LahoreUniversityofManagementSciences

ACCT411AppliedFinancialAnalysis
FallSemester2017
Instructor ArslanShahidButt
RoomNo. SDSB437
OfficeHours Monday&Wednesday10Am12Pm Othertimesbyappointment
Email Arslan.butt@lums.edu.pk
Telephone +923364856818
Secretary/TA MuhammadUmar/TBA
TAOfficeHours TBA
CourseURL(ifany) suraj.lums.edu.pk/~ro/
COURSEBASICS
CreditHours 3
Lecture(s) NbrofLec(s)PerWeek 2 Duration 1Hourand15Minutes
Recitation/Lab(perweek) NbrofLec(s)PerWeek Duration
Tutorial(perweek) NbrofLec(s)PerWeek Duration
COURSEDISTRIBUTION
Core
Elective
OpenforStudentCategory SDSB(Juniors&Seniors), OpenforAllinphaseII
CloseforStudentCategory
COURSEDESCRIPTION

WhetheryouwatchanalystsonCNBCorreadarticlesinTheWallStreetJournal,you'llhearexpertsinsistingontheimportanceof
"doing your homework" before investing in a company. In other words, investors should dig deep into the company's financial
statementsandanalyzeeverythingfromtheauditor'sreporttothefootnotes.Butwhatdoesthisadvicereallymean,andhowdoes
aninvestorfollowit?Thiscourseistoanswerthesequestionsbyprovidingasuccinctyetadvancedoverviewoffinancialstatements
analysis.Ifyoualreadyhaveagraspofthedefinitionofthebalancesheetandthestructureofanincomestatement,thiscoursewill
giveyouadeeperunderstandingofhowtoanalyzethesereportsandhowtoidentifythe"redflags"and"goldnuggets"ofacompany.
Inotherwords,itwillteachyoutheimportantfactorsthatmakeorbreakaninvestmentdecision.

COURSEPREREQUISITE(S)

ACCT221 CorporateFinancialReportingOR
ACCT100 PrinciplesofFinancialAccounting
COURSEOBJECTIVES
1. Strengthen students understanding of the accounting principles, methods and disclosures underlying financial
2. statements.
Examinetheimpactthatthechoiceofaccountingmethodsandmanagementestimateshaveonfinancialstatements.
3.
Consider how reported financial statement information can be adjusted to create more useful input for financial

analysis







LahoreUniversityofManagementSciences
LEARNINGOUTCOMES
Oncompletionofthiscoursestudentsshouldbeableto

Identifyandapplytoolsandtechniquesfortheappropriateanalysisoffinancialstatements.
1. Analyzetheinformationcontainedinthefinancialstatementsandalladditionalnotesandreportswhichformpart
2. ofthefinancialreportofanorganization.
3. Analyzetheeffectsoffinancialreportingchoicesonfinancialstatementandratios.
Analyzeandinterpretfinancialstatementandaccompanyingdisclosuresandtoevaluatefinancialreportingquality.
4.
Writeaneffectivereportthatanalysesandprovidesjustificationfordecisionmaking.
5.
Discussanddebateavarietyoftopicsincludingtheethicalandglobalperspectivesinapplicationoffinancialreporting
6. standardandchoicesandanalyzetheeffectsrespectively

UNDERGRADUATEPROGRAMLEARNINGGOALS&OBJECTIVES
GeneralLearningGoals&Objectives
Goal1EffectiveWrittenandOralCommunication
Objective:Studentswilldemonstrateeffectivewritingandoralcommunicationskills
Goal2EthicalUnderstandingandReasoning
Objective:Studentswilldemonstratethattheyareabletoidentifyandaddressethicalissuesinanorganizational
context.
Goal3AnalyticalThinkingandProblemSolvingSkills
Objective:Studentswilldemonstratethattheyareabletoidentifykeyproblemsandgenerateviablesolutions.
Goal4ApplicationofInformationTechnology
Objective:Studentswilldemonstratethattheyareabletousecurrenttechnologiesinbusinessandmanagement
context.
Goal5TeamworkinDiverseandMulticulturalEnvironments
Objective:Studentswilldemonstratethattheyareabletoworkeffectivelyindiverseenvironments.
Goal6UnderstandingOrganizationalEcosystems
Objective:StudentswilldemonstratethattheyhaveanunderstandingofEconomic,Political,Regulatory,Legal,
Technological,andSocialenvironmentoforganizations.

MajorSpecificLearningGoals&Objectives

Goal7(a)DisciplineSpecificKnowledgeandUnderstanding
Objective:Studentswilldemonstrateknowledgeofkeybusinessdisciplinesandhowtheyinteractincluding
applicationtorealworldsituations.(includingsubjectknowledge)
Goal7(b)Understandingthesciencebehindthedecisionmakingprocess(forMGSMajors)
Objective:Studentswilldemonstrateabilitytoanalyzeabusinessproblem,designandapplyappropriate
decisionsupporttools,interpretresultsandmakemeaningfulrecommendationstosupportthedecisionmaker

Indicatebelowhowthecourselearningobjectives/outcomesspecificallyrelatetoanyprogramlearninggoalsandobjectives.

PROGRAMLEARNINGGOALSAND COURSELEARNINGOBJECTIVES COURSEASSESSMENTITEM
OBJECTIVES
Goal1EffectiveWrittenandOral Studentsgetanumberofopportunitiesto CP,ProjectandExam
Communication demonstratetheirabilitytocommunicate
effectively(CLO#5)



LahoreUniversityofManagementSciences
Goal2EthicalUnderstandingand Ethicalperspectivesaresubstantiatedinthe Cases,ProjectandExam
Reasoning casesandintheproject(CLO#4&6)
Goal3AnalyticalThinkingand MajorGoal:Analyticalthinkingandproblem Project,CP,Quizzes,Cases,andExam
ProblemSolvingSkills solvingskillsareessentialforsuccessinthis
course(CLO#16)
Goal4ApplicationofInformation Applicationofinformationtechnologyin ProjectandCases
Technology preparingtheprojectreport(CLO#6)
Goal5TeamworkinDiverseand Studentsworkingroupsof45personseach ProjectandCases
MulticulturalEnvironments forcases,projectandanalysis.
Goal6UnderstandingOrganizational Developstudentsunderstandingofcompanys Cases,CP,Quizzes,ProjectandExam
Ecosystems financialreportingchoicesanditseffectsto
thesecuritiesmarkets,industry,andthe
economyasawhole(CLO#6)
Goal7(a)ProgramSpecific MajorGoal:Comprehensivecoverageoftopics CP,Quizzes,Project,CasesandExam
KnowledgeandUnderstanding(Subject inAppliedFinancialAnalysis(CLO#16)
Knowledge)
Goal7(b)Understandingthe NA NA
sciencebehindthedecisionmaking
process

GRADINGBREAKUPANDPOLICY
Assignment(s):
HomeWork:
Quiz(s):15%
ClassParticipation:5%Attendance:
5%
MidtermExamination:25%
Project:20%(10%report+10%presentation)
FinalExamination:30%

Project:Thefinancialstatementanalysisprojectisaimedatdevelopingstudentsunderstandingofandpracticalskillsinfinancial
statementanalysisandvaluation.Itisalsodesignedtoenhanceteamwork,analyticalandcommunicationskills.Tocompletethis
project,youarerequiredtoformteamsofeither3or4members.Eachteammustselectadifferentindustryandobtainapproval
fromthelecturer.Eachteammembermustselectacompanywithintheapprovedindustryandanalyzethecompanysfinancial
reports using the FSA tools identified in the course. The group must also complete an industry comparative analysis of the 2
companies.Writtenreportsmustbesubmitted.Additionally,eachgroupisrequiredtoformallypresentthefindingsoftheindividual
andgroupanalysestotheclass.
Anoverallgroupmarkwillbeawardedtoeachstudentbutthelecturersreservetherighttoprovideareducedmarkwherea
studenthasprovidedasubstandardindividualcompanyanalysis.Furtherdetailsonthenatureandrequirementsoftheprojectwill
bediscussedearlyinthecourse.




LahoreUniversityofManagementSciences
EXAMINATIONDETAIL

Yes/No:Yes
CombineSeparate:Combined
Midterm
Duration:1Hourand40Minutes
Exam
PreferredDate:Duringlastweekofexaminations
ExamSpecifications:ClosedBooks&ClosedNotes


Yes/No:Yes
CombineSeparate:Combined
FinalExam
Duration:1Hourand40Minutes
ExamSpecifications:ClosedBooks&ClosedNotes

COURSEOVERVIEW
RECOMMENDED
SESSION TOPICS SESSIONOBJECTIVES
READINGS
1 Framework for Financial CoursePackReadingReference1 Discuss the role of financial reporting and
StatementsAnalysis financialstatementanalysis
Discuss the role of key financial statements
andimportanceofsupplementaryinformation
Describe the steps In financial statement
analysisframework

2 Accounting Policies and their CoursePackReadingReference2 Describe the general principles of revenue
impact on Financial Analysis recognition and the implications of these
Case:OrthodonticCentersof principlesforfinancialanalysis
America Describe the general principles of expense
recognition and the implications of these
principlesforfinancialanalysis
Describe, calculate and analyze basic and
dilutedEPS
3 CashFlowStatementAnalysis CoursePackReadingReference3 Comparecashflowsforoperating,investing
andfinancingactivities
Convertcashflowsfromindirecttodirect
method
Describehowcashflowislinkedtoincome
statementandbalancesheet
Calculatefreecashflows



LahoreUniversityofManagementSciences
46 FoundationsofRatioand CoursePackReadingReference4 Classify, calculate, analyze and describe the
FinancialAnalysis relationships between activity, liquidity ,
{Common size statements; solvency,profitabilityandvaluationratios
Categories of ratios; Evaluateacompanybasedonintelligentratio
Integrated ratio analysis. analysis
Earningspershare;Alternate
capitalstructures.} Demonstratetheapplicationandimportance
ofDuPontanalysis.



7 Analysis of Inventories { CoursePackReadingReference5 Calculatetheeffectofinflation/deflationof
Impact of change in prices; inventory costs on the financial statements
Alternative methods of and ratios of companies that use different
computing cost; Adjustments inventoryvaluationmethods
from LIFO to FIFO; Financial (FIFO)/LIFO/AWCO)
ratio effect; Reporting and Convert a companys financial statement
measurement issues; from LIFO to FIFO for the purpose of
Empirical perspectives; comparison
Market reactions to method
Explain the issues that analyst should
changes; Is a change to LIFO
considerwhenexaminingacompanys
good news or bad news?}
Case:InventoryAnalysisof inventorydisclosures
Nucor
89 The Capitalization Decision { CoursePackReadingReference6 Explainandevaluatetheeffectsonfinancial
Acquiring the asset: The statements and ratios of capitalizing /
capitalization decision; expensingcosts
Capitalizationofinterestcosts; Analyzeandinterpretthefinancialstatement
Intangibleassets disclosuresregardinglonglivedassets
Analysis of Long Lived Assets}
Case:SoftwareCapitalization
atIBM
10 Analysis of Depreciation and CoursePackReadingReference7 Explainandevaluatetheeffectsonfinancial
Impairment {Depreciation statements and ratios of different
Methods: analysis of fixed depreciationmethods
asset disclosures; Impairment Explainandevaluatetheeffectsonfinancial
of long lived assets; Liabilities statementsandratiosof
forassetretirement impairments/revaluationsofassets
obligations}





LahoreUniversityofManagementSciences
1112 Analysis of Income Taxes CoursePackReadingReference8 Explainhowdeferredtaxassetsandliabilities
{Deferred taxed; effective tax are created and the factors that determine
rate; analysis of tax footnote howtheseshouldbetreatedforthepurpose
disclosures; permanent and offinancialstatementanalysis.
temporarytaxdifferences.} Describethevaluationallowancefordeferred
tax assets and how should it be treated in
financialanalysis.
Analyzedisclosurespertainingtodeferredtax
itemsandtheeffectivetaxratereconciliation

1315 Analysis of Financing CoursePackReadingReference8 Describe the effective interest rate method
Liabilities { Long term debt; anditsimplicationsforfinancialanalysis.
debt with equity features; Calculate and evaluate the effects of
effects of changes in interest discount/premium bonds from the
rate;} perspectiveoffinancialanalysis.






16 AnalysisofLeases{Leasesand CoursePackReadingReference10 Evaluatethedifferentmotivationsforleasing
incentives, financial reporting aniteminsteadofoutrightpurchase.
forleases} Calculateandevaluatetheimplicationsonthe
financialstatementsandratiosofleasingthe
item (operating/ hirepurchase/ finance)
insteadofpurchasing.
Comparethedisclosurespertainingtofinance
/operatinglease.
17 Analysisofoffbalancesheet CoursePackReadingReference11 Describe the different types of motivations
debt and understate/evaluate the impact of off
Case: Off Balance Sheet balancesheetfinancing.
FinancingTechniquesfor
TexacoandCaltex
1819 Analysis of Pension and other CoursePackReadingReference12 Describe,evaluateandcalculatetheimpactof
employeebenefits defined benefit plans assumptions on the
defined benefit obligation and pension
expense.
Interpret pension plans disclosures including
cashflowrelatedinformation.
Evaluate the underlying economic liability or
assetofacompanyspensionplan
Calculate the underlying economic pension
expense.



LahoreUniversityofManagementSciences
2022 Interoperate Investments CoursePackReadingReference13 Describetheclassification,measurementand
{Investment in securities; 14 disclosure under IFRS for 1) investment in
Analysis of marketable financialassets,2)investmentinassociates,
securities; Equity method of 3) joint ventures, 4) business combinations,
accounting; Consolidations 5)specialpurposevehicles.
andcomparison} Analyzetheeffectonfinancialstatementand
on ratios of different methods used to
accountforintercorporateinvestments.
2324 Analysis of Multinational CoursePackReadingReference15 Compare and contrast the current rate and
Operations thetemporalmethod,evaluatetheimpactof
eachonthecompanysbalancesheetandon
theincomestatementanddeterminewhich
methodisappropriateinwhichscenario.
Analyze the effect on parent companys
financial ratios of the currency translation
methodused.

25 ASynthesis CoursePackReadingReference16 Evaluate and understand the impact of

2627 StudentsPresentations
28 PreExamSyllabusReview
TEXTBOOK(S)/SUPPLEMENTARYREADINGS
various accounting policies and be able to
adjust the financial statements for the
purposeoffinancialstatementanalysis.
N/A Grouppresentationsbasedonfinancial
analysisofthechosencompany.
N/A Final Review and round up of the entire
syllabus specially covering the areas where
students lacks as identified by the group
report&presentations.

CoursePackforAppliedFinancialAnalysis
FinancialReportingandAnalysis(Level1&2),CFAInstitute,USA
WhiteSondhiandFried,TheAnalysisandUseofFinancialStatements,3rdEdition.JohnWileyandSons