Financial Accounting Course: Prerequisites, Description, Objectives, and Grading Criteria

Course Pre-Requisite

COURSE PRE-REQUISITE
The only formal prerequisite for this course is twofold: (1) to have an understanding of the principles of accounting and (2) to have read as a warm-up session the delivered material entitled “Reading 23: Financial Reporting Mechanics” and to focus on reviewing the accounting process (from page 49 to 62). The course makes use of basic algebraic and statistical manipulations.
Some basic familiarity with Excel will be assumed and a laptop computer required for teamwork.

 

COURSE DESCRIPTION
Financial accounting statements are prepared mainly for investors, creditors and other interested external users. The main emphasis of this course will be on teaching the students how to analyze corporations and other business entities and how to use accounting information. The course will provide enough knowledge of accounting to enable a person to use financial statements to assess a company's financial strengths and weaknesses.
Because the course is not designed to dwell on abstraction, we emphasize the development of problem-solving and analysis skills based on a good understanding of the business environment.
Thus, this course uses both theoretical applications and a case study approach, mainly based on analyzing local companies.

 

COURSE OBJECTIVES
After the completion of this course, students would be able to:
1. Analyze and interpret the financial statements of a company.
2. Appraise its strengths and weaknesses.
3. Translate the diagnosis into recommendations.

 

GRADING AND EVALUATION CRITERIA
1. Continuous Assessment, Class Participation, Attendance 20%
2. Final QUIZ (Final day of Class) 40%
3. Final Individual Assignment (Deadline: 6 March, 2020) 40%

 

FINAL INDIVIDUAL PROJECT/ASSIGNMENT
Each of the student will be assigned a listed company to prepare a financial analysis. Financial statements and ratios will be given to students in order to avoid to search for financial data.
The aim of this financial analysis assignment is to explain how the assigned company can create value in the medium term (shareholders' viewpoint) or to determine whether it is solvent (lenders' standpoint).

 

Before digging into financial data and building spreadsheet formulas, the student is required to first examine the company's economics, i.e. the market in which it operates, its position within this market and the suitability of its production, distribution and human resources management systems to its strategy. Obviously, it is not formally displayed in the financial statements. So, you can probably get access to industry reports, the company website information or even to the top management to get that information. This is an opportunity to collect qualitative information about internal strengths and weaknesses, but also external opportunities and threats (to be classified with the PESTEL acronym) and to assess the competitive environment (Porter). Both analysis will first lead to an intermediate diagnosis.

 

Next, analyzing liquidity, activity, debt, profitability and market ratio, you will break down your financial analysis into four stages as in the quotation: Wealth creation (1)… requires investments in capital employed (2) …that must be financed (3) …and provide sufficient returns (4).
In other words, the quantitative analysis will be focused on:
- Part 1- Profitability: sales trends, margin analysis, sources of profit.
- Part 2- Investment decisions: fixed assets, working capital management.
- Part 3- Financial decisions: short term (bank loans) and long term (internal financing, shareholder’s equity, long-term borrowing).
- Part 4- Return (return on capital employed, return on equity, leverage effect, DuPont analysis).

 

Only then you can come to a conclusion about the solvency of the company and its ability to create value. If possible, you can finally offer a few recommendations dedicated either to the top management (what could be done to enhance the value creation process?), to the investors (is it worth investing in the company?) or to the creditors (is it risky to lend to that company?).

 

You can use trend analysis, which uses past trends to assess the present and predict the future; comparative analysis, which uses comparisons with similar companies operating in the same sector as a point of reference; and normative analysis, which is based on financial rules of thumb.
The individual assignment should be sent via email ([email protected]) as a pdf or doc file (5 to 10 pages plus appendices).