Study Session #8
Learning Outcome Statements
Last revised 12/18

DOWNLOAD

1. “Analysis of Financial Statements”
a) interpret common-size balance sheets and common-size income statements, and discuss the
circumstances under which the use of common-size financial statements is appropriate;
b) calculate, interpret, and discuss the uses of measures of a company’s internal liquidity, operating
performance (i.e., operating efficiency and operating profitability), risk profile, and growth potential;
c) calculate and interpret the various components of the company’s return on equity using the
original and extended DuPont systems;
d) calculate and interpret a company’s financial ratios relative to its industry, to the aggregate
economy, and to the company’s own performance over time;
e) discuss the limitations of financial ratios (e.g., differences in accounting treatment among
companies).
2. “Dilutive Securities and Earnings per Share”
a) differentiate between simple and complex capital structures for purposes of calculating earnings
per share (EPS);
b) describe the components of EPS and calculate a company’s EPS in a simple capital structure;
c) calculate a company’s weighted average number of shares outstanding;
d) describe stock dividends and stock splits, and determine the effect of each on a company’s
weighted average number of shares outstanding;
e) distinguish between dilutive and antidilutive securities;
f) calculate a company’s basic and diluted EPS in a complex capital structure;
g) describe and determine the effects of convertible securities, options, and warrants on a company’s
EPS;
h) compare and contrast the requirements for EPS reporting in simple versus complex capital
structures.
3. A. “Seek and Ye Shall Find” and
B. “Searching for Shenanigans”
a) explain the two basic strategies underlying all accounting “shenanigans,” and describe seven
categories of techniques that may be used by management to distort a company's reported financial
performance and financial condition;
b) identify conservative and aggressive accounting policies;
c) describe why “shenanigans” exist, and explain where they are most likely to occur;
d) list the documents that an analyst should use to identify “shenanigans,” and explain what
information to look for in such documents.

DOWNLOAD