Financial Statement Analysis and Interpretation

There will be an in-class, open book, open note, interim exam covering the material from the first half of the course. The grade on this exam will count toward 25% of the course grade.

There will be a 72-hour take home final exam covering the final half of the course. The grade on this exam will count toward 75% of the course grade.

Despite the two written exams quantitatively accounting for 100% of the course grade, preparation of the cases and class participation can have a significant impact on the final course grade. There are no written assignments; however, all students are expected to prepare the case studies prior to class and to be prepared to discuss the case issues in class. Both "cold calls" and "volunteers" are used to stimulate class debate. Students who are prepared and who demonstrate insight through their class participation can only improve on their exam grades.

The course is graded on a Credit/Fail basis, but students can elect to take the course for a regular letter grade. The final date to inform the Law School's Registration Services Office of your choice to be graded by regular letter grade is October 15 for the Fall term offering, and February 15 for the Spring term offering. Registrants from other Columbia divisions must take the course for a regular letter grade; they cannot take the course for Pass/Fail. Also, please note that registration as an Auditor is not permitted for this offering or for any other Law course.

This course uses the information from real companies to analyze and interpret their financial statements. The design of the course assumes that participants have very little background with respect to the preparation, analysis and interpretation of financial statements. While the mechanics of how to prepare financial statements are covered, emphasis is placed on what the numbers mean and how they are used. In the first half of the course, participants will learn: (1) how financial statements are prepared; (2) the linkage between the income statement, balance sheet, and cash flow statement; and, (3) how these statements need to be examined as a whole to understand a company's performance. Ratio analysis is explained and guidance is given regarding as to what to look for when analyzing a company's operating, liquidity, and leverage ratios.

In light of the current environment of distrust of financial statements, promulgated by such capital market disasters as Lehman Brothers and the financial crisis beginning in 2008, the remaining half of the course examines the uses and misuses of financial statement data for a wide range of financing decisions. To avoid serious misdiagnoses of companies' prospects, analysts and users of financial statements must understand how to become financial detectives and get "behind the numbers" utilizing contemporary investigative analytic techniques. This seminar concentrates on how various financial reporting options affect income, assets, cash flow forecasts, financial ratios, and trends. Distinguishing between accounting rules and underlying economic realities is emphasized throughout. Approaches that analysts can take when external reports do not reflect a firm's underlying economics are described and applied. The course focuses on the pragmatic implications of corporate disclosures (and nondisclosures). Real company case analyses are used to enhance relevance and to promote participation in the learning process.

Real-world case analysis, e.g. the recent financial reporting misstatements are used to enhance relevance and to promote participation in the learning process. Classroom discussion is designed to promote insight into resolving the issues presented by the case studies.