A Financial Statement Analysis Project for Introductory Financial Accounting

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G lobal Perspectives on Accounting Education
Volume 6, 2009, 83-96

Marilyn B. Misch
Business Administration Division
Pepperdine University
Malibu, California
Carolyn A. Galantine
Business Administration Division
Pepperdine University
Malibu, California
This paper describes a financial statement analysis project useful in both preparerbased and user-based introductory courses in financial accounting. The project requires students to analyze trends in corporate performance, to evaluate corporate financial decisions, to discuss non-financial statement issues that would be important to potential investors, to compare two companies within an industry, and to make investment recommendations. The project’s requirements are completely detailed on a single page, and the project is applicable to companies in any industry. The project requires only limited introduction in the classroom, is easily adaptable to reflect instructor preferences, and may be used as either an individual or a group assignment. This paper includes the complete project requirement sheet, a grading rubric, a team evaluation form, examples of items that students might be expected to address in answering the questions posed, comments on the results of employing the project, and additional suggestions for implementation.

Key words: Financial statement analysis, financial decision making, introductory accounting project, accounting case


Misch and Galantine


his paper presents a financial statement analysis project that has been used for more than a decade in a university’s introductory financial accounting courses. The primary goal of the project is to develop students’ technical, analytical, critical thinking and communication skills by requiring students to: analyze key aspects of a company’s financial disclosures; evaluate a company’s financial decisions; discuss non-financial items that affect a company’s ability to be successful; compare one company to another in the same industry; and make and defend investment recommendations. In addition, when used as a group assignment, the project also develops students’ understanding of group dynamics by requiring students to reflect on the group processes followed in completing the assignment.

The university in which the project has been employed is a small, private, liberal arts university, which has approximately 750 accounting, business, and international business majors, all of whom are required to take the introductory course in financial accounting. The course is most students’ first or second course in business and generally is taken during students’ freshman or sophomore years. Approximately 250 students are enrolled in the course each year, in sections of 25 to 30 students. The project is currently employed to strengthen the investor-orientation (user) dimension of courses that are primarily preparer-based, but the project does not require knowledge of journal entries and easily could be incorporated into user-based principles of accounting courses as well.

Along with emphasizing the importance of accounting disclosures in decision-making, the project meets the calls from both academics and practitioners in various business fields for undergraduate programs to develop students’ communication skills and students’ abilities to understand, analyze, and evaluate financial disclosures (Demong et al., 1979; American Accounting Association, 1986; Geary and Rooney, 1993; Collier and Wilson, 1994; Albrecht and Sack, 2000; Baker and Phillips, 2000). Many commercially-available financial statement analysis projects are in books exceeding 100 pages, and primarily require students to obtain descriptive facts about companies and industries (many of which will not apply to a particular company being analyzed) and to calculate ratios. Such projects are open to the common criticisms...
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