Financial Statement Analysis Masterclass

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This course is intended for participants who have completed the Alphability+ Accounting series or who already have equivalent knowledge to that course. It shows participants how to analyse and interpret the financial statements of non-financial corporates.

It starts with a focus on defining cash flow and understanding the drivers of cash flow in a business and then moves to analysis of the income statement. Here, the course addresses analysis of revenues, operating expenses and exceptional items before reviewing ‘below the line’ items including tax, financial items, equity accounted entities and earnings per share. Margin and returns analysis are demonstrated and the course then looks at aspects of Balance Sheet analysis including non-current asset and liability analysis.

The course concludes by demonstrating how to consider Other Comprehensive Income, the impact of non-controlling interests and how to assess a company’s distribution policies through dividends or buy-backs.


This course is suitable for anyone new to Financial Statement Analysis and who has already completed the Accounting series.

Learning Outcomes

  • What sections make up a typical IFRS annual report
  • Where to turn to first when you open an annual report
  • What the five main statements are presenting
  • Understand the difference between cash based and accruals based accounting
  • Recognise profit or loss correctly
  • Define product costs and period costs
  • Why we focus so much on cash flow
  • The corporate finance version of free cash flow
  • The credit version of free cash flow
  • The cash flow effect of changes in receivables
  • The cash flow effect of changes in inventory
  • The cash flow effect of changes in payables
  • The PACED approach to analysing cash flow
  • The five drivers of cash
  • How the operating business generates and uses cash flow – profits
  • Effects of operational leverage on margins
  • Cash flow implications of operational leverage
  • The effect of changes in working capital on cash flow
  • Implications of working capital efficiency for borrowing needs
  • Linking changes in working calculation to valuation
  • How the operating business uses cash flow – capex
  • How growth and investment requirements are related
  • How transactions in debt and equity affect cash flow
  • How to use PACED analysis for enterprise and equity valuation
  • How to use PACED analysis to assess credit quality
  • How revenues are defined and what tests are required to recognise revenue
  • How to analyse revenues – growth and volatility of growth
  • How to analyse revenues – revenue quality
  • How revenues are defined and what tests are required to recognise revenue
  • How to analyse revenues – growth and volatility of growth
  • How to analyse revenues – revenue quality
  • Receivable’s collection days
  • Consistency with revenue growth
  • Provisioning for bad debts
  • What are revenue costs and capital costs
  • How companies disclose their revenue costs
  • The implications of mis-allocating costs between revenue and capital costs
  • What are typical fixed, variable and ‘sticky’ costs
  • What is operating leverage – breakeven point
  • How to calculate and use the operating leverage ratio
  • Which above the line margins to focus on (Gross, EBITDA, EBIT)
  • Why margins often regress to sector averages
  • Why some companies may have higher or lower margins relative to the sector – linkage to creative cost accounting
  • How COGS is calculated and its relationship to inventory
  • How changing inventory valuation assumptions affects gross profit
  • Creative accounting and inventor
  • Depreciation analysis
  • Creative accounting using depreciation
  • Ratios for analysing depreciation and related items
  • How gains and losses on disposal are calculated and reported
  • Impact of asset revaluations – highlighting hidden value or in the price
  • Impairment tests for non-current assets – impairment as accelerated depreciation
  • Writing off current assets or providing for uncertain future costs
  • How are provisions reported and what is the cash flow impact?
  • How to understand the provisions note in the annual report
  • The definition of exceptional items
  • Creative accounting and using exceptional items to enhance EBIT
  • Recognise examples of ‘suspicious’ exceptional items
  • The definition of an Associate company – ownership and control
  • How the firm’s interest in the Associate is reflected in the income statement
  • How Associates are captured on a firm’s balance sheet
  • Market value versus book value of Associates and JVs, impairments
  • Valuation of associate positions
  • Understanding ‘thin cap’ JVs
  • Understanding the income statement tax line
  • Current, deferred, reported and cash tax
  • Why effective and marginal tax rates differ
  • What is a deferred tax asset and where they are created and lost
  • How to understand carry forward and carry back losses
  • Why restructuring provisions often create deferred tax assets – kitchen sinking
  • Why accounting depreciation and the tax authority’s calculation of depreciation often differ
  • Understand timing differences and the creation of deferred tax liabilities
  • How accounting and tax carrying values will differ and effects of this
  • Why fully diluted EPS is a critical number
  • How to calculate the dilutive effect of stock options – treasury method
  • How to calculate the dilutive effect of a convertible bond – underlying shares
  • Understand the objective of Dupont analysis
  • How to calculate RoE using the Dupont techniques
  • How to use Dupont analysis for forecasting future performance and strategy
  • Analysing NCA ownership (vs. leases), quality, capital intensity and valuation risks (levels 1-3)
  • Analysing recognised and unrecognised intangible assets
  • How to calculate the asset turn ratio
  • Understand the concept of goodwill and the risks of goodwill
  • How to calculate goodwill created by an acquisition
  • Understand asset step ups and the recognition of internally generated intangibles
  • Understanding types of debt and what is meant by ‘debt equivalents’
  • Understanding leverage, gearing and coverage when assessing a firm’s debt position
  • How to calculate gross debt and equivalents and calculate net debt
  • Understand which items are reported in OCI
  • Understand how each item is determined (e.g. translation gains & losses)
  • Understand the interaction with reserves in equity and the quality of those reserves when determining the true equity position
  • Understand why a company may have non-controlling interests
  • How NCIs are shown in the income statement, balance sheet and cash flow statement
  • Why the market value and accounting value of an NCI can be very different
  • Understand the signalling effects of dividends
  • Understand the timetable and accounting for dividend payment
  • How to calculate dividend cover and dividend yield
  • Understand the pros and cons of buy backs compared to dividends
  • Understand the arguments for and against buy backs – dilution effects of management stake on other shareholders
  • Understand the use of the capital redemption reserve for share buy-backs
  • Understand the components of CFO
  • Understand the components of CFI
  • Understand the components of CFF

Course Content

Unit 1 – Contents of an annual report

Unit 2 – Accruals

Unit 3 – Defining cash flow

Unit 4 – Changes in working capital

Unit 5 – Drivers of cash: the paced approach

Unit 6 – Drivers of cash: profits

Unit 7 – Drivers of cash: asset to cash conversion

Unit 8 – Drivers of cash: capex, equity and debt

Unit 9 – Drivers of cash: valuation and credit effects

Unit 10 – Revenue recognition

Unit 11 – Revenue analysis

Unit 12 – Receivables analysis

Unit 13 – Cost disclosure and allocation

Unit 14 – Fixed and variable costs

Unit 15 – Margin analysis

Unit 16 – Inventory and cogs

Unit 17 – Depreciation methods

Unit 18 – Gains, losses, revaluations and impairments on NCA

Unit 19 – Provisions

Unit 20 – Exceptional items

Unit 21 – Equity accounting 1

Unit 22 – Equity accounting 2

Unit 23 – Effective and marginal tax rates

Unit 24 – Deferred tax assets

Unit 25 – Depreciation and deferred tax liabilities

Unit 26 – Fully diluted EPS

Unit 27 – Dupoint analysis

Unit 28 – Operating non-current assets

Unit 29 – Goodwill

Unit 30 – Debt and debt equivalents

Unit 31 – Other comprehensive income

Unit 32 – Non-controlling interests

Unit 33 – Dividends

Unit 34 – Share buy-backs

Unit 35 – Operating, investing and financing cash flows

This Course Includes

  • Learn: 35 micro-learning on-demand videos
  • Check: 35 knowledge checks to validate understanding
  • Apply: 35 hands-on practical exercises and projects
  • Requirements: Access to a computer with an internet connection
  • Accessibility: Access on PC, mobile or TV
  • Certification: Certificate of completion with CPD record


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