Ratio also brian sent me this project that he wants to do make sure that he understands it needs to pay back within.
Three years otherwise we can't do it okay hello she said you need to pay back in three years say what i know but that's what she said.
Okay i'm not proud of this and i'm slightly exaggerating here but the truth is that when i started my career working in the finance department of a big paper and packaging company i.
Didn't understand a lot of the terms that my colleagues were throwing around in meetings but you know what i realized i wasn't the only one.
Classes plus i'd worked as an economist i was familiar with the terms but that was it now i realized that somewhere along the line there must have been a disconnect right.
Something didn't fit i'm a person that likes logic i like patterns i like things to make sense and i felt that accounting wasn't that the way it was taught to me at.
University wasn't the way i understood things it was more teaching by telling rather than teaching so i tried different programs and books but they generally used the same.
Terminology and just similar way of explaining the topics i thought i got it until i sat in the next meeting with our accountants now i took getting mentored by colleagues that i trusted and a.
Friend who was a cfo when everything finally clicked there was actually a logic to accounting once i filled up these gaps all the other pieces fell into place.
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Automatically now i know many of us
Struggle with these topics you might be a business owner and you want to be confident when you sit down with your investors or your contacts at the bank.You might be a student who struggles with accounting concepts or you might already have an mba in finance but can't quite see how these financial principles are applied once this becomes clear.
You're going to be more confident in your work and in your interactions with others so what's financial analysis anyway in a nutshell it lets you measure a company's.
Performance and understand if it's done well or poorly in the past and even more important to get insights into how the business might perform in the future which means that it involves.
Looking at historical data to get information about the current and future financial health of a company so where can you find this historical data to perform your financial analysis.
Well you're going to have to take a look at the company's financial statements they're specifically three main reports the first one is p l if you want to find out about a.
Business's profitability you go to their income statement there you can find out how much sales a business had in a certain period which costs and what was the resulting profit or loss.
The second main financial statement is the balance sheet so the balance sheet shows which assets the company owns the liabilities it owes to others and the equity that belongs to.
The owners and finally there's the cash flow statement this one lets you know if the company generated cash where that cash came from and what it's spent it on based on the.
Data in these reports a financial
Analyst is going to try to get insights into several factors that contribute to a company's overall financial health one of the most important ones is liquidity.Without sufficient cash generation the business has very little chance of surviving next is profitability this refers to the ability of a business to generate profits another one is.
Efficiency how well is the company using its assets and liabilities to generate income for example how often is inventory turning over or how long are receivables outstanding so how long are.
We waiting to get paid and finally there's leverage meaning to which extent is the company depending on borrowing to finance this operation now a lot in financial analysis comes.
Back to context take fire for example is it a good thing or a bad thing you need to step back and assess the whole picture because fire can be a good thing but if it's in another setting.
Like this one it's a bad thing so it's important to understand the different components alone and how they're linked together to give you the correct big picture.
That's why financial analysts work a lot with financial ratios now it's equally important to consider ratios that analyze all factors of a company's health because it's not enough.
To just look at profitability a company can be profitable on paper but not generate much cash or the return on equity may look great but is highly leveraged which carries a higher risk if.
There's downturn in the economy okay so that's financial analysis in a nutshell but many fail to be successful because they don't understand how these numbers flow into the reports basic concepts.
Like debits and credits and how journal entries go from the general ledger to a trial balance and then to the financial statements there is a certain grammar to this language of business that you need.
To be comfortable with now you can learn this grammar from different places there are many videos and books but most of them use the same terminology which can be too technical or too dry for many.
People if you'd like to learn financial analysis with my proven learning system a system which more than half a million professionals have successfully completed.
I just launched a fundamentals for financial analysis course in there i'm going to take you through multiple case studies challenges quizzes and exercises but we're going to start with core.
Accounting principles now you might be thinking oh my god do i have to go through that but i promise you you're gonna love that section debits and credits were.
Following me my nightmares as a student even later in my career so i made sure that this part is specially clear easy to follow and most importantly that it's fun.
I'm a big fan of formulas and i found the formula that made this concept click for me and i'm going to share that with you in the course you're then going to help claudio who you're going to meet in.
The course you're going to be helping him run his successful beach business you'll help him set up his journal entries the trial balance income balance sheet and his cash flow statements.
You're going to learn essential concepts like the difference between cash and accrual accounting how to handle depreciation and inventory you're going to be able to read and create financial.
Statements you'll be able to calculate appropriate ratios and assess the health of a business then it's time to gear up with excel i'm going to cover exactly what you need to automate your work and.
Allow you to get creative with your analysis once you're all geared up you're going to learn the importance of working capital management you'll become.
Familiar with important money concepts like time value of money and how to use these to make better investment decisions we'll talk about financial leverage to understand why companies.
Take on debt and we'll finish off with financial forecasting so you can use various techniques and regression to make your predictions so all of this is to set you up for success you're gonna.
Find meaning in your work because the numbers are gonna make more sense you're gonna get to be creative and set up your own automations in excel and most importantly you'll be able to.
Confidently contribute and provide business recommendations in your meetings so if you're interested to find out more check out the link to the course in the description of this video.