Analysis of a company's business and financial statements

Programme

Analysing the competitive environment and the company's business

• Analysing the economic factors affecting the company's business (economic growth rate, industrial output, employment level, inflation rate, exchange rate)
• Development prospects and industry trends
• The need to take into account regional specifics and regional economic factors affecting the analysed company
• Analysing the company's business (legal status of the company, ownership structure, composition of management, analysis of the company's products and services, level of regional demand for the company's products and services, the company's dependence on the cost of key production factors, type of production activity and capacity used)
• The company's strengths and weaknesses

Workshop: Analysing the company's business

Financial statements as a source of information when analysing a company

• New trends in financial analysis practice
• The impact of IFRS on the substantive aspects of financial analysis. Differences between the accounting and financial approaches to analysing a company's activities
• Building a map of financial indicators that shape the view of value (free cash flow (FCF), sustainable growth rate, return on invested capital (ROIC), required return (hurdle rate), economic profit)

Methods and techniques of financial statement analysis

• Classification of methods and techniques of financial analysis: horizontal, vertical, comparative, ratio, trend
• Possibilities and limitations of ratio-based financial analysis
• Algorithm for analysing financial statements
• Identifying the main trends in the statements
• «High attention» zones in analysing a company's financial statements

Financial statements as a source of information on the composition and movement of the company's assets, capital, liabilities and financial results

• Brief description of the main financial documents: balance sheet, income statement, cash flow statement
• Analysing the structure of the balance sheet and its dynamics
• What is missing from the balance sheet?
• Structuring balance sheet items for detailed analysis. Characterising the efficiency of the company's asset use
• Calculating and assessing net assets and net working capital (NWC)
• The concept of net operating assets and net operating working capital
• Calculating and interpreting invested capital
• What does the income statement show?
• Classification of income and expenses in the income statement. Danger signals: monitoring revenue overstatement
• Danger signals: monitoring expense understatement
• Structuring income statement items for detailed analysis
• Analysing the structure of the company's profit (loss): core activity, other activities. Reasons for changes in the profitability of the company's core activity. Analysing the level and dynamics of profit indicators
• Calculating and interpreting EBIT, EBIAT, EBITDA, NOPAT, OIBDA. The fundamental difference between accounting and economic profit
• Ways to optimise profitability and their impact on the company's position in the short and long term
• Analysing the quality of profit and the factors used to forecast financial results

Workshop: Structuring and analysing the balance sheet. Calculating net operating assets, net operating working capital and invested capital

Workshop: Structuring and analysing the income statement. Calculating EBITDA, NOPLAT, OIBDA

Workshop: Calculating economic profit

• The company's cash flow as an object of financial analysis
• The analytical value of the cash flow statement
• Direct and indirect methods of building the cash flow
• Specifics of Russian financial statements as a data source for cash flow analysis
• Factors affecting the size of the cash flow
• Advantages and disadvantages of cash flow indicators in the financial analysis of a company
• Analysing the relationship between profit, working capital movement and cash flow
• Assessing the sufficiency of cash for operating and investing activities
• Financial ratios used to analyse the statement
• The structure of the company's cash flows at different stages of the life cycle
• Specifics of the cash flows of companies in new growing markets. Free cash flow (FCF) as the basis for building the company's financial model

Workshop: Calculating and analysing the cash flow indicator of the company «TS»

Practical assignment: Typical cash flow structures and life cycle stages

The system of indicators characterising financial position and methods for determining them

• Analysing the company's profitability and potential return
• Calculating and analysing the company's profitability indicators: profit margin, return on assets (ROA), return on investment (ROI, ROIC, ROCE), return on equity (ROE)
• The DuPont model for analysing the company's profitability
• Reasons for changes in the company's profitability. Understanding the links between profitability, financial policy and growth. Analysing the company's working capital management
• Analysing the company's business activity. Factors affecting the composition and structure of current assets
• Operating and financial cycles
• Permanent and variable working capital. Working capital turnover ratios
• Calculating (relative to revenue; relative to individual bases) and interpreting the turnover periods of current assets and current liabilities
• Assessing the current state of working capital
• Optimising the working capital requirement and its impact on the company's position: how lasting can the effect of optimising the working capital requirement be?

Analysing the company's liquidity

Calculating and interpreting liquidity indicators

• Adjusting current assets and current liabilities for the correct calculation of indicators
• Factors determining the value of liquidity indicators
• The company's net working capital: calculating the actual and required net working capital

Analysing the company's financial stability

• Conditions for ensuring financial stability
• Calculating and interpreting financial stability indicators: autonomy, self-financing and coverage ratios
• How to determine a sufficient level of company autonomy? Factors determining the value of financial stability indicators. Assessing the dynamics and interrelation of liquidity and solvency indicators
• Typical mistakes made in financial analysis

Workshop: Analysing the typical statements of an industrial and a trading company (comprehensive assessment of financial position)