Spring 2009 NBA 5060

Lecture 1 - Introduction

I. Administrative details

II. Course Description and Introduction

III. Ratio Detective Exercise

For 1/22/08:

Read Chapter 11, pages 812-815 and 828-834; read Chapter 13, pages 932-945.

Read Nichols and Wahlen (2004) handed out in class today.

Lecture 1 – Introduction Page 1 of 4

I. Administrative Details

Handouts will be available at the front of the classroom, prior to the

start of each class. Extra copies will be put on the 5060 shelves across
from 304 at the end of the day, and made available on the course home
page.

Syllabus and Course Outline

Note -- all items in the course schedule are subject to change

depending on the speed at which we cover the material.

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II. Course Description and Introduction

The purpose of this course is to introduce the tools for effective analysis of
financial statements. We will analyze financial statements in the context of
equity valuation for the purpose of making well-informed investment
decisions.

STEP 1 STEP 2 STEP 3

Understand the past Forecast the Future Estimate Value

1. Collect Information 1. Structured Forecasting 1. Cost of Capital

2. Understand the 2. Income Statement 2. Valuation Models

Business Forecasts • Residual Income
Model
3. Accounting Analysis 3. Balance Sheet • Free Cash Flows
Forecasts Model
4. Financial Ratio Analysis
4. Cash Flow Forecasts 3. Valuation Ratios
5. Cash Flow Analysis
4. Additional
considerations

** The assignments are intended to develop the application of the material,

while the final exam for the course integrates all of these dimensions.

Lecture 1 – Introduction Page 3 of 4

 ~~ Ratio Detective Exercise ~~
Listed below are selected financial ratios for nine publicly traded companies for fiscal 2007. The figures presented are common-sized and, hence, are a
percentage of sales. Using your knowledge about the operating and financial structure of these companies, identify the ninecompanies. The companies are as
follows: Best Buy Co., Inc. (BBY); Wells Fargo & Co. (WFC); Brinker International, Inc. (EAT) – operator of restaurants such as Chili’s and Macaroni Grill;
Nike, Inc. (NKE); Bidz.com, Inc. (BIDZ) – an online jewelry retailer; Plum Creek Timber Co., Inc. (PCL) – a producer of lumber products; Google, Inc.
(GOOG); Bristol-Myers Squibb Co. (BMY); and Molson Coors Brewing Co. (TAP).
1 2 3 4 5 6 7 8 9
COMPANY:
Cash & Mkt Securities 85.7% 11.5% 71.5% 3.8% 1.9% 17.4% 14.3% 2.6% 6.1%
Accounts Receivable 13.9% 21.9% 35.2% 1.4% 1.1% 15.3% 2.7% 2.8% 14.1%
Inventories (Total): 0.0% 11.2% 0.0% 11.8% 0.7% 13.0% 5.2% 30.3% 6.5%
RM 0.0% 2.2% 0.0% 0.0% 0.0% 0.0% 2.0% 0.0% 2.7%
WIP 0.0% 4.3% 0.0% 0.0% 0.0% 0.0% 0.3% 0.0% 0.7%
FG 0.0% 4.7% 0.0% 0.0% 0.0% 0.0% 2.9% 0.0% 3.1%
Property, Plant & Equip:
At Cost 33.3% 52.8% 37.3% 14.0% 52.9% 22.2% 259.6% 1.1% 87.4%
Accum. Dep -8.9% -23.6% -16.0% -5.8% -19.0% -11.9% -11.8% -0.4% -43.9%
Net PP&E 24.3% 29.2% 21.3% 8.3% 33.9% 10.3% 247.8% 0.7% 43.6%

Other Assets 28.7% 61.5% 1542.2% 6.7% 15.3% 9.5% 8.4% 2.4% 147.0%
Total Assets 152.7% 135.3% 1670.2% 31.9% 53.0% 65.5% 278.4% 38.7% 217.3%

Current Liabilities 12.3% 44.7% 1244.0% 16.9% 12.4% 15.8% 18.1% 21.2% 28.0%
Long-term debt 0.0% 22.6% 287.8% 1.0% 17.8% 2.5% 141.9% 0.0% 36.5%
Other non-curr liab 15.9% 80.7% 1531.9% 20.7% 34.6% 22.4% 165.0% 21.2% 101.8%
Owners' Equity 136.7% 54.6% 138.2% 11.2% 18.4% 43.0% 113.5% 17.5% 115.5%
Total Liab. + Equity 152.7% 135.3% 1670.2% 31.9% 53.0% 65.5% 278.4% 38.7% 217.3%

Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold or
Operating Expenses 40.1% 31.2% 0.0% 76.1% 83.6% 56.1% 67.0% 70.9% 59.8%
Advertising and Promotion 1.4% 7.6% 1.2% 1.7% 3.1% 11.7% 0.0% 6.7% 13.9%
Research & Development 12.7% 16.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Depreciation & Amortization 5.8% 4.3% 4.4% 1.4% 4.3% 1.7% 7.8% 0.3% 5.6%
Interest Expense (Revenue) 3.4% -0.9% 0.0% 0.2% -0.7% 0.4% -8.8% -0.1% -1.6%
Income Taxes, net 8.9% 4.2% 10.4% 2.0% 2.0% 4.3% -0.2% 1.4% 0.1%
Other Expenses, net 2.4% 26.4% 60.6% 15.0% 2.4% 16.5% 17.3% 11.2% 14.3%
Net Income 25.3% 11.2% 23.4% 3.5% 5.3% 9.1% 16.8% 9.7% 8.0%

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