THE UNIVERSITY OF TEXAS AT AUSTIN FINANCIAL STATEMENT ANALYSIS ACCOUNTING 380K SPRING 2010 Professor Information Professor: Phone:

E-Mail: Office: Office Hours: Nicholas Seybert (512) 471-7920 [email protected] CBA 4M.210 Friday 9:00am-noon

Teachers Assistant Information 2:00-3:30 Section TA: E-mail: Office: Office Hours: Course Objectives To learn a framework for making business decisions using financial statement information To practice applying the framework in specific decision contexts, primarily from the perspective of an equity investor To practice communicating our decisions by using written and oral communication skills

Amanda Yencic [email protected] 5.324A Wednesday 9am-11am

We will review some accounting concepts, but the primary objective of the course is to improve your ability to interpret and manipulate financial statements. Course Structure There are six sequential steps in financial statement analysis. These include: (1) identifying economic characteristics, (2) identifying company strategies, (3) assessing the quality of financial statements, (4) analyzing profitability and risk, (5) preparing forecasted financial statements, and (6) valuing the company. The tools necessary to accomplish these six steps involve analyzing a companys competitors as well as the macroeconomic environment, the companys ability to develop and sustain its competitive advantage, the companys accounting policies and quality of reported information, the companys historical performance using ratio analysis, and finally, applying prospective analysis to forecast future financial performance and ultimately value the company. The course will be taught using a combination of lectures, examples, discussions, and homework problems. The lectures are intended to help you grasp new concepts. We will apply these concepts to examine the 2008 annual report of Advanced Micro Devices (AMD), the computer and graphics processor manufacturer.

Course Materials Required Text: Financial Reporting, Financial Statement Analysis, and Valuation (sixth edition) by Stickney, Brown, and Wahlen, Thomson-Southwestern (available at campus bookstore) Supplemental readings (to be distributed in class) Regular readings of The Wall Street Journal, Forbes, Business Week, Fortune, etc. Anticipated Curve A 30% B 60% C 10% D/F This DOES occur for very low performers In general you can expect exams to be difficult enough that the curve will only benefit you.

Evaluation Scheme Exam 1: 25% Exam 2: 25% Homework Problems: 20% Stock Pitch: 20% Class Participation: 10%

Exams The first midterm exam is tentatively scheduled for March 2, 2010, and the second for April 15, 2010. Both will be in-class exams. There will be no final exam. Exams are closed-book and no cheat sheets are allowed. In other words, you will have to rely solely on your own knowledge. Make-up exam sessions will NOT be offered. The only valid excuse for missing an exam is a valid physicians note describing why you were unable to attend, in which case the average grade on your other exams will be substituted for the missed exam grade. Without an excuse, you will receive a grade of zero for the missed exam. Homework The primary objective of homework problems is to help you gain a more in-depth understanding of the material. The assignments will be a combination of computational problems and written analysis. Assignments will be graded based on an effort basis. You will receive 0 if you did not hand in the assignment, 1 if your effort appears to be unreasonably low and 2 if you made a reasonable attempt to answer all of the questions. There are 15 assignments in total. For most assignments you can work in groups, but each person should turn in his or her own solution. Failure to turn in your own work could result in a zero score for that assignment. Homework must be turned in at the BEGINNING of each class. Stock Pitch You will work in groups of three to five to apply what you learn in the class to analyzing, valuing, and ultimately pitching a company of your choice to the class. Groups will present their stock pitch during the last week of class. More details will be provided later in the semester.

Class Participation Class participation provides an opportunity for you to practice important career skills in a low cost environment. Among other skills, these include the ability to express and defend your ideas. Challenging ideas is encouraged, but rude or personal attacks are not. Employers are more likely to hire and promote people who can communicate valuable information in a collegial way with their coworkers. I may also cold call some students to get you used to communicating in a public setting. McCombs Classroom Professionalism Policy The highest professional standards are expected of all members of the McCombs community. The collective class reputation and the value of the McCombs experience hinges on the execution of this policy. Faculty are expected to be professional and prepared to deliver value for each and every class session. Students are expected to be professional in all respects. The McCombs classroom experience is enhanced when: Students arrive on time. On time arrival ensures that classes are able to start and finish at the scheduled time. On time arrival shows respect for both fellow students and faculty and it enhances learning by reducing avoidable distractions. Students display their name cards. This permits fellow students and faculty to learn names, enhancing opportunities for community building and evaluation of in-class contributions. Students minimize unscheduled personal breaks. The learning environment improves when disruptions are limited. Students are fully prepared for each class. Much of the learning at McCombs takes place during classroom discussions. When students are not prepared they cannot contribute to the overall learning process. This affects not only the individual, but their peers who count on them, as well. Students attend the class section to which they are registered. Learning is enhanced when class sizes are optimized. Limits are set to ensure a quality experience. When section hopping takes place some classes become too large and it becomes difficult to contribute. When they are too small, the breadth of experience and opinion suffers. Students respect the views and opinions of their colleagues. Disagreement and debate are encouraged. Intolerance for the views of others is unacceptable. Laptops are closed and put away. When students are surfing the web, responding to e-mail, instant messaging each other, and otherwise not devoting their full attention to the topic at hand they are doing themselves and their peers a major disservice. Those around them face additional distraction. Fellow students cannot benefit from the insights of the students who are not engaged. Faculty office hours are spent going over class material with students who chose not to pay attention, rather than truly adding value by helping students who want a better understanding of the material or want to explore the issues in more depth. Students with real needs may not be able to obtain adequate help if faculty time is spent repeating what was said in class. There are often cases where learning is enhanced by the use of laptops in class. Faculty will let you know when it is appropriate to use them. In such cases, professional behavior is exhibited when misuse does not take place. Phones and wireless devices are turned off. Weve all heard the annoying ringing in the middle of a meeting. Not only is it not professional, it cuts off the flow of discussion when the search for the offender begins. When a true need to communicate with someone outside of class exists (e.g., for some medical need) please inform the professor prior to class.

Scholastic Dishonesty The McCombs School of Business has no tolerance for acts of scholastic dishonesty. Students who violate University rules on scholastic dishonesty are subject to disciplinary penalties, including the possibility of failure in the course and/or dismissal from the University. Because dishonesty harms the individual, all students, and the integrity of the University, policies on scholastic dishonesty will be strictly enforced. You should refer to the Student Judicial Services website at http://deanofstudents.utexas.edu/sjs/ or the General Information Catalog to access the official University policies and' procedures on scholastic dishonesty. If the application of that Policy Statement to this class and its assignments is unclear in any way, it is your responsibility to ask me for clarification. Class Web Sites and Student Privacy Password-protected class sites will be available for all accredited courses taught at The University. Syllabi, handouts, assignments and other resources are types of information that may be available within these sites. Site activities could include exchanging e-mail, engaging in class discussions and chats, and exchanging files. In addition, class e-mail rosters will be a component of the sites. Students who do not want their names included in these electronic class rosters must restrict their directory information by notifying the Office of the Registrar in the Main Building, Room 1. For information on restricting directory information see: http://www.utexas.edu/student/registrar/catalogs/gi02-03/app/appc09.html Students with Disabilities The University of Texas at Austin provides upon request appropriate academic accommodations for qualified students with disabilities. For more information, contact the Office of the Dean of Students at 471-6259, 471-4641 TTY.

Session Day 1 T 2 Th 3 T 4 Th 5 T 6 Th 7 T 8 Th 9 T 10 Th 11 T 12 Th 13 T 14 Th 15 T 16 Th 17 T 18 Th 19 T 20 Th 21 T 22 Th 23 T 24 Th 25 T 26 Th 27 T 28 Th 29 T 30 Th

Date Topic Jan. 19 Introduction Jan. 21 Strategy Analysis Jan. 26 Accounting Analysis - Overview Jan. 28 Accounting Analysis - Deferred Taxes Feb. 2 Accounting Analysis - Framework / intro to ROE Feb. 4 Accounting Analysis - Revenue Recognition / Fixed Assets Feb. 9 Accounting Analysis - Leases Feb. 11 Accounting Analysis - Derivatives Feb. 16 Accounting Analysis - Pensions Feb. 18 Accounting Analysis - Stock Based Compensation / EPS Feb. 23 Earnings Management and Fraud Feb. 25 Exam 1 Review (practice problems) Mar. 2 EXAM 1 - IN CLASS (covers sessions 1-12) Mar. 4 Catch-up Day Content TBA Mar. 9 Financial Analysis - Cash Flow Statement Mar. 11 Financial Analysis - Profitability Analysis/Risk Analysis Mar. 23 Bringing Key Concepts Together Sears/Walmart Case Mar. 25 Prospective Analysis - Overview Mar. 30 Prospective Analysis Forecasting Exercise Apr. 1 Valuation - DDM and DCF Apr. 6 Valuation - Earnings-Based Approaches Apr. 8 Analyst Forecast Properties and Behavioral Finance Apr. 13 Exam 2 Review (practice problems) Apr. 15 EXAM 2 - IN CLASS (covers sessions 14-22) Apr. 20 Accounting Quality Apr. 22 Valuation - Market-Based Approaches Apr. 27 Stock Pitch Presentations Apr. 29 Stock Pitch Presentations May 4 Stock Pitch Presentations May 6 Stock Pitch Presentations

Primary Readings Ch. 1 Ch. 1, AMD Annual Report AMD Annual Report MD&A/Footnotes Ch. 2: 97-105; Ch. 8: 575-587 Ch. 2: 105-111; Ch. 4: 198-205, 229-235 Ch. 7: 434-443, 461-468 Ch. 8: 535-545 Ch. 8: 545-561 Ch. 8: 561-575 Ch. 9: 667-671; Ch. 4: 235-238 Ch. 5: 317-322 EXAM 1 Ch. 3 Ch. 4, Ch. 5 Sears/Walmart Case Ch. 10 BRING YOUR LAPTOP Ch. 11; Ch. 12 Ch. 13 None EXAM 2 Ch. 6 Ch. 14

Deliverables

2.13, 8.26 2.15 7.10, 7.15 8.14, 8.15 8.19 8.7, 8.20 9.26, 4.8 + Fraud Test EXAM 1

3.8, 3.10, 3.22 4.24, 5.13 + Case Analysis 10.16 12.5, 12.17 13.2, 13.20 EXAM 2 6.4, 6.10 14.2, 14.7, 14.8

This schedule is tentative as of 1/19/2010 and may be slightly altered during the course of the semester.