Georgetown University

Financial Accounting

This course focuses on the accumulation, analysis and presentation of relevant accounting data of an enterprise and how it is used to serve the needs of managers, shareholders, creditors and external analysts.

Learning Outcomes of Financial Accounting

  • Discuss and understand the role of accounting in providing information for financial managers, investors, equity analysts, and creditors.
  • Apply the fundamental accounting concepts and principles to concrete business problems.
  • Discuss the elements of financial statements and the implications of management judgment and choice in accounting measurement.
  • Describe how managers might employ opportunistic behavior (earnings management) to further their own gain, avoid unwanted attention, and report the firm in the best possible way.
  • Create financial statements.
  • Analyze, synthesize, and evaluate accounting information in the context of concrete business problems.
  • Describe and understand international differences in accounting.
  • Describe and understand the facets of multinational accounting.
  • Discuss ethical and social issues and the macro implications of accounting.

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MIKE CICHELLO: Hi, and welcome to Financial Accounting, the second course in our MSF program here at the McDonough School of Business at Georgetown University. My name is Professor Mike Cichello, and I'm here with my colleague, Professor Kirsten Anderson. And we're going to be co-teaching this course on financial accounting. And despite the fact that Kirsten and I went to rival schools, we still like each other and we're very much looking forward to teaching this course for you.

As we saw in the financial markets course, there are various techniques to value a company's stock. We started with relatively simple techniques, but as you see out in the marketplace, stock prices fluctuate pretty drastically. Stock may be trading at $20 one day and $15 another day. As a financial professional, you need to be able to filter out the noise and get to a fundamental assessment of the company's financial health.

Whether you're approaching this from the point of view of a CFO of a company, who's thinking of acquiring another company. Whether you're approaching this from the point of view of a potential investor in buying a company's stock. Whether you're approaching this from the point of view of a potential employee thinking about working for a firm and seeing if they're financially sound. Whatever approach you're taking here, you need to be able to have some verifiable external financial reports of the company.

KIRSTEN ANDERSON: This leads to the need for publicly available financial statements. Throughout this course, we'll discuss in detail the three primary financial statements. The income statement, the balance sheet, and the statement of cash flows.

Suppose, for example, you're working for a firm that's thinking of acquiring a young startup firm. And you first go to the income statement and you see that this young startup firm has positive profits, which is a relative rarity for a startup firm. You then further investigate the firm statement of cash flows and you realize that this target firm has potential cash flow issues. It leads you and your firm to rethink the acquisition.

MIKE CICHELLO: So what Kirsten just said, is that we need to look at not just one financial statement, but all three of the financial statements that we're going to talk about in a lot of detail. Another example is RIM, the maker of BlackBerry devices. Now you may come to me and say, you know I've looked at their balance sheet and they have a very healthy balance sheet. They have no debt and they have over $2 billion of cash and marketable securities.

And I would say to you, yeah, but have you looked at their income statement lately? And have you, in particular, looked at the margins for them? Not just right now, but over time. And if you have, you'll see that the margins have been diminishing drastically. Now even if they have a great balance sheet, it doesn't matter if their margins keep shrinking to the point where they're not going to be profitable. So this would be another example of looking not just at one statement, but a second and maybe even a third of the three main financial statements.

So Kirsten is going to kick off the course with units 1 and 2. I'll come back to see you in unit 3.