Financial Analysis Notes
Acronyms
Acronyms common in financial analysis are defined (e.g., AC, AFR, BFR, CFO, WACC).
Introduction
The analyst's position (internal vs. external) affects access to documentation. The analysis considers the intended audience and purpose (e.g., investment decision, participation).
Financial analysis focuses on a company's capital and economic wealth, using consistent methodology to explain wealth production and distribution.
Shareholders' analysis maximizes wealth (stock diagnosis), while lenders focus on credit risk.
Analyst and Analysis
Details the position of the analysts, the intended audience, and the scope of the analysis, whether internal or external.
Balance Sheet Analysis
Financial analysis is oriented towards the lower part of the balance sheet. It addresses the company's ability to generate monetary surplus. It focuses on tactical decisions, examining individual entities and financial statements (balance sheet, income statement, cash flow statement).
Financial Analysis Definitions
Financial analysis assesses a company's economic and financial performance using accounting documents. It describes financial policy, critiques results, and forecasts future outcomes. The quality of analysis depends on data validity.
Teleological Dimension
Financial analysis serves as a decision-making tool in financial management. It addresses the reasons, beneficiaries, actors, and methodologies of financial analysis.
Importance of Financial Analysis
Reasons include doubt about financial health, examining profitability, and assessing solvency and liquidity.
It improves management through diagnostics, informs lending decisions, quantifies sales or contributions, recommends stock actions, and studies clients/suppliers.
Purpose of Determining Enterprise Value
Addresses why determine entreprise value, highlighting issues with accounting data, focusing on 'reality' of financial information.
Universal Accounting Principles
Principles aim to faithfully represent a firm's assets and management. Nine fundamental principles are recognized:
Monetary Unit
Accounting Entity
Going Concern
Consistency
Double Entry
Materiality
Historical Cost
Prudence
Matching
SYSCOHADA Accounting Principles
These principles, also numbering nine, emphasize the primacy of accounting reality over legal appearance. They include prudence, permanence of methods, intangibility of balance sheets, specialization of fiscal years, historical cost, going concern, transparency, significant importance, and preeminence of reality over appearance.
Rules of Financial Orthodoxy
The rule of minimum financial equilibrium highlights the relationship between exigibility and liquidity. It states that capital should remain available as long as the asset it finances. Also includes debt limits where debts shouldn't exceed equity.
Learning Objectives
The aim is to determine and analyze the value of an entity based on financial statement analysis, aiding shareholder and management decisions.
Course Structure Summary
Overview of the course structure, including chapter titles such as Analysis and Retreatment of Synthesis Documents, Methods of Enterprise Value Analysis, Financial Diagnosis, and more.
Synthesis Documents
This chapter focuses on analyzing the balance sheet, income statement, cash flow statement, and annexed notes. It looks into problems encountered in financial analysis, and critiques these synthesis documents.
Income Statement
The income statement explains wealth created over a period. The statement is structured into ordinary and extraordinary activities. The statement includes operating, financial, and global levels of analysis.
Financial Activities analysis
Cash-flow, CAF analysis using the various aggregates following the charge classification by function and the american accounting standards.
Balance Sheet
The balance sheet reflects a company's assets, liabilities, and equity at a specific point in time. The document is divided into different categories to show the way a company is functioning.
SYSCOHADA Balance Sheet Structure
Details the asset (fixed, current, treasury) and liability (equity, financial debt, current, treasury liabilities) structure. OHADA favors a management approach over a juridico-financial one.
Table of Cash Flow
Provides the structure and the description of every flow in the cash flow table in compliance to SYSCOHADA requirements.
Notes to the Financial Statements
Details the description and the function, and the importance of the notes in the Synthesis documents.
Vertical Analysis
The vertical analysis refers to a quick assets review for a fusion , buyout , liquidation, and/or privatization decision of a company. Method includes reviewing for historical assets, current assets, debt and equity. Formula:
Principles
Reviews principles to consider when analyzing a company include operations without debt, operations after debt, nominal value