UNIVERSITY OF MICHIGAN ROSS SCHOOL OF BUSINESS

ACC 711 Fall B 2017 FINANCIAL STATEMENT ANALYSIS I

Professor Gwen Yu
Email: gwyu@umich.edu
Room: 3350
Phone: 734- 763-5934
Office Hours: by appointment

INTRODUCTION
The objective of the course is to provide hands-on experience in financial statement analysis.
Students will be exposed to a comprehensive framework to analyze financial information that
integrates strategy, financial reporting, and analysis. By the end of the course, students should
become comfortable with using firms' financial statements to understand their performance.

The course is case-oriented and places a heavy emphasis on applying the framework in practice.
Key questions in the course will include 1) how to measure economic performance using financial
information, 2) understand how operating and financial activities contribute to a firms
performance, and 3) use financial performance today to predict future events. The class also has
a financial modeling component and students will build a framework to conduct financial
statement analysis.

Students will learn how to apply the framework in a variety of decision making contexts,
including financial analysis, credit analysis, mergers and acquisitions, and shareholder activism.
The class should be of a great interest for pursuing a career in equity research, asset management,
general management, consulting, or investor relations.

Prerequisites: An understanding of introductory financial accounting and present value concepts

is necessary. Perhaps more importantly, success in the course depends on a genuine enthusiasm
for deciphering information from financial statements and drawing conclusions from it. The
topics that will be covered in this course provide the necessary background for ACC 713
(Financial Statement Analysis II).

ORGANIZATIONAL DETAILS

1. Course Materials
The materials for the course are:
Case materials via StudyNet: Access in digital format are available to purchase and
integrated in Canvas. Select the StudyNet navigation link after logging in to your Canvas
course site. You can opt to print out what you need or purchase the printed version, i.e.,
TextPak. Please bring printed copies to class.
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 Other materials for this course will be made available on Canvas.
[Optional] Lundholm and Sloan, Equity Valuation and Analysis, 4th edition (all earlier
editions also work). Also, on reserve at Kresge library.

2. Course Evaluation:
Your grade for the course will be determined as follows:
Surveys of assignment questions (8) 12%
Case Write-ups (2) 8%
Group Project 25%
Class participation (including attendance) 25%
Exam (in class) 30%

3. Assignment Questions
Prior to class each student will be asked to answer assignment questions in an online survey. The
goal of the survey is to get you thinking about the material thereby helping you prepare for class.
I will use the answers from these surveys in class discussion and may call on you to defend your
answer.

Note that these will require a lot of work, but they collectively represent the least weight in the
course. This is by design, and the payoff from preparation of these questions will come through
in the class participation component. The focus of the course is on encouraging you to think, not
to memorize facts or formulas. Thus, we will rely heavily on case studies as a means of learning
how to think about financial statements and measurements. The assignment questions will guide
you to more effectively prepare for the class discussion.

You have the option to miss two surveys without affecting your grade. The link to the surveys
will be emailed at least 3 days prior to the class. Surveys will be open until Midnight before the
day of class.

4. Case Write-ups
Each group will be responsible for turning in two case write-up: Lehman Brothers and Repo 105 and
Dollar General Going Private. The goal of this exercise is to help you prepare for the final project.
Write-ups are NOT graded on accuracy of the numbers, but instead I will evaluate the thought
process. The case write-up should be no more than three pages. I expect everyone to get full credit
on this write-up.

5. Group Project:
The group project requires you to conduct a financial statement analysis of a firm of your
choosing. You may not choose any firm that we discuss in class cases, lectures or are cases in the

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book. You and your group will be evaluated on your ability to identify a firm, obtain the relevant
information, and to apply the tools of analysis described throughout the course. 1
Please submit names of your group members (minimum 5 per group & maximum of 6 per group)
using GoogleSheet link. (URL: goo.gl/Z9wyZ3). Note that groups can be formed across sections.
The written project is due Friday, December 15th 5:00 PM EST. After 5:00pm you and your group
will receive a zero for the project. All projects must be emailed to me and I will use the time the
email shows up in my inbox to determine if the project is late. I STRONGLY encourage you to
start early; dont wait until after the exam to begin the project! It should be no more than four
pages of text, no smaller than 10-point font; margins all around must be no less than 1 inch. There
are no restrictions on the number of tables and graphs that can be included in the appendices.
However I will only look at the numbers in tables and figures that are discussed specifically in
the text. Make sure that tables and figures are appropriately labeled.

6. Class Participation:
This class is very hands on. If you havent read and thought about the case before class, the
discussion will make little sense to you (and your participation will suffer). Answering the
assignment questions of the case will help you prepare more effectively.

Your class participation will be evaluated on multiple dimensions; being on time, ability to
answer questions in class when called upon, ability to add to in class discussions. Do not view
this portion of your grade as guaranteed. I will score class participation based on how your
comments contribute to the sections learning. Top performers in class participation will be
students whose contribution significantly enhances the overall section learning. Those that take
from the section more than they contribute through the participation will be in the lowest
category.

To encourage full participation by all team members, each of you will be asked to submit
evaluations of the performance of each member of your team, including yourself. Group
participation feedback (available on Canvas) will also be factored into your participation score.

7. Exam
An in class exam will be given the last day of class. The exam will test both your conceptual
understanding and technical skills, i.e. your ability to, in real time, make the appropriate
calculations and evaluate a set of financial statements.

1Among the tools we cover are: developing expectations, key risk and success factors, potentially unique
accounting issues, assessing the accounting quality of the information, adjusting any accounting distortions
to reflect economics, a detailed and well executed ratio analysis with appropriate interpretation, using non-
accounting ratios in an informative manner, ability to synthesize all the information into a coherent and
well-articulated performance evaluation of the firm, etc.

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The exam is closed book but you will be allowed to bring one 8.5 x 11 cheat sheet into the exam.
The cheat sheet must be your own production: you will be asked to return it with your exam. You
may use a calculator, but no smart phones, no laptops, no tablets and no iPads, no iPods, etc. may
be used during the exam. I highly recommend bringing your own calculator.

8. Academic Honor Code:

Personal integrity and professionalism are fundamental values of the Ross Business School
community. This course will be conducted in strict conformity with the Academic Honor Code.
The Code and related procedures can be found at
www.bus.umich.edu/Academics/Resources/communityvalues.htm. The site also contains
comprehensive information on how to be sure that you have not plagiarized the work of
others. Claimed ignorance of the Code and related information appearing on the site will be
viewed as irrelevant should a violation take place. Non-Ross Business School students taking the
course should also familiarize themselves with the Code as they will be subject to the Code as
well while in this course.

In addition, the use of materials from prior terms that are not made available as a part of the
current terms course materials is strictly prohibited. Examples of such prohibited items are
previous terms exam questions, lecture notes, and solutions to cases. Current term course
materials include everything in your textbook, lecture notes provided to you, resources available
on the current terms Canvas site, and any materials that were distributed or used during class
sessions.

9. Students with Disabilities

The University of Michigan is committed to providing equal opportunity for participation in all
programs, services and activities. Students wishing to receive testing accommodations must
register with the UM SSD (Services for Students with Disabilities) as soon as possible. Students
must then submit their Verified Individualized Services and Accommodations (VISA) form via
online web form as early as possible, but no later than two weeks prior to the test or quiz for
which accommodations are requested.

Requests must be sent using the Accommodations Request form and must include:
a scanned or photographed copy of the VISA form
your name
the classes and related section numbers
the specific accommodation you are requesting

All requests must be made via the web form. Questions can be directed to the Accommodations
Coordinator at RossAccommodationsCoordinator@umich.edu.

In rare cases, the need for an accommodation arises after the two-week deadline has passed (for
example, a broken wrist). In these cases, the student should still contact SSD and the Ross
Accommodations Coordinator at RossAccommodationsCoordinator@umich.edu, however, due

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to logistical constraints we cannot guarantee that an accommodation can be made after the two-
week deadline has passed. Requests only need to be made once for each class.

COURSE OUTLINE (Subject to change)

MEASURING BUSINESS MODELS

Session 1: Monday, Oct 30

Introduction
Reading: Chapter 3
Survey #1
Case: Accounting for Virtual Goods at Zynga
Lecture: Introduction to course framework

Session 2: Wednesday, Nov 1

Measuring Performance using Financial Statements
Reading: Chapter 4 (Sections 2&3)
Survey #2
Case: Boston Chicken Inc.
Lecture: Developing expectations and introduction to drivers of accounting quality

Session 3: Monday, Nov 6

Reflecting Business Models in Financial Statements 2
Reading: Chapter 4 (Sections 4&5)
Survey #3
Case: Netflix
Lecture: Understanding earnings management
In-Class Application Case: Statistical techniques in detecting earnings management

Session 4: Wednesday, Nov 8

Institutional Framework of Financial Reporting Quality
Survey #4
First case write-up (due before class)
Case: Lehman Brothers and Repo 105
Lecture: Introduction to profitability analysis

2
Use of laptops will be permitted for this class: only for the In-class application case discussion.

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ANALYZING BUSINESS MODELS

Session 5: Monday, Nov 13

An Introduction to Analyzing Profitability
Reading: Ratio Analysis, Chapter 5 (skip Decomposing ROE The Advance Dupont Model,
Financial Assets in the Advance Dupont Model and Section 5.10)
Survey #5
In-Class Application Case: Home Depot vs. Lowes
Lecture: Building a general framework

Session 6: Wednesday, Nov 15

Building a General Framework
Reading: Ratio Analysis, Chapter 5, read Decomposing ROE The Advance Dupont Model and
Financial Assets in the Advance Dupont Model
Survey #6 & Mid-course evaluations
In-Class Application Case: Burger King
Lecture: Reconciling metrics

Session 7: Monday, Nov 20

Applying the Framework in Practice I and Financial Modeling
Survey #7
Case: Bridging the GAAPs
Lecture: Financial modeling & building eVal

Session 8: Monday, Nov 27

Applying the Framework in Practice II and non-GAAP metrics
Survey #8
Second case write-up (due before class)
Case: Dollar General Going Private
Lecture: Value of non-GAAP/non-financial information

VALUING BUSINESS MODELS

Session 9: Wednesday, Nov 29

Drivers of Equity Value
Reading: Modeling Credit Risk, Chapter 5, section 10
Survey #9
Case: The Proposed Merger of Cheil Industries and Samsung C&T
Lecture: Credit Analysis 1

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Session 10: Monday, Dec 4
Drivers of Debt Value: Credit Analysis
Survey #10
Case: Tesla
Survey Credit Analysis II

Session 11: Wednesday, Dec 6

Review and reflections

Session 12: Monday, Dec 11

Final Exam
This is an in-class exam closed book exam. You are allowed to bring one 8.5 x 11 cheat sheet
into the exam. The cheat sheet must be your own production: you will be asked to return it with
your exam. No laptops, smart phones, tablets, iPads, iPods, etc. can be used during the exam.
Please bring you own calculator.

The final project write-up is due on Friday, Dec 15th at 5:00 PM EST any project turned in after
5:00pm will be given a zero. PLEASE DO NOT BE LATE. GET STARTED EARLY! Submit team
evaluation form (required).

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