Introduction to Corporate Financial Statements

Course review:

A two-day foundation programme providing participants with a clear understanding of how the business activities of a company are reflected in their financial statements.

Content

• Analytic overview - using the purpose payback model to relate a business to its balance sheet and profit and loss account
• Typical presentation of company financial statements
• A glossary of common financial terminology.

TYPES AND PRESENTATION OF FINANCIAL STATEMENTS

• IFRS presentation of company financial statements
• Key balance sheet categories - assets, liabilities and shareholder funds
• Understanding the profit and loss account: sales and expenses
• Cash-flow statements linking the balance sheet and P&L
• The difference between cash and profits
• Sources and quality of disclosure
• Understanding key accounting policies
• Using notes to the accounts.

BUSINESS AND OPERATING APPRAISAL

• Understanding company performance - the business cycle
• Sales and expenses - accrued versus cash accounting
• Ratios to assess the quality and stability of earnings - return on sales and its components
• Key asset categories - current, fixed and intangible assets
• Return on assets and its components
• The meaning of net working capital - key accounts and ratios
• Measuring fixed asset efficiency - ratios and cash-flow measures
• Deriving a cash-flow - operating, investment and financing cash-flows.

LIABILITY AND CAPITAL STRUCTURE

• Spontaneous finance: components and measurements
• Debt and equity: short term versus long term
• Liquidity and Solvency
• Accounting for liabilities
• Funding ratios - leverage, gearing, percentage equity
• Determining debt service obligations – interest and principal
• The impact of dividend policy on earnings and cash flow
• Off balance sheet liabilities
• Using the cash flow to analyse a company’s ability to service its financial obligations.

RATIO ANALYSIS

• Dupont analysis - return on equity and its components
• Benchmarking performance using peer analysis - understanding accounting constraints.