Corp Fin 101 Fsa Ratios

A zoom-in, zoom-out, connect-the-dots guide to understanding financial statements, and analysing companies

Last updated 2022-01-10 | 4.1

- Interpret financial statements - the Balance Sheet
- Income Statement and Statement of Cash Flows
- Parse SEC filings such as the 10K and 10Q to understand the business model of any company entirely from its investor filings
- Calculate ratios in all major categories: liquidity
- leverage
- turnover
- profitability and valuation

What you'll learn

Interpret financial statements - the Balance Sheet

Income Statement and Statement of Cash Flows

Parse SEC filings such as the 10K and 10Q to understand the business model of any company entirely from its investor filings

Calculate ratios in all major categories: liquidity

leverage

turnover

profitability and valuation

Apply Dupont's Identity to see whether a company's stock returns are driven by operational efficiency

asset efficiency or leverage

Calculate the sustainable rate of growth at which a company can grow without external financing

* Requirements

* This course assumes no prior knowledge of accounting or finance
* The investor relations sections of Facebook
* Twitter and LinkedIn will be used
* but the course will discuss how to access and use these public sites

Description

This is a zoom-in, zoom-out, connect-the-dots tour of Financial Statement Analysis

Let's parse that

'connect the dots': Financial Statement Analysis gets a bad rep because its hard to connect the nitty-gritty of the financial statements to the company as a whole. This course makes a serious effort to do exactly that.
'zoom in': Getting the details is very important in corporate finance - a small typo, or a minor misunderstanding can cost a company big. This course gets the details right where they are important.
'zoom out': Details are important, but not always. You probably don't care about the nitty gritty of accounting for contingent liabilities if you don't know what accounts payable are. This course knows when to switch to the big picture.

What's Covered:

Corporate Finance Introduced: partnerships, proprietorships and the corporation
The Agency Problem: How auditors, the board of directors and the capital markets regulator play a role
Financial Statements: Balance Sheet, Income Statement, Statement of Comprehensive Income and Cash Flow Statement at exactly the right level of detail
Ratios: Five important types of ratios: liquidity ratios, leverage ratios, turnover ratios, profitability ratios and valuation ratios
Dupont's Identity: Return-on-equity can be decomposed into 3 elements: profits, asset-leanness and leverage.
External Financing Needed (EFN) and the Sustainable Rate of Growth: How fast can a company grow if it chooses to forgo external funding? Every startup should know this, really.
Common Accounting Shenanigans: The playbook of financial statement cheats has been studied by auditors and regulators - learn from history so you are not condemned to repeat it.

Case Studies:

Understanding a company entirely from its investor filings

Facebook: Fast-growing and profitable, this is the dream stock right now.
LinkedIn: Versatile, but struggling to break through - the jury seems out on LinkedIn
Twitter: Bleeding red and slowing growth - Twitter seems to be in trouble.

Who this course is for:

Yep! Business majors and aspiring MBAs
Yep! CFA Level I candidates
Yep! Entrepreneurs looking to understand basic corporate finance
Nope! Accountants - you'll find this course too basic

Course content

12 sections • 43 lectures

You, Us & This Course 1 lectures

You, Us & This Course Preview 02:08

What this course is about, and what you will get from it.

The Enterprise 5 lectures

Sole Proprietorship Preview 09:45

Why do people work? And why, sometimes, a lone hand is a cool one.

Partnership Preview 06:08

Partnerships - general and limited - are important to understand (especially if you encounter any private-equity folks at cocktail parties)

The Corporation Preview 13:47

Artificial legal person, that's what a corporation is.

Public and Private Preview 06:37

Agency Problems and Corporate Governance Preview 12:37

Principal-agent conflicts of interest are as old as the hills. See how auditors and the government (capital market regulators) get involved to keep things clean.

The Balance Sheet 5 lectures

The Balance Sheet Preview 05:33

A tally of assets and liabilities, and what's left over is hopefully positive - that's what a balance sheet is.

Assets Preview 14:54

Liabilities Preview 03:50

Future obligations that will have to be met by the corporation - these are called liabilities.

Shareholder's Equity Preview 10:10

Shareholder's equity is what is left for the owners, the shareholders. This includes both invested capital and retained earnings.

Balance Sheet Case Studies: Facebook, Twitter, LinkedIn Preview 13:10

Let's immediately put our theoretical knowledge to work studying 3 comparable balance sheets.

The Income Statement 4 lectures

Income Statement Preview 16:18

Revenue - Costs = Net Income. Conceptually simple, but the devil is in the details!

The Net Income Waterfall Preview 13:07

Follow the convoluted waterfall that takes us from revenue to net income. EBITDA, operating profit, and gross profit are some of the stops along the way.

Statement of Comprehensive Income Preview 09:45

Recurring or non-recurring? This is an important distinction about net income that folks need to know about.

Income Statement Case Studies Preview 06:30

Again let's immediately put our knowledge to work - see how powerful Facebook's business is, and how shaky Twitter is.

The Statement of Cash Flows 5 lectures

Statement of Cash Flows Preview 12:34

Cash is key - a firm can go bankrupt despite significant assets, and significant profits, if it runs out of cash. That's why we need a statement of cash flows distinct from the income statement and balance sheet.

The Direct and Indirect Methods Preview 11:58

Cash flows from operations, from financing and from investing: see how these are computed in the indirect and direct methods.

Cash Flow Statement Case Studies Preview 03:28

Facebook has a ferociously profitable business, that generates plenty of cash from operations. The firm is aggressive about re-investing this into assets for the future.

Working with Cash Flows - I Preview 15:44

Working with Cash Flows - II Preview 13:57

Ratios 3 lectures

Ratios Introduced Preview 05:00

Once we have financial statements, what do we do with them? Use them to analyse companies of course! And there are 2 important techniques for doing this: time-series and peer-group (cross-sectional) analysis.

Liquidity, Leverage and Efficiency Preview 12:47

Liquidity ratios focus on short-term solvency, leverage ratios focus on long-term solvency and turnover ratios focus on efficiency. There is a natural tension between efficiency and solvency!

Profitability and Valuation Preview 05:13

Profits and valuations - return-on-equity and return-on-assets. We are getting to the heart of corporate finance now.

Some Advanced Topics 3 lectures

Dupont's Identity Preview 09:32

How can a firm make money for its shareholders? Three possible ways: profitability, leanness, and leverage. That's what Dupont's identity tells us.

External Financing & The Sustainable Rate of Growth Preview 10:55

How fast can a company grow if it forgoes external financing? Every startup should ask itself this.

Common Accounting Shenanigans Preview 10:06

Cheating on books is as old and as common as cheating on spouses. Auditors and the SEC are watching though, remember that.

Case Studies 3 lectures

Facebook Preview 08:40

Highly profitable, and growing like crazy: that's why everyone loves Facebook's stock.

LinkedIn Preview 12:29

A diversified business that might be huge - but also might turn into an also-ran. The jury is out on LinkedIn.

Twitter Preview 17:51

The jury definitely seems to be in on Twitter, and its not looking good.

EPS 4 lectures

Introducing EPS Preview 13:30

Basic EPS Preview 13:13

Diluted EPS Preview 16:04

Diluted EPS (continued) Preview 16:54

Inventories 2 lectures

Inventory Valuation Preview 15:19

Understanding Inventories Preview 17:07

Leases 4 lectures

Leases Introduced Preview 10:16

Lease is a contract between lessee and lessor. Lessee makes payments for using the property owned by the Lessor. There are two types: Financial lease and Operating Lease. The accounting for both types is different.

NPV of Lease Payments Preview 08:22

The Financial Lease accounting requires computing net present value of all the lease payments.

Operating Leases Vs Financial Leases Preview 12:28

A lease is a financial lease if any one of four criteria given by the accounting bodies is met. There are pros and cons in both the types of leases. The lessee and lessor need to analyse these to decide which lease do they want to enter into.