Fundamentals of Financial Analysis
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The objective of this two-day course is to provide participants with the skills to analyze the financial statements of companies in order to carry out an overall effective appraisal. FTSE 100 annual reports are used to analyze the balance sheet, income statement and cash flow statement of companies. This is a highly interactive course where case studies and exercises are used to illustrate key learning points, allowing participants to apply the concepts acquired during the course to real-life scenarios.
Key Learning Objectives:
- Understand the fundamentals of financial statements, including how the statements link and the key accounting principles that govern them
- Analyze the balance sheet of companies and assess their position
- Analyze the income statement of companies and assess their performance
- Carry out ratio analysis and assess the drivers of performance
- Analyze the cash flow statement of companies and assess the cash flow drivers
Fundamentals of Financial Statements
The process, purpose, and context of accounting
- Background accounting knowledge for analysts to help understand the basis of financial statements
The primary financial statements and how they link
- Balance sheet: Showing the position of a company
- Income statement: Showing the performance of a company
- Cash flow statement: Showing the difference between a company's ability to generate and spend cash
Key accounting principles and terms
- Accruals concept
- Going concern
- The accounting equation
- Double entry
- Applying double entry
- Exercise: Produce a balance sheet and income statements reflecting transactions provided.
Analysis of the Balance Sheet
The primary financial statements
- The purpose of financial statements
- Analyzing the three statements: Identifying possible ways to initially analyze financial statements
- Different formats: UK GAAP, IFRS
Analysis of the balance sheet
- Non-current assets
- Current assets
- Creditors and debt
- Equity capital and reserves
- Exercise: Analyze a FTSE 100 balance sheet to assess the position of a company.
- Excercise: Show how a lease would be accounted for if it was treated as a finance or an operating lease. Analyze the impact on gearing, profits and return on equity.
- Exercise: Balance sheet mix and match: Identify a company using indexed balance sheets. Provide analysis as to how the decision was made.
- Analysis of the Income Statement
Analysis of the income statement
- Different types of profit metric: Gross profit, operating profit, net profit
- Classification of expenses: Cost of sales, operating expenses
- Capitalization vs. expense
- EBIT, EBITA, EBITDA
- Performance: Margin ratios, return on equity
- Working capital: Inventory days, receivable days, payable days
- Debt service: Interest cover
- Leverage: Debt:EBITDA, Debt:FCF
- Excercise: Analyze a FTSE 100 income statement to assess the performance of a company.
- Exercise: Carry out ratio analysis using pro forma accounts.
- Exercise: Carry out ratio analysis on two listed companies, making comparisons between the two.
- Exercise: Ratio mix and match: Identify a company based on the ratios given. Provide analysis as to how the decision was made.
Analysis of the Cash Flow Statement
Analysis of the cash flow statement
- Deriving cash flow using the indirect method
- Definitions of free cash flow
- How to analyze the cash flow statement: Asset management, operational management, financing strategy
Cash flow drivers
- Porter's Five Forces
- Exercise: Produce a cash flow statement reflecting transactions provided
- Exercise: Analyze a FTSE 100 cash flow statement to assess the company's sources and use of cash
This case study allows participants to apply the skills learned during the course. Participants will be given a company and are required to prepare an appraisal, based on the annual report and other sources of information. Their analysis should be financial and non-financial, including a summary of the position, performance of the company as well as other analysis.
Who should attend
Suitable for beginner and intermediate levels for both finance and non-finance professionals.