earnings and Fixed Asset Reporting
  • Accounting for Intangible Assets
  • Accounting for Research and Development Costs
  • Accounting for Software Development Costs
  • Accounting for Goodwill
  • Persistent Earnings and Intangible Asset Reporting
  • Valuing Intangibles – Is it Possible?

7. Liability Recognition and Related Expenses

  • Principles of Liability Recognition
  • Principles of Liability Valuation
  • Application of Criteria for Liability Recognition
  • Controversial Issues in Liability recognition
  • Issuance of Hybrid Securities
  • Off-Balance-Sheet Financing Arrangements Leases
  • Operating Lease Method
  • Capital Lease Method
  • Choosing the Accounting Method Effects on Lessor
  • Lease Accounting for tax Purposes
  • Converting Operating Leases to Capital Leases
  • Impact of Accounting for Operating Leases as Capital Leases
  • Derivative Instruments
  • Nature and Use of Derivative Instruments
  • Accounting for Derivatives

8. Forecasting Pro-Forma Financial Statements

  • Overview
  • Introduction to Forecasting
  • Preparing Pro-Forma Financial Statements
  • General Forecasting Principles
  • Six-Step Forecasting Game Plan
  • Practical Tips for Implementing the Six-Step Game Plan
  • Using FSAP to Prepare Pro-Forma Financial Statements
  • Project Sales and Other revenues
  • Projecting Sales
  • Projecting Other revenues
  • Project Operating Expenses
  • Project the Assets on the Balance Sheet
  • Project Liabilities and Shareholders’ Equity
  • Project Interest Expense, Interest Income, Income Tax Expense, and the Change in Retained Earnings
  • Closing the Loops: Solving for Co-Determined Variables
  • Projecting the Statement of Cash Flows
  • Shortcut Approaches to Forecasting
  • Analyzing Pro-Forma Financial Statements
  • Sensitivity Analysis and Reactions to Announcements Summary

9. Foundations of Ratios and Financial Analysis

  • Purpose and Use of Ratios
  • Ratios: Cautionary Notes
  • Common-Size Statements
  • Discussion of Ratio by Category

    i. Activity Analysis
    ii. iquidity Analysis
    iii. Long term Debt and Solvency Analysis

  • Ratios: An Integrated Analysis

    i. Analysis of Firm Performance
    ii. Economics Characteristics and Strategies
    iii. Classification and Partitioning or Ratios
    iv. Ratios: Pattern of Disclosure, Definition and Use

10. Empirical Research: Implication for Financial Statement Analysis

  • The Classical Approach
  • Market Based Research
  • Efficient Market Theory
  • Modern Portfolio Theory
  • Test of the Mechanistic Hypothesis versus the EMH
  • The Ball and Brown Study
  • Information Content Studies
  • The Relationship b/w Earning and Stocks Return
  • Market Based Research-Current Status
  • Market Anomalies
  • Positive Accounting Research
  • Disclosure and Regulatory Requirements
  • Agency Theory
  • Direction of Current Research
  • Ball and Brown Revisited-Back to the Future
  • Implication for Financial Statements Analysis

11. Analysis of Inventories

  • Inventory and Cost of Goods Sold: Basic Relationships
  • Scenario 1: Stable Prices
  • Scenario 2: rising Prices
  • Comparison of Information Provide by Alternative Method
  • Balance Sheet Information: Inventory Accounts
  • Income Statements Information: Cost of Goods Sold
  • LIFO Versus FIFO: Income, Cash Flow and Working Capital Effects
  • Adjustment from LIFO to FIFO
  • Adjustment of Inventory Balances
  • Adjustment of Cost of Goods Sold
  • Adjustment of Income to Current Cost Income
  • Financial Ratios: FIFO Versus LIFO
  • Profitability: Gross Profit Margin
  • Liquidity: Working Capital
  • Activity: Inventory Turn Over
  • Solvency: Debt to Equity
  • LIFO: Reporting and Measurement Issues
  • Initial Adoption or Change to LIFO
  • LIFO Liquidation
  • Declining Prices
  • LIFO and Interim Reporting
  • LIFO Inventory Method

12. Analysis of Long Lived Assets

  • Acquiring the Asset: The Capitalization Decision
  • Conceptual Issues
  • Financial Statement Effects
  • Need for Analytic Adjustments
  • Valuation Implications
  • Other Valuation and Economic Consequences

13. Analysis of Income Taxes

  • Accounting for Income Taxes
  • Basic Issues
  • Deferred taxes: Alternative Approaches

14. Analysis of Financing Liabilities

  • Balance Sheets Debt
  • Current Liabilities
  • Long Term Debt
  • Debt with Equity Features
  • Effect of Changes in Interest Rates
  • Retirement of Debt Prior to Maturity


1. White, Sondhi, Fried: The Analysis and Use of Financial Statements
2. Stickney, Brown, Wahlen: Financial Reporting and Statement Analysis 5th Edition
3. Charles H. Gibson: Financial Reporting Analysis 10th Edition