Financial Statement Analysis & Report Writing

Understanding, analysing and interpreting financial statements constitutes a key basic skill required across a wide range of functions in the financial services industry. Thus professionals working in the areas of budgeting, credit analysis, project evaluation, investment and equity valuation would all require the skills covered by this course. Financial analysis provides a basis for all investment decision-making and is also essential to producing realistic forecasting models. These in turn help to predict changes in securities prices and the optimal allocation of resources. The course also includes instruction in how to write a useful, focused and impactful financial report that will aid investment decision-making. The main areas of focus are as follows: Quantitative analysis of the income statement, cashflow statement, balance sheet and notes, in the context of industry and geographic norms Calculating key performance ratios Using historic analysis to forecast future financial risks and performance How accounts can be adjusted to manipulate results Analysis of debt, equity and other financing sources How to write a clear and impactful financial report Who should attend Bank credit and relationship officers Investment bankers Bond credit analysts Fixed income/credit traders Fixed income/credit sales personnel Budgeting personnel Fund managers Compliance officers Financial decision makers in corporations
Day 1 Financial Analysis The profit and loss account - Understanding the sources and sustainability of revenues earnings - Understanding the nature of the cost base; fixed, variable, semi-fixed - The use of EBITDA(R) - What constitutes interest charges; including derivatives and quasi-debt - Adjusting for exceptionals, non-core earnings, discontinue items, operating leases - Consolidation policies - Equity accounting for associates and joint ventures - Minority interests - Ratio analysis – margins, interest cover, dividend cover Case studies of multi-nationals reporting under IFRS; analysis of improving vs deteriorating firms; comparison of firms in different industries and their typical P&L profiles. The cashflow statement - Deriving operating cashflow from operating profit; typica non-cash adjustments - Operating earnings vs. operating cashflow - Differences between P&L vs cashflow statement entries - Working capital changes - Investment; capex, joint ventures, acquisitions - Financing; changes to debt, equity, cash balances - Sources and uses of cashflow - Re-organising the cashflow statement to show cash availabl for debt repayment (CADR) - Ratio analysis; cash interest cover, payback and debt service analysis dividend & investment cover Case studies of multi-nationals reporting under IFRS; comparison of cashflow positive vs cashflow negative firms; comparison of fast-growing vs slow-growing firms. Day 2 The balance sheet - The non-current asset base; nature of assets and valuation policies - Tangibles versus intangibles - Working capital; non-financial current assets and liabilities - What constitutes debt; derivatives, quasi-debt, cash collateral etc - The shareholders’ equity base and reserves - Other liabilities; deferred tax, provisions etc - Pension deficits and surpluses - Off balance sheet liabilities - Adjusting for factored receivables, operating leases, contingent liabilities etc - Liquidity analysis - Ratio analysis; leverage, liquidity, asset coverage, ROIC, ROE, debt maturity profile, NWC ratios etc - Assessing debt capacity: balancing growth with asset turnover & financial policy Case studies of multi-nationals reporting under IFRS; over-view of asset intensive firms vs non assetintensive firms; over-view of weak and strong balance sheets. Accounting factors - Overview of how accounts can be manipulated to produce better results Analysis of different types of financing - Differences between debt and equity - Different types of debt funding and their uses; senior, secured, subordinated, mezzanine, PIK, PIK toggle, preferred, preference, bonds, bank debt, leases - Financial structuring; debt versus equity and other types of financing - Refinancing risks - Measuring project returns and returns to equity; shareholder value concepts Day 3 Report Writing - How to write a good financial report - The purpose of the report and knowing your reader - Reports vs essays - Planning & organizing the report - Spider diagrams - Achieving a logical structure and sequence - Avoidance of repetition - The executive summary - Cross-referencing - Use of appendices - Selecting the relevant material - Using an appropriate style of writing; concise, relevant accurate, descriptive vs analytical etc - The “so what?” test - Presentation of data and use of headings, sections, subsections, numbering, graphs and charts; stating sources - Use of drafts - Report writing with multiple authors Case studies; overview of well-written vs badly written reports; practice of writing financial reports. Course summary and close