Instructor:

University of Illinois at Urbana Champaign

College of Business
Department of Accountancy
ACCY 517 (Sections A, B & C)
Financial Statement Analysis (Fall 2015)

Adel N. Ibrahim (206 Wohlers Hall)

Phone: 244-2530
e-mail: aibrahim@illinois.edu
Office hours: Tuesday, and Thursday: 10:00 a.m. noon or by appointment

Course Abstract and Objectives

This course covers financial reporting issues from a users perspective. We will introduce/use a variety of tools to break apart financial reports
into meaningful units for analysis, forecast financial statements, and value a firm. The objective of the course is to provide you with the
knowledge and skills necessary to analyze, interpret, understand, and use financial information to make informed decisions. This course will
require you to think critically about issues for which there are no correct answers. Hence, your analysis and conclusions must be based on
sound assumptions and well-constructed analysis and arguments. Critical thinking is a skill that is required for advancement in the professional
world, and therefore, it is a skill that we will focus on and sharpen in the course

Required Textbook
Financial Statement Analysis and Security Valuation 5th edition (2013) by Stephen H. Penman (McGraw-Hill Irwin)

Recommended Textbook
If you would like supplemental text as your reference for the course I would recommend the following textbooks:
Financial Statement Analysis and valuation 4th edition (2015) by Peter Easton, Mary Lea McAnally, Gregory Sommers, and Xiao-Jun Zhang
(Cambridge Business Publishers)

My commitment
I recognize that you are investing time and energy in this course with the goal of improving your understanding of accounting and financial
reporting. This course has been designed explicitly to help you realize this goal. However, if at any time you feel dissatisfied with your learning in
this course, please discuss those concerns and feelings with me. You can do this after class or during office hours. In addition, you also may make
an appointment to see me at a mutually convenient time. I will do my best to help you by explaining the material or by suggesting additional
resources and options. I am here to help you learn.
My policy is to address issues before they become problems. Consequently I encourage students to provide me with feedback about all
aspects of the course and my interactions with you. You can do this after class, during office hours, or at a mutually convenient time.

Your commitment

THE KEY TO SUCCESS IN THIS COURSE IS FOR EACH OF YOU TO DO THE ASSIGNED WORK EVERY DAY BEFORE COMING TO
THE CLASS. The homework and case preparation for each day is my way to get you to learn the technical bits and pieces you will need to
follow the discussion in class. Do the assigned reading and homework every day, and bring two copies of all homework to class. Turn in one
copy to me and keep the other for your use in class discussion. You will be called upon in class to present your solution to me and your fellow
students and to contribute to class discussion. Preparing for class presentation or contribution to discussion means reading the problem or case
and doing some thinking and forming solutions so that you can present it or participate in class discussion. No late work will be accepted under
any circumstances. No make-up work will be assigned.

Building Emergency Action Plans (BEAP)

In the event of a tornado warning please seek shelter in the Wohlers Hall basement or the Armory, or in the BIF basement between 8 am and 4:30
pm weekdays (the nearest designated University tornado shelters). If a tornado is imminent, the BIF basement stairwells also can be used on
an emergency basis. In the event of a fire in BIF, exit BIF and proceed to 141 Wohlers Hall. In the event of threat from a shooter on
campus, lock down the classroom and move to a place of safety within the classroom. If you encounter a suspicious package, do not touch
the package, alert campus security, and refrain from cell phone usage until the situation is resolved. More detailed information and action
instructions are available in the BIF Building Emergency Action Plan.

Course Organization
The class will be conducted on a presentation/discussion basis with occasional lecture on important conceptual points. Time will be provided at
the start of each session for short questions about material covered in the preceding class. The remainder of the class will be devoted to the
material assigned for the day. Each student is expected to read and study the reading and other assigned material before each class meeting.
Students will be called upon in class to address the material of the day.

Grading
Number of
Points
25

% of
Total
12.5%

1. Individual homework
assignments

Five individual homework assignments (5 points each) will be assigned throughout

the semester.

2. In-class quizzes

Two quizzes (10 points each) as indicated on the schedule outline

20

10%

3. Mid-term Exam

Date is as indicated on the schedule outline. The exam is to cover the material
discussed since the beginning of the course up to the mid-term exam.

30

15 %

4. Participation

Instructor evaluation of each student's preparation and in-class participation

10

5%

5. Group case
assignment

Full Write-up case. The due date is indicated on the schedule outline.

15

7.5%

6. In-class group
exercises

Students will be randomly assigned to groups of 2 or 3 each to work on an in class

exercise. The dates for these exercises will not be announced in advance

20

10%

7. Group Project

Final Project

20

10%

8. Final Exam

Comprehensive exam covering the material discussed throughout the course

60

30%

200

100%

Total points possible

1. Individual Homework Assignments

These include a combination of exercises and mini-cases. For the mini cases, questions will be posted to the course web-site one week prior to their due date.
In general, there is no page limit on these assignments but they have to be typed. Please bring to class another copy of your answers as the homework will be
turned in at the beginning of the class.
2. Class Participation
I expect you to treat this class as you would for any professional responsibility. For example, I expect you to be on time and prepared to discuss all materials
relevant to the topic of the day. I strongly believe that learning is an active process. Most of you eventually will become managers in organizations. Across all
types of organizations and functional areas, most managers' interactions with others are verbal, and as such thoughtful listening, questioning, and discussion
skills are crucial.
Throughout the semester, students will be assigned in groups to present portions of the assigned chapters. Questions will be assigned in advance of the
class session and the students will be expected to address these questions in their presentations. While I recognize that those who are shy or reluctant to
participate in class discussions will be penalized in this portion of their grade, its a reality that such characteristics are often penalized in the workplace.
Youre not required to contribute to each and every class session. You are required to make good contributions in multiple class sessions in order to earn a B
for your class participation grade; youll need to make good contributions consistently over the semester in order to earn an A. Some of the best contributors in
the past have been those who participated in only some sessions, but their contributions were truly insightful and persuasive --- the issue is one of quality, not
quantity.
Ill make a tremendous effort to learn your name. If you find I dont know your name after several class periods, thats an indication that you should increase
your contribution to class discussions.
3. In-class group exercises:
Students will be randomly assigned to groups of 2 or 3 each to work on four in-class exercises throughout the semester. The dates for these exercises will not
be announced in advance. As a result, for each student the best three out of the four scores will be counted towards his/her grade. Thus you can miss one of
these assignments without affecting your grade. Makeups will not be allowed if you miss only one of these assignments. For any additional assignment
you need to make-up, 20% of the total points allowed will be deducted for each assignment you request to make-up.
4. Group Case Assignment:
The group case questions will be posted to the course web-site at least one week prior to their due date, which is indicated on the course outline. The groups
formed for this group assignment will be different from those of the final projects groups. Each group will be required to turn in a full write-up addressing the
case issues, which will consist of a memo of no more than two typed pages conveying your responses to the case questions, recommendation(s) for the case
issues and/or an explanation or justification for the recommendation. You will need to attach as exhibits any computations or other analyses used to resolve case
issues; these exhibits will not count toward the page limit.
5. Group Project
A substantial portion of your grade will be based on your groups analysis of a company of your choice. During the first half of the semester you will self-select

into groups of four students. As a group you will be required to conduct a complete analysis for the company. A road map of the steps you are going to follow
can be downloaded from the text books web site. Build your own analysis product (BYOAP) summarizes all the steps for the project. Complete firm analysis
has four parts: (1) a business analysis, which includes an analysis of the primary industry or industries in which the firm operates, and an analysis of the firms
competitive and corporate strategies; (2) reformulating the financial statements according to Penmans presentation; (3) a financial analysis, which includes
ratio analysis and cash flow analysis (specific focus will be given to the P/E and P/B; and (4) a prospective analysis, which includes forecasts of future
performance and a valuation analysis. The written report for all the groups will be due on Wednesday 12/9/2015 by 5:00 at my office.
6. Final Exam:

The final exam will be scheduled by the University. Once the instructor is informed of the time and location of the exam, he will share this
information with the students.

Course Outline:
General Topic
Section One: Financial Statements the Basis for Analysis
Overview of the course
1 M. 8/24

Reading Assignment

Session

2 W. 8/26

Introduction to Financial Reporting

Accounting Clinic # 1

3. M. 8/31

Introduction to Financial Statements

Chapter Two

4. W. 9/2

How Accrual Accounting Works

Accounting Clinic # 2

M. 9/7
5. W. 9/9

E2-5, E2-7, and E2-10

(In-class)
Homework # 1 is due

Monday is Labor day- No classes

Viewing the business through the financial statements

Section Two: Financial Reporting Environment and Analysis

The analysis of the statement of stockholders equity
6. M. 9/14

Chapter Eight

Chapter Nine

7. W. 9/16

The analysis of the statement of stockholders equity (Contd)

Chapter Nine

8. M. 9/21

The analysis of the statement of stockholders equity (Contd)

Chapter Nine

9 . W. 9/23

Assignment for the day

In Class Quiz # One

E8-6 and E8-10

(In-class)
E9-4, E9-6, and E9-9
(In-class)
E9-7, E9-8, and E9-11
(In-class)
Homework # 2 is due

10.M. 9/28

Accounting for Stock-based Compensation

Accounting Clinic # 4

11. W. 9/30

The analysis of the balance sheet and income statement

Chapter Ten

12. M. 10/5

The analysis of the balance sheet and income statement (Contd)

Chapter Ten

The analysis of the cash flow statement

Chapter Eleven

E 11-7 and E11-10

(In-class)

The analysis of profitability

Chapter Twelve

Homework # 3 is due

13. W. 10/7
14 M. 10/12

E10-5 and E10-6

(In-class)

No Class at Regular Time

Mid-term Exam will be administered from 7:00 to 9:00 PM in Room 114 DKH
Section Three: Financial Statements and Valuation
Chapter Three
E 3-7, E3-11 and 2-12
16. M. 10/19 How financial statements are used in valuation
(In-class)
Chapter Four
E4-8, and E4-10
17. W. 10/21 Cash accounting, accrual accounting, and discounted cash flow
valuation
(In-class)
18. M. 10/26
Catch-up day and group project meetings
15. W.10/14

19. W. 10/28

Group Case Assignment (To be Announced) Short Presentations

20.M. 11/2

Accrual accounting and valuation: pricing book values

Chapter Five

21 W. 11/4

Accrual accounting and valuation: pricing book values (Contd)

Chapter Five

22 M. 11/9

The value of operations and the evaluation of P/B and P/E ratios

Chapter Fourteen
Pages 436 - 442
In Class Quiz # Two

23. W. 11/11
24. M. 11/16

Accrual accounting and valuation: pricing earnings

Chapter Six

E 5-9 and 5-11

(In-class)
Homework # 4 is due
E14-15, and E14-16
(In-class)

E6-3 and E6-9

(In-class)

25. W. 11/18

Accrual accounting and valuation: pricing earnings (Contd)

M. 11/23 till
F. 11/27
Section Four: Prospective Analysis and Forecasting
26. M. 11/30 Valuation and Active Investing

Thanksgiving Break No Classes

Chapter Seven

27. W. 12/2

The analysis of growth and sustainable earnings

28. M. 12/7

The value of operations and the evaluation of P/B and P/E ratios

29. W. 12/9

Chapter Six

Chapter Thirteen

Chapter Fourteen
Pages 443 - 450
Catch-up day and group project meetings
Projects are due by 5:00 PM at my office

E13-3, E13-4, and E13-5

(In-class)
Homework # 5 is due