FRIDAY 13 SEPTEMBER, 08:30-12:15

SATURDAY 14 SEPTEMBER, 08:30-12:15

ACCOUNTING FOR EXECUTIVES: PART 1

Professor Joanne Horton

Email: [email protected]

COURSE OUTLINE

Accounting for Executives provides an introduction to both the concepts and associated tools that are the basic
building blocks for analyzing corporations via their financial statements. It will introduce and develop an
economic framework for business analysis and corporate valuation (in part using the techniques developed in
the Finance for Executives course). The main focus of the course is to integrate key concepts of economics,
accounting and finance in order to effectively evaluate the information content of financial reports and therefore
to consider the impact on firm valuation and subsequent investment strategies. The course will use a number of
case studies.

LEARNING OBJECTIVES

The general aim of this course is to help you become sophisticated users of financial reporting information from
a fundamental analysis perspective. You will be expected to develop valuation related and financial analysis
skills to support the interpretation, evaluation and use of accounting information from the view point of major
users of financial reports (i.e. equity investors, lenders, managers etc.) Case studies will be integrated into the
lecture material to help support your understanding of the concepts.

All the ideas in this course are universal in their applicability. Your main text is more from a U.S. perspective
but all the key concepts it discusses are applicable to any stock exchange listed firm anywhere in the world.
Where appropriate we will endeavour in the lectures to highlight some of the significant ways in which
international accounting differences are relevant to the analysis, and you are encouraged to share your
observations and knowledge along these lines with the rest of the class.

BREAK-OUT CLASSES: GROUP WORK

This course is not only about understanding, but it is primarily about doing the analysis. Concepts and
frameworks are only important if they lead to good analysis tools. Therefore throughout this course break-out
sessions will be provided to enable you to apply the tools discussed in lectures to a specific case study, which
will then be discussed during the lectures.
STRUCTURE OF THE COURSE

The course is split between the two sessions. It is important that between these sessions you give yourself the
opportunity to review the relevant readings (noted below) and make sure you have a clear understanding of the
material covered in the London session. Between these sessions I will also be available to answer any queries.

LEARNING OUTCOMES

On completion of the London part of the course, you should be able to:
1. Identify the valuation implication of possible business strategies implemented by companies;
2. Understand how business activities determine value;
3. Detect the overall quality of financial reporting information provided by firms;
4. Understand the role of accounting information in a valuation setting;
5. Understand a few basic ratios

STRUCTURE OF THE COURSE

The topics below will be taught via the use of case studies, specifically Starbucks Inc., Sainsbury PLC and Tesco
PLC. Therefore a session-by-session breakdown is not feasible.

1) Review of Financial Reporting (brief overview, this section is optional if, and only if, you scored 90% or
higher on your Zoologic online assessment)

 Review of the main financial statement and their linkages: balance sheet and income statement
 Review of accrual accounting and its effect on the financial statements
 Deriving indirect cash flows

2) Business strategy analysis (brief overview)

 Understanding the implications of firm strategy on firm performance, specifically identifying key risk
and success factors in order to assess potential profits
 Degree of actual and potential competition and relative bargaining power
 Analyze industry and strategy to frame subsequent accounting and financial analysis
 Applying Industry analysis to the case studies

Readings

 Palepu K, Healy P, and Peek E (2016) Chapter 2: Strategy Analysis. In: (Fourth ed.) Business Analysis
and Valuation: Using Financial Statements, CENGAGE.
 Professor Marciano’s discussion of Porters 5 forces: https://www.youtube.com/watch?v=E-
7Wm94iofI&feature=youtu.be
3) Accounting Analysis (brief overview)

 Evaluate degree to which accounting captures underlying business reality, by identify accounting
flexibility and the subsequent degree of distortion.
 Good accounting versus bad accounting.

Readings

 Palepu K, Healy P, and Peek E (2016) Chapter 3: Accounting Analysis. In: (Fourth ed.) Business
Analysis and Valuation: Using Financial Statements, CENGAGE.

4) Financial Statement Analysis (to be started in London and finished in Paris)

 Key ratios for analyzing income statement and balance sheets

 Evaluate a firm’s current and past performance and assess whether such performance is sustainable.

Accounts 2018: Sainsbury Plc. and Tesco Plc.

Readings

 Palepu K, Healy P, and Peek E (2016) Chapter 5: Financial Analysis. In: (Fourth ed.) Business Analysis
and Valuation: Using Financial Statements, CENGAGE.

PRE-MODULE REQUIRED READING

 Rice A (2015) Accounts Demystified: The Astonishingly Simple Guide to Accounting, 7th Edition.
Harlow: Pearson Education – Part 2 and Part 3. [Available in e-Book format on Moodle]

For reference and further reading during and after module:

 Palepu K, Healy P, and Peek E (2016) Chapters 1-6. In: (Fourth ed.) Business Analysis and Valuation:
Using Financial Statements, CENGAGE.
 Professor Marciano’s discussion of Porters 5 forces: https://www.youtube.com/watch?v=E-
7Wm94iofI&feature=youtu.be

ADDITIONAL OPTIONAL READING

 Penman S (2012) Financial Statement Analysis and Security Valuation, McGraw-Hill International
Edition, Fifth Edition. New York: McGraw-Hill.
 Subramanyam K R and Wild J J (2013) Financial Statement Analysis, McGraw-Hill International
Edition, Eleventh Edition. New York: McGraw-Hill.

MATERIALS

The following will be given out in class:

 Class notes
  Breakout session work
 Comparative financial statements of Sainsbury Plc, Tesco Plc and Starbucks Inc.
 Practice Spreadsheets

PRE-MODULE ASSIGNMENT

Individual Assignment. Due Date: Monday 19 August at 23:55 (London Time)

The Zoologic course Accounting Essentials provides a command of the fundamentals of financial accounting
by applying two methodologies – the Accounting Equation and the T account method – to 11 representative
transactions. It is important you have a good understanding of the accounting processes behind the financial
statements as the course in September will assume students have this knowledge.

After working through the Zoologic course, you are required to complete the ‘TRIUM assessment’ on Zoologic
with a minimum pass rate of 50%.

You are allowed a total of three attempts at the test. Completion of the test will contribute 25% to your course
assessment (we will take your average score).

Completion of the test will contribute 25% to your course assessment (we will take your average score).

To access the TRIUM assessment, please follow the following instructions

1. Go to http://services.zoologic.com/trium/launch.html
2. Login using your TRIUM email address and zoologic password
3. Select ‘Course By Topic’ in the left-hand menu, then select ‘Assessments’
4. To start the test, click ‘Open TRIUM Assessment’
5. You should now see a screen entitled ‘Starting test’- click ‘continue’.
6. Once you start the test you must submit it to be scored. You cannot save the test and go back to complete it
at another time.

Note: Be careful not to confuse the TRIUM assessment with the standard test which appears at the end
of the Accounting Essentials lesson. The TRIUM assessment is a separate exercise and is the only Zoologic
test which carries a grading contribution.

GRADING:

25% Pre-module exam. To be taken on-line prior to Module 1 (see the Pre-Module Assignments section within
the Accounting for Executives course page on Moodle).

There will be no in-class exam.

The remaining 75% will be assessed at Module 3.