What Will I Learn
When you are done with this course, you will be able to:
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Curriculum
Financial Statement Analysis- An Introduction
- The roles of financial reporting, financial statement analysis, statement of financial position, comprehensive income, statement of change in equity, statement of cash flow in evaluating a company’s performance and financial position
- Importance of financial statement notes and supplementary information
- Objective of audits of financial statements, the types of audit reports and the importance of effective internal controls
- Information sources that analyst use in financial statement analysis
- Steps in financial analysis statement framework(Including Quality Of Earnings, Cash Flow, And Balance Sheet Items)
Financial Reporting Standards
- Objective of financial statement and importance, roles and attributes of financial reporting standards
- Global convergence of accounting standards and ongoing barriers to accepting a universal set of financial reporting standards
- Conceptual framework of International Accounting Standards including aspects of financial statement
- General requirements for financial statements under International Financial Reporting Standards (IFRS)
- US generally accepted accounting principles (US GAAP) reporting systems
- Implications for financial analysis of differing financial reporting systems
- Company disclosures of significant accounting policies
Understanding Income Statements
- Components of the income statements and alternative presentation formats of that statement
- General principle of revenue recognition and accrual accounting, specific revenue recognition applications and implications of revenue recognition principles for financial analysis
- Calculation of revenue
- Accounting standards for revenue recognition issued by the International Accounting Standards Board and Financial Accounting Standards Board in May 2014
- Expense Recognition
- Financial reporting treatment and analysis of non-recurring items and changes in accounting policies
- Operating and Non-operating components of the income statement
- Calculation of earnings per share and interpret a company’s earnings per share (basic and diluted)for simple and complex capital structures
- Dilutive and antidilutive securities and their implications of each for earnings per share calculation
- Conversion of income statements to common size statements
- Comprehensive income
Understanding Balance Sheets
- Elements of balance sheet
- Uses and limitations of balance sheet in financial analysis
- Alternative formats of balance sheet representation
- Current and Non-Current- Assets and Liabilities
- Types of assets and liabilities and measurement bases of each
- Components of shareholders’ equity
- Conversion of balance sheet to common size balance sheet
- Liquidity and solvency ratios
Understanding Cash Flow Statements
- Compare cash flows from operating, investing and financing activities
- How are non-cash investing and financing activities reported
- Contrast cash flow statements prepared under International Financial Reporting Standards (IFRS) and US generally accepted accounting principles (US GAAP)
- Direct and indirect methods of presenting cash from operating activities and arguments in favor of each method
- How is the cash flow statement linked to the income statement and balance sheet
- Conversion of cash flow from indirect to direct method
- Free cash flow
Financial Analysis Technique
- Tools and techniques used in financial analysis, including their uses and limitations
- Classify, calculate and interpret activity, liquidity, solvency, profitability and valuation ratios
- DuPont analysis of return on equity
- Ratios used in equity analysis and credit analysis
- Segment reporting and segment ratios
- How ratio analysis and other techniques can be used to model and forecast earnings
Inventories
- Cost included in inventories and cost recognized as expenses in the period in which they are incurred
- Inventory valuation methods (cost formulae)
- Calculate and compare cost of sales, gross profit and ending inventory using different inventory valuation methods and using perpetual and periodic inventory systems
- How inflation and deflation of inventory costs affect financial statements and ratios of companies that use different inventory valuation methods
- LIFO reserve and liquidation and their effects on financial statements
- Conversion of LIFO to FIFO for comparison
- Net realisable value
- The financial statement presentation of disclosures relating to inventories and why should analysts consider examining a company’s inventory disclosure
- Calculate and compare ratios of companies, and analyze the financial statements of companies, including different inventory methods used
Long-Lived Assets
- Costs that are capitalized and costs that are expensed in the period in which They are incurred
- Compare the financial reporting of the following types of tangible assets: purchased, internally developed, acquired in a business combination
- Capitalizing versus expensing costs
- Depreciation methods and calculation of depreciation expense
- Amortisation methods for intangible assets with finite lives
- Calculation of amortisation expense
- Revaluation model
- Impairment of tangible and intangible assets
- Derecognition of tangible and intangible assets
- Evaluate how impairment, revaluation, derecognition of tangible and intangible assets affect financial statements and ratios and describe the financial statement presentation and disclosure
- Compare the financial reporting of investment property with tangible assets
- How leasing rather than purchasing assets affects financial statements and ratios
- How finance and operating leases affect financial statements and ratios from the perspective of lessor and lessee
Income Taxes
- Difference between accounting profit and taxable income
- How are deferred tax liabilities and assets created and how they should be treated for financial analysis
- Calculation of tax base of assets and liabilities
- Calculate income tax expense, income tax payable, deferred tax assets, deferred tax liabilities and interpret the adjustment to the financial statements related to a change in the income tax rate
- Effect of tax rate changes on a company’s financial statement and ratios
- Recognition and measurement of current and deferred tax items
- Key provisions of and differences between income tax accounting under International Financial Reporting Standards (IFRS) and US generally accepted accounting principles (US GAAP)
Non-Current (Long- Term) Liabilities
- Determine the initial recognition, initial measurement and subsequent measurement of bonds
- Calculate interest expense, amortization of bond discounts/premiums and interest payments
- Derecognition of debts
- Disclosure relating to finance and operating leases
- How finance and operating leases affect financial statements and ratios from the perspective of lessor and lessee
- Leverage and coverage ratios
Financial Reporting Quality
- Distinguish between financial reporting quality and quality of reported results
- Spectrum for assessing financial reporting quality
- Conservative and aggressive accounting
- Causes of issuing financial reports that are not high quality
- Mechanisms that discipline financial reporting quality and potential limitations of those mechanisms
- Presentation and accounting choices including non-GAAP measures used to influence analyst’s choices
- Methods for detecting manipulation of information
Financial Statement Analysis - Applications
- Evaluate a company’s past financial performance
- Forecast a company’s future net income and cash flow
- Role of financial statement analysis in assessing the credit quality of a potential debt investment
- The use of financial statement analysis in screening for potential equity investments
- Explain appropriate analyst adjustments to a company’s financial statement to facilitate comparison with another company
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