Financial Statement Analysis

→ Delegate introductions and course objectives
→ High level overview of course content

→ Value of the annual report
→ Understanding the mandatory and discretionary sections of the annual report
• Information available in the annual report
− Auditor’s report
− Explanation of the business
− Discussion of risk analysis
Risk assessment documents in annual report
− US Management discussion and analysis 10K and 20F documentation
− UK Operating and financial review (OFR)
− EU Directors report
→ Delegate introductions and course objectives

→ What auditors do – does it give us comfort that the numbers and information is accurate?
Negligent audit claims and why they happen.
→ Overview of the different types of audit reports
→ Limitations of the audit report
Case study: Group discussion to determine which type of audit report to issue and impact on the analysis.

→ Overview of accounting information and the basis of preparation
• Management accounting
• Financial accounting
• Tax accounting
→ The conceptual basis of IFRS
• The global movement to IFRS
• Principles vs. rules-based accounting
• How accountants define assets and liabilities
Case study: Using the annual report -- in particular management’s analysis as well as selected notes to the financial statements - of an international producer of methanol, participants will examine and explain the performance of the company, citing data and evidence to support their observations. The examination will focus on:
− Revenue growth in the context of the business (economic) cycle
− Volume/price relationships
− Gross profit and net profit and likely cost structures
− Competitive context
− Industry risk factors
− Expected future performance, based on management commentary
This is a comprehensive case study that will be supported by handouts from the program director in what we call an “onion” approach: the more we peel, the more questions arise that need to be addressed in order to reach a conclusion.
Participants will learn how to look beyond the numbers.

→ Statement of comprehensive income
• Profit or loss
• Other comprehensive income
• What it tells you (and doesn’t)
→ Statement of financial position
• Assets, liabilities and equity
→ Distinction between profit and cash – accrual accounting
→ Different presentation formats of financial statement
→ Cash flow statement and analysis
• Operating, financing and investing activities
• Interpreting the cash flow statement
• Analyzing a company’s cash flow
• Linking operational cash flows with profit or loss from operations
• Introducing EBITDA (Earnings before interest, tax, depreciation and amortization)
• Problem areas to look out for
Case study: Preparation of a cash flow statement; group discussion and analysis of the numbers.
→ Deeper look into the cash flow statements and how to use them
• Determining and using free cash flow
• Linking operational cash flows with profit / loss from operations and EBITDA
− Problem areas to look out for
− Assessing risk when operational cash flows are negative

→ Internal and external analysis – session driven by a privatization case
→ Redefining corporate objectives of a state company undergoing privatization
Case study: Group work on strategic objective setting for a privatizing telecoms company

→ External corporate appraisal – session based on a pharmaceuticals company, using the PESTEL framework, which covers a broad range of risks, ranging from political to economic, social, technological, environmental to legal/regulatory.
Case study: Group work on risk identification review of a pharma company

→ Porters Five Forces – effective use to examine market positioning – discussion of how to apply in strategic execution
→ Value chain – with examples from actual companies – emphasis on how to identify opportunities.
→ Effective use of benchmarking