SUBJECT OUTLINE

22319 Financial Statement Analysis (Capstone)

Course area UTS: Business
Delivery Autumn 2017; City
Credit points 6cp
Requisite(s) 22420 Accounting Standards and Regulations AND 25300 Fundamentals of Business
Finance
These requisites may not apply to students in certain courses.
There are also course requisites for this subject. See access conditions.
Result type Grade and marks

Subject coordinator
Dr Le (Hayley) Ma
Email Le.Ma@uts.edu.au
You can also contact Hayley via e-mail at the address above, or via UTSOnline.

Subject description
The aim of this course is to demonstrate and apply a framework for business analysis and valuation using financial statement data.
The emphasis of the course is on translating the tools of business analysis and valuation into practical situations. To achieve this,
the course is relatively case intensive, with this method used to develop key skills as well as demonstrating their application. The
course is intended for students interested in business consulting, investment banking, business analysis and corporate lending.
Given the increasing trend towards a business analysis-based approach to auditing and assurance services, it is also relevant to
those interested in public accounting.

Subject learning objectives (SLOs)

Upon successful completion of this subject students should be able to:
1. understand the basic techniques of financial analysis and business valuation
2. appreciate the linkage between industry analysis, strategic business analysis, accounting analysis, financial analysis and
prospective analysis
3. understand how to use various different valuation models, as well as the benefits and limitations of those models

Course intended learning outcomes (CILOs)

This subject also contributes specifically to the following program learning objectives:
Critically analyse relevant concepts to understand practice in business and related professions in a global workplace (1.1)
Demonstrate inter-relationships between differing business and related disciplines (1.2)
Locate and critically evaluate relevant data and literature to address business problems through a research approach (2.1)
Apply critical and creative thinking to address issues in business (2.2)

Contribution to the development of graduate attributes

This course focuses on establishing a clear linkage between several skills normally acquired by business students so as to enable
them to conduct rigorous business analysis and prepare sound business valuations. The course combines skills in business
strategy, finance and accounting, so as to enable students to apply these methods of analysis in combination. It also contributes to
the accounting major by demonstrating the analysis of accounting quality and its implications for financial analysis and valuation.
This subject contributes to the development of the following graduate attributes:
Business knowledge and concepts
Critical thinking, creativity and analytical skills
Teaching and learning strategies
The subject will be taught using a combination of large lectures and smaller tutorials. The lectures provide the structure of the topic
area, discussion of the theory and some practical examples. Tutorials provide an opportunity to discuss ideas, issues and make
practical application of the theory, as well as encouraging students to think in a creative manner to solve real world problems, using
learning from other core subjects. Extensive use is made of the UTS web-based communication tool UTSOnline, which will be used
to share information, provide feedback and encourage interaction between staff and students. Students will also use appropriate
computer software to complete assigned tasks.
All students will be provided with the opportunity for initial feedback on their performance in the subject during the first six weeks of

17/02/2017 (Autumn 2017) University of Technology Sydney Page 1 of 11

the semester, for example, online quizzes, tutorial exercises, draft assignments and other assessment methods. Further feedback
will be provided in relation to submitted assessment tasks.

Content (topics)
Industry and strategy analysis: Understanding the strategic decisions businesses make to create/maximize shareholder value, as
well as the constraints within which this occurs.
Accounting analysis: Understanding the link between strategic considerations and the financial statements, including identification
of the quality of accounting numbers.
Financial analysis: Assessing the financial performance and position of a business using ratio analysis and cash flow analysis, in
light of the strategic direction and accounting quality identified.
Prospective analysis: Forecasting financial results.
Prospective analysis: Valuation models - Understanding investment returns, and how valuation models are developed to
anticipate abnormal returns.
Prospective analysis: Valuation models - Implementation
Application: Using forecasted financial statements to develop a valuation, and the assessment of that values sensitivity to
strategic, accounting and financial considerations.

17/02/2017 (Autumn 2017) University of Technology Sydney Page 2 of 11

Program
Week/Session Dates Description

1 13 Mar Preparation Week

Work through the UTS Online landing page
Read through the Subject Outline
Revise subject material from previous subjects
Class attendance is mandatory for this week.

2 20 Mar Lecture 1: Introduction to Financial Statement Analysis

Preparation: Read Chapter 1

3 27 Mar Lecture 2: Industry and Strategy Analysis

Preparation: Read Chapter 2
Tutorial: Refer UTS Online

4 3 Apr Lecture 3: Accounting Analysis

Preparation: Read Chapter 3 and Chapter 4
Tutorial: Refer UTS Online

5 10 Apr Lecture 4: Financial Analysis (Part 1)

Preparation: Read Chapter 5 (1-7)
Tutorial: Refer UTS Online

Notes:
Hand in: Group Assignment Part 1 & 2
UTSOnline: Submit Group Assignment Part 1 & 2
*Please make sure only ONE MEMBER from the group submits the assignment to turnitin; AND
that you submit ONLY ONCE. Multiple submissions are NOT possible.

6 17 Apr Lecture 5: Financial Analysis (Part 2)

Preparation: Read Chapter 5 (5-7)
Tutorial: Refer UTS Online

Notes:
Easter Monday - For students whose class falls on Easter Monday can attend a different class or
content will be available online.

24 Apr StuVac

7 1 May Lecture 6: Prospective Analysis - Forecasting

Preparation: Read Chapter 6
Tutorial: Refer UTS Online

8 8 May Lecture 7: Prospective Analysis - Valuation (Part 1)

Preparation: Read Chapter 7 (7-2, 7-3, 7-5, & 7-10)
Tutorial: Refer UTS Online

Notes:
Hand in: Individual Assignment Part 1
UTSOnline: Individual Assignment Part 1 (*Submit ONLY ONCE. Multiple submissions are NOT
possible.)

17/02/2017 (Autumn 2017) University of Technology Sydney Page 3 of 11

9 15 May Lecture 8: Prospective Analysis - Valuation (Part 2)
Preparation: Read Chapter 8
Tutorial: Refer UTS Online

10 22 May Lecture 9: Prospective Analysis - Valuation (Part 3)

Preparation: Read Chapter 7 and Chapter 8
Tutorial: Refer UTS Online

11 29 May Lecture 10: Business Analysis and Valuation Application

Preparation: Read Chapter 10 and Chapter 11
Tutorial: Refer UTS Online

12 5 Jun Lecture 11: Conclusion and Overview

Tutorial: Refer UTS Online

Notes:
Hand in: Individual Assignment Parts 2 & 3
UTSOnline: Submit Individual Assignment parts 2 & 3 (*Submit ONLY ONCE. Multiple submissions
are NOT possible.)

Additional information
Emailing
You must only use your UTS account when sending emails to your lecturer or other members of UTS staff. Mail providers that are
not UTS are not read and automatically deleted.
In each email that you send please provide:
a) Your full name: this must be the name that you used to enrol in the subject,
b) Your student number,
c) and use the subject number for the beginning of the email subject field e.g.: "22319: need your help"

17/02/2017 (Autumn 2017) University of Technology Sydney Page 4 of 11

Acronyms used throughout the subject
AE: Abnormal Earnings
AOI: Abnormal Operating Income
ATO: Asset turnover
avg.: Average
C: Cash from Operations
CAPM: Capital Asset Pricing Model
CSE: Common Share Equity
d: Dividends (the net cash flow to share-holders)
F: Cash flow to Debt-holders
FCF: Free Cash Flow
FLEV: Financial Leverage
I: Cash Investment
NBC: Net Borrowing cost
NFEat: Net Financial Expense after tax
NFO: Net Financial Obligations
NOA: Net Operating Assets
NOPAT: Net Operating Profit after Tax
PM: Profit Margin
RNOA: Return on Net Operating Assets
ROE: Return on Equity
Spread: Difference between lending & borrowing rates
WACC: Weighted average cost of capital
: Change

17/02/2017 (Autumn 2017) University of Technology Sydney Page 5 of 11

Formulas you need to remember for the Exam
ROE = CSP/ave CSE
ROE = RNOA + (FLEV * SPREAD)
ROE = (PM * ATO) + (FLEV*(RNOA NBC))
RNOA = NOPAT / avg. NOA
RNOA = (PM * ATO)
PM = NOPAT / Sales
ATO = Sales / avg. NOA
FLEV = avg. NFO / avg. CSE
SPREAD = RNOA NBC
NBC = NFEat / avg. NFO
FCF = C I
FCF = NOPAT NOA
FCF = NFE NFO + d
FCF = F + d
C I = FCF = F + d
AOI = NOPAT - (NOA[t-1] * WACC)
AE = CSP - (CSE[t-1] * CAPM)
WACC= {[(Market value of Debt/ Market value of Assets)(NBC)] + [(Market value of Equity/ Market value of
Assets)(CAPM)]}
CAPM = Risk-free rate + (Company Beta * Risk premium)
Risk Premium = Market return - Risk-free rate

17/02/2017 (Autumn 2017) University of Technology Sydney Page 6 of 11

Forecasting Template
1. Forecast sales:
2. Forecast asset turnover (ATO):
calculate net operating assets (NOA)
{NOA[t]=sales[t]/ATO}
3. Forecast profit margin (PM):
calculate net operating profit after tax (NOPAT)
{NOPAT[t] = Sales[t] x PM}
4. Calculate free cash flow (FCF)
{FCF[t] = NOPAT[t] NOA}
5. Forecast net dividend payout ratio:
calculate dividends (d)
{d[t] = NOPAT[t] x payout ratio}
6. Calculate net payments to debt holders (F)
{F[t] = FCF[t] d[t]}
7. Forecast net after tax cost of debt:
calculate net financial expenses (NFEat)
{NFEat[t] = NFO[t-1] x net after tax cost of debt}
calculate closing net debt (NFO[t])
{NFO[t] = NFO[t-1] + NFEatt F[t]}
8. Calculate clean surplus profit (CSP)
{CSP[t] = NOPAT[t] NFEat[t]}
9. Calculate equity (CSE) and check you get the same answer both ways!
{CSE[t] = NOA[t] - NFO[t]}
{CSE[t] = CSE[t-1] + CSP[t] d[t]}

17/02/2017 (Autumn 2017) University of Technology Sydney Page 7 of 11

Assessment
Assessment task 1: Assignment Part 1 and 2 (Group)
Objective(s): This addresses subject learning objective(s):
1 and 2

Weight: 20%

Task: The group (up to five members) project completed in two parts requires you to conduct an analysis of a business.
A key feature of the project is that it requires you to identify and obtain the relevant information. Thus, in addition
to being evaluated on your ability to apply the tools of analysis described in the course, you will also be evaluated
on your ability to identify and obtain the relevant information. Your assignment should use only publicly available
information, and you should provide a reference list of the information you use. Do not use inside information
obtained from personal company contacts etc. Choice of company: You will choose one company from the list on
UTSOnline. Valuation and assessment: Your group will evaluate and report (in two parts) on your chosen
company as though you were a prospective management consultant.
Part One (10 Marks)
Due: Beginning of Lecture 4
The first part of your report will contain the following:
1. Macro economic Analysis
Describe the firms economic environment and evaluate how this has impacted historic firm performance and is
likely relevant to future performance.
2. Industry Analysis
Perform an industry analysis and evaluate the level of competition in the industry or industries that your firm
operates in.
Group Assignment - Part Two (10 Marks)
Due: Beginning of Lecture 4
The second part of your report will contain the following:
1. Business Strategy Analysis
Identify the key success factors and the key risks of the firms strategy. Discuss the sustainability of profits
generated by the strategy
2. Accounting Analysis
Assess the degree to which the firms accounting reflects the underlying business reality. Identify any accounting
distortions and evaluate their impact on profits and the sustainability of profits.

Length: Part One write-up limited to 5 pages of text with 5 pages of supporting tables

Part Two write-up limited to 5 pages of text with 5 pages of supporting tables

Further requirements

Your project write-up for parts one and two should be a readily comprehensible and condensed report on your
work (i.e., not a detailed compilation of all the information you collected). Please use a minimum font size of 12
and 2.5cm margins. (Note: If you choose to use double spacing for text, then the write-up extends to ten pages).

You must provide a hard copy (to be handed in during class) as well as a soft copy (submitted via UTS Online).

UTS reserves the right to run student assignments through plagiarism detection software. If you do not submit both

copies (soft copy and hard copy) the assignment will be deemed as not submitted and you will receive a fail grade.

For each day (or part day) that your assignment is late, you will lose 10% of the raw assignment mark.

Due: See Further information.

17/02/2017 (Autumn 2017) University of Technology Sydney Page 8 of 11

Further Part One (10 Marks)
information: Due: Beginning of Lecture 4
Part Two (10 Marks)
Due: Beginning of Lecture 4

Assessment task 2: Assignment (Individual)

Objective(s): This addresses subject learning objective(s):
1, 2 and 3
This addresses program learning objectives(s):
1.1, 1.2, 2.1 and 2.2

Weight: 40%

Task: Individual Assignment (40 Marks)

Using the company and analysis from your group assignment, provide the following:
1. Reformatted Financial Statements and Financial Analysis (10 marks) Due beginning Lecture 7
Reformat at least the last 5 years of your company's financial statements. Use ratio analysis and cash flow
analysis to evaluate the current and past performance of the business and assess its sustainability.
2. Prospective Analysis (15 marks) Due beginning Lecture 11
Forecast future financial performance. Use the four valuation models outlined in class to produce an estimate of
firm value, and compare to stock price. Perform sensitivity analysis and discuss the results.
3. Application (15 marks) Due beginning Lecture 11
Using your sensitivity analysis, and as a potential management consultant to your chosen firm, provide a
discussion as to the possible opportunities for improvement, and potential challenges for your firm. Provide
remedies for these concerns. You should be quite specific in any recommendations you make.

Length: The project write-up should be a readily comprehensible and condensed report on your work (i.e., not a detailed
compilation of all the various valuation scenarios you considered, and all the information you collected). Your
write-up is limited to 10 pages of text and 10 pages of supporting material. Please use a minimum font size of 12
and 2.5cm margins. ( Note: If you choose to use double spacing for text, then the write-up extends to 20 pages).
You must provide a hard copy to be handed in as directed as well as a soft copy submitted via UTS Online. UTS
reserves the right to run student assignments through plagiarism detection software. If you do not submit
both copies (soft copy and hard copy) the assignment will be deemed as not submitted and you will
receive a fail grade.For each day (or part day) that your assignment is late, you will lose 10% of the raw
assignment mark.

Assessment task 3: Final Examination (Individual)

Objective(s): This addresses subject learning objective(s):
1, 2 and 3

Weight: 40%

Length: 2 hour closed book exam

Use of plagiarism detection software

All student assignments will be examined by plagirism detection software. Please refer to 'Statement of Plagiarism'. Students who
condone plagiarism by allowing their work to be copied will also be subject to severe disciplinary action. Avoiding
plagiarism is one of the main reasons why the Faculty of Business is insistent on the thorough and appropriate
referencing of all written work.

Supplementary assessments
A student with a disability or special needs may be permitted to undertake particular learning and assessment arrangements as
specified in Rule 8.2.2 and 8.2.3 in order to ensure that the assessment is on the basis of academic merit and has parity with the
assessment of other students. For other special considerations cases, students will need to provide relevant documentary evidence
in support of the request made under Rules 8.3.1, 8.3.2 and 8.3.3.
Medical or other professional certificates alone do not constitute adequate supporting evidence for such requests. Medical or other

17/02/2017 (Autumn 2017) University of Technology Sydney Page 9 of 11

professional evidence must be provided by the relevant authority on the relevant official University request form as prescribed by
the Registrar.

Minimum requirements
Students must achieve at least 50% of the subjects total marks.

Required texts
Palepu, K, Healy, P and Bernard, V (2013) Business Analysis and Valuation using Financial Statements: Text, 5th edn,
Southwestern, Canada.
Faculty of Business: Guide to Writing Assignments, Faculty of Business, University of Technology, Sydney (accessed via the link
below) Guide to Writing Assignments

Recommended texts
Penman, S (any edition from 2004 onwards) Financial Statement Analysis and Security Valuation, McGraw Hill, New York.

References
The following text provides some extension to the main text: Palepu, K, Healy, P and Bernard, V (2008) Business Analysis and
Valuation using Financial Statements: Text and Cases, 4th edn, Southwestern, Canada.

Academic liaison officer

Dr Maria Ossimitz, Accounting Discipline Group, telephone 9514 3069
Mr Harry Tse, Economics Discipline Group, telephone 9514 7786 or 9514 5456
Associate Professor Jianxin Wang, Finance Discipline Group, telephone 9514 9744
Dr Paul Wang, Marketing Discipline Group, telephone 9514 3692
Dr Katie Schlenker, Management Discipline Group, telephone 9514 5303
Any arrangements should be negotiated within the first six weeks of session.

Support
Student Services Unit/Counselling: Student Services provides a range of free and confidential professional services to support
different aspects of your life and learning at UTS. These services include counselling for personal and learning problems or issues.
If you are experiencing difficulties with your overall study program, for whatever reason, phone 9514 1177 (City campus).
Students with disabilities or ongoing medical conditions: If you are a student who has a disability or ongoing medical condition
that requires support services you are encouraged to contact the disability support officers or Special Needs Service (phone 9514
1177) for a confidential interview. Supporting documentation regarding your disability or ongoing medical condition is required if you
wish to apply for assessment adjustments, including alternative assessment conditions. Each faculty has appointed academic liaison
officers (ALOs) who are responsible for approving assessment adjustments. Meeting with the disability support officers or
Special Needs Service before seeking assessment adjustments from your ALO is required.
Improve your academic and English language skills: Marks for all assessment tasks such as assignments and examinations are
given not only for what you write but also for how you write. If you would like the opportunity to improve your academic and English
language skills, make an appointment with the HELPS (Higher Education Language and Presentation Support) service in Student
Services.
HELPS (Higher Education Language and Presentation Support): HELPS provides assistance with English language proficiency
and academic language. Students who need to develop their written and/or spoken English should make use of the free services
offered by HELPS, including academic language workshops, vacation intensive courses, drop-in consultations, individual
appointments and Conversations@UTS. HELPS is located in Student Services, Building 1 Level 5 Room 25 (CB01.05.25).
Study skills / learning support: If you are experiencing difficulty with your studies or need to develop the necessary study skills
you require for your course, there is a host of useful information and websites to help you on the UTS Business School, Study and
Assessment Resource website. Links on how to write better, study more effectively, available support services/staff to help, how to
complete assignments; as well as tips for successful study and online study skills resources can all be accessed.
Special consideration: Special consideration consists of the exercise of academic discretion to provide equitable treatment to
students whose performance in an assessment item is affected by illness, misadventure or work-related circumstances. You should
only apply for special consideration when your performance in an assessment item, including examinations, has been affected by
extenuating or special circumstances beyond your control. Special consideration is not automatically guaranteed and may not result
in a mark adjustment
Careers Service: The UTS Careers Service aims to actively support the career development needs of all UTS students.

Statement about assessment procedures and advice

Assessment of coursework subjects
All staff and students involved in the assessment of coursework subjects at UTS are subject to the Policy for the Assessment of
Coursework Subjects. The policy is applicable to the assessment of all coursework subjects. This policy does not apply to thesis
subjects that are taken by students enrolled in research degrees, but does apply to any coursework subjects undertaken by
research degree students. It does not describe policy that relates to academic progression through a course of study.

17/02/2017 (Autumn 2017) University of Technology Sydney Page 10 of 11

The policy should be read in conjunction with the Procedures for the Assessment of Coursework Subjects.

Statement on copyright
Australian copyright law allows you as a student or researcher to copy and use limited amounts of other people's material in your
study or research without their permission and free of charge.
This applies to any sort of published or unpublished work, and includes written material, tables and compilations, designs, drawings
(including maps and plans), paintings, photographs, sculpture, craft work, films (such as feature films, television programs,
commercials and computer video games), software (such as computer programs and databases), sound recordings, performances
and broadcasts (including podcasts and vodcasts of these) and text, including books, journals, websites, emails and other electronic
messages.
It is important to remember that you can only use a limited amount for your study or research purposes and that you need to
correctly acknowledge the author and reference their material when you use it in your work.
Incorrect or improper use of copyright protected material could result in breaking Australian copyright law, for which significant
penalties apply. Incorrect or improper use of copyright protected material at UTS would result in consideration under the UTS
Student Misconduct rules.
UTS Rules and the UTS Student Charter require that students familiarise themselves and comply with UTS student policies and
procedures. Students should also see the copyright information advising what you can copy and how much you can use.

Statement on plagiarism
At UTS, plagiarism is defined in rule 16.2.1(4) as: 'taking and using someone else's ideas or manner of expressing them and
passing them off as his or her own by failing to give appropriate acknowledgement of the source to seek to gain an advantage by
unfair means'.
The definition infers that if a source is appropriately referenced, the student's work will meet the required academic standard.
Plagiarism is a literary or an intellectual theft and is unacceptable both academically and professionally. It can take a number of
forms including but not limited to:
copying any section, no matter how brief, from a book, journal, article or other written source without duly acknowledging the
source
copying any map, diagram or table of figures without duly acknowledging the source
paraphrasing or otherwise using the ideas of another author without duly acknowledging the source.
Other breaches of academic integrity that constitute cheating include but are not limited to:
copying from another student, recycling another student's work, recycling previously submitted work, and working with another
student in the same cohort in a manner that exceeds the boundaries of legitimate cooperation
purchasing an assignment from a website and submitting it as original work
a student requesting or paying someone else to write original work for them, such as an assignment, essay or computer
program, and submitting it as their own work.
Students who condone plagiarism and other breaches of academic integrity by allowing their work to be copied are also subjected to
severe disciplinary action.
Where proven, plagiarism and other breaches of academic integrity are penalised in accordance with UTS Student Rules Section
16 Student misconduct and appeals.
Avoiding plagiarism is one of the main reasons why the UTS Business School is insistent on the thorough and appropriate
referencing of all written work. Students may seek assistance regarding appropriate referencing through UTS: HELPS.

Statement on UTS email account

Email from the University to a student will only be sent to the student's UTS email address. Email sent from a student to the
University must be sent from the student's UTS email address. University staff will not respond to email from any other email
accounts for currently enrolled students.

17/02/2017 (Autumn 2017) University of Technology Sydney Page 11 of 11