Syllabus - MIT Sloan School of Management

15.535 – Business Analysis Using Financial Statements (BAUFS)
Fall 2014
Professor Christopher Noe
email: [email protected]
office: E62-681
phone: 617-253-4903
MW 1:00-2:30 E51 – 335 (A)
MW 2:30-4:00 E51 – 335 (B)
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Course Objectives:
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Financial statement information is widely used to evaluate companies’ current performance
and future prospects. This course will provide students with the tools and techniques to
employ this information effectively. A primary learning objective of the course is the
strategic, financial, and accounting analysis of a company by means of historical financial
statement data. A second, related learning objective is financial statement forecasting along
with a specific application of forecasting – valuation. This course nicely compliments
Finance Theory II (15.402) but can also be taken stand-alone by students seeking exposure
to accounting and finance topics beyond those in introductory classes.
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Prerequisites:
Introductory financial accounting and finance at MIT Sloan (15.501, 15.511, 15.514,
15.515, or 15.516; 15.401, 15.411, 15.414, or 15.415) or equivalent courses taught at
another institution. Introductory finance can be taken concurrently.
Course Materials:
Textbook: Wahlen, J., S. Baginski, and M. Bradshaw, Financial Reporting, Financial
Statement Analysis, and Valuation: A Strategic Perspective, 7th edition, South-Western
Cengage Learning, 2011, ISBN-10: 0324789424 ISBN-13: 9780324789423. Electronic
versions of the textbook can be purchased or rented at http://www.cengagebrain.com/shop
/search /9780324789416. Two copies of the textbook are on reserve in Dewey library.
Casepack: Contains case studies. Electronic copies are available on Study.net. Hard
copies are available from Copytech.
Course Administrator:
Ariel Leitao (email: [email protected]; phone: 617-715-4178)
Business Analysis Using Financial Statements (BAUFS)
Professor Christopher Noe
Fall 2014
Course Website:
Class materials will be available online at: http://stellar.mit.edu/S/course/15/fa14/15.535/.
Announcements will also be posted on the course website.
Teaching Assistants:
Jonathan Dobberstein (email: [email protected])
Derek Price (email: [email protected])
Office Hours:
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By appointment at your convenience.
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Activity
1. Class Assignments
2. Class Participation
3. Quizzes
4. Team Project
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Grading:
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Enrollment preference will be given to students who take the course for a letter grade. If
the course is not already at capacity, P/D/F and listener grading options may be permitted
but depend on specific circumstances and require my prior approval. Students who utilize
the P/D/F grading option are required to complete all individual homework assignments and
take both quizzes but are not required to participate in any group work.
Re-Grading Policy:
If you believe an error has been made in grading, you may request a re-grade by doing the
following: write a brief note explaining why you think there is an error and submit both the
note and the graded material to which it pertains. All re-grade requests must occur within
three (3) calendar days of the day graded material is returned to the class. Please note that I
reserve the right to re-grade the entire contents of any material submitted for re-grading.
Class Assignments:
There will be seven case assignments and related discussions during the semester. The case
assignments will be group work. Teams of 4 students must submit a single solution to the
case assignment at the beginning of class on the due date (see schedule). (Teams of 5
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Business Analysis Using Financial Statements (BAUFS)
Professor Christopher Noe
Fall 2014
students will potentially be allowed as an exception but an explanation must be provided to
me in advance.) Details on expectations for the case assignments and related discussions
will be outlined in class.
There will also be periodic homework assignments and related discussions during the
semester. The homework assignments are to be completely individually. Students must
submit their solution to the homework assignment at the beginning of class on the due date.
Details on expectations for the homework assignments and related discussions will be
outlined in class.
Quizzes:
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This course has no final exam. There will be two take-home quizzes during the semester
(see schedule). These quizzes will not be cumulative. Details on expectations for the
quizzes will be outlined in class.
Team Project:
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In keeping with the learning objectives of the course (strategic, financial, and accounting
analysis as well as forecasting and valuation), your team will be required to prepare a report
containing all of these elements for a selected public company. Each team’s report should
include the following:
1. An analysis of the competitive and economic environment of the company, and an
analysis of the company’s strategy. You will need to learn about the economy as it
affects the company, and to understand the company’s ability to take advantage of
those opportunities.
2. An analysis of the company’s financial reports for profitability and risk, using
techniques such as ratios, scores, and accruals.
3. An analysis of the company’s footnote disclosures for special items, quality of
earnings, and evaluation of potential red flags.
4. Forecasts of financial statements for the next five years.
5. An overall valuation of the company’s equity as of the selected valuation date using
techniques such as multiples, free cash flows, and residual income approaches.
Reports are due at the beginning of class on Monday, December 8. The last two class
sessions will consist of 6-8 minute presentations by student teams of their work. Your team
should select a public company and inform me on or before our session 5 class on
Wednesday, September 17. Acceptable companies should meet the following criteria:
1. Financial reports based on US generally accepted accounting principles.
2. Sales in most recent year greater than $250 million and less than $50 billion.
3. Have at least three year operating history, hopefully with positive earnings in one or
two of those years.
4. No major mergers or divestitures in the last three years that dramatically changed
the size of the company or its strategic direction.
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Business Analysis Using Financial Statements (BAUFS)
Professor Christopher Noe
Fall 2014
5. Avoid companies in banking, insurance, or financial services.
6. I strongly recommend not selecting a company where one of your team members
has worked or is currently working. It is important to analyze companies in an
objective, neutral, yet aggressive manner.
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You should review your company’s financial statements and other disclosures to verify that
it satisfies the above criteria. You can use any publicly available information for your
analysis, including annual reports, news articles, and analyst reports. However, remember
that your objective in this course is to learn to do financial statement analysis yourself
rather than be able to cite someone else’s work.
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Business Analysis Using Financial Statements (BAUFS)
Professor Christopher Noe
Fall 2014
Course Schedule:
Date
Wed. Sep. 3
Mon. Sep. 8
Topic
Course Overview & Strategy Analysis
Financial Ratios
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Wed. Sep. 10
Performance Diagnostic Models
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5
Mon. Sep. 15
Wed. Sep. 17
Case 1 – SIPEF
Earnings Quality
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Mon. Sep. 22
Wed. Sep. 24
Case 2 – Nuware
Fraud Detection Models
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Fri. Sep. 26
Mon. Sep. 29
Optional Recitation
Case 3 – Honeywell
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Wed. Oct. 1
Multiples Valuation
Take-Home Quiz 1
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Wed. Oct. 1 –
Tues. Oct. 7
Mon. Oct. 6
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Wed. Oct. 8
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Wed. Oct. 15
Sun. Oct. 19
Mon. Oct. 27
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Wed. Oct. 29
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Mon. Nov. 3
Wed. Nov. 5
Case 5 – Dril-Quip
Free Cash Flow Valuation
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Wed. Nov. 12
Residual Income Valuation
Optional Recitation
Case 6 – Schneider and Square D
Guest Speaker
Take-Home Quiz 2
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Fri. Nov. 14
Mon. Nov. 17
Wed. Nov. 19
Wed. Nov. 19 –
Tues. Nov. 25
Mon. Nov. 24
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Wed. Nov. 26
Mon. Dec. 1
Wed. Dec. 3
NO CLASS
Case 7 – New Century Financial
Off Balance Sheet Issues
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Mon. Dec. 8
Wed. Dec. 10
Project Presentations
Project Presentations
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Readings & Problems
Ch. 1, 2 WBB
Ch. 4 WBB; Ch. 5 WBB, pp. 345-74
Exercise: National HealthCare
Ch. 5 WBB, pp. 380-91; Piotroski et
al. (2012)
Exercise: Frontier Airlines
Questions on Stellar
Ch. 3 WBB; Ch. 9 WBB
Exercise: Eastman Kodak
Questions on Stellar
Ch. 5 WBB, pp. 393-8; Dechow et al.
(2010); Beneish et al. (2012)
Exercise: Enron
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Session
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Questions on Stellar
10-K Checklist
Ch. 14 WBB
Exercise: ???
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Forecasting Financial Statements –
Revenue
Forecasting Financial Statements –
Expenses
Case 4 – Krispy Kreme Doughnuts
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Forecasting Financial Statements –
Operating Assets and Liabilities
Forecasting Financial Statements –
Financial Assets and Liabilities
Financial Instruments
Ch. 8 WBB, pp. 630-49; Ch. 10 WBB
Exercise: Target
Ch. 8 WBB, pp. 649-72
Exercise: Fedex
Questions on Stellar
Optional Project Deliverable
Ch. 7 WBB, pp. 524-49
Exercise: Apple
Ch. 6 WBB, pp. 440-78; Ch. 7 WBB
589-600
Exercise: iGate
Questions on Stellar
Ch. 11-12 WBB
Exercise: Steak ’n Shake (1)
Ch. 13 WBB
Exercise: Steak ’n Shake (2)
Questions on Stellar
Ch. 7 WBB, pp. 549-60; Ch. 8 WBB,
pp. 684-99
Optional Project Deliverable
Questions on Stellar
Ch. 6 WBB, pp. 478-93; Ch. 7 WBB,
pp. 585-9
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