“An Investment in knowledge pays the best interest”. Benjamin Franklin
Hello World! We often are left to ponder the thought of why we need to analyse the way a business operates. As a student learning about the different business methods of the financial world will give us the ability into how to focus on the reality of the fundamental analysis of such businesses. The first step is discovering what the key concept question or KCQ’s might be. So, as I delve into the murky world of finance I have discovered that there are four concepts within this task.
KCQ1 – Fundamental Analysis
What do you understand the concept to be? To me this concept is the nuts and bolts of where a firm’s financial statements stands and the process to investigate the actual goings-on of the firm and seeing where it stands in the financial sector. Not just looking on the surface of the events but by engaging the economic and business realities to envisage and determine the value or worth of the firm.
A firm can be successful if it is able to show why they are successful. Do they look after number one – the firm or do they consider that there are many ways that they can engage with quantitative and qualitative information involving people, number and words. Do they look after the customer by seeing and understanding what the customer requires and how the firm delivers the product or service?
Having a starting point in fundamental analysis will give us a base to start with. It by no means is the only answer but having foundational thinking will give us a way and means to utilise the information provided. Whether we agree or disagree with the information does not matter, what does matter is that we are given a baseline to ensure that what we see will assist with the fundamental analysis of the firm that we are investigating at the time.
What is my reaction to the concept? My first reaction to this was why does everyone want to reinvent the wheel? If we have foundational knowledge about how to go about analysing a firm’s statements we can build on from that knowledge.
KCQ2 – A Framework to analyse financial statements
This explains a lot. Having a framework to analyses financial statements is more than just looking at figures. The framework gives us the building blocks of different ideas where these ideas could be a road map to understand the key aspects of how a firm can add most value and what the operating activities of the firm are. When we put processes in place to help us understand the framework of financial reporting analysis we will gain the skills and abilities needed to achieve the task at hand.
As we will discover that we will be looking into the two different frameworks that will help us place the facts with the skills that we will learn to analyse these financial statements. We often hear how do you eat an elephant? The answer is one piece at a time. So, goes this for analysing financial statements by breaking it down in bite size pieces we will be able to place together a story that we can understand. Without pulling the facts apart we will be able to learn and understand the picture that these statements are showing us.
Financial statement analysis is not meant to be easy and cannot be taken at face value. We need to understand that at times it will be difficult to do but as we delve further into the frameworks that we will be using. We will find that that the information will be easier to understand when we use the spreadsheets to decipher the information and as we use Discounted Cash Flows (DCF) and economic profit frameworks to give us precise measures of value for firms.
KCQ3 – Many points of View
It doesn’t matter who you are or where you work in the finance industry each person as a different point of view of how they will go about the analysing financial statements. As a cohort this term we need to ensure that we are all on the same page when doing just that. As we go about identifying and thinking about aspects of this topic we will be able to gain an insight into the different perspectives of the firm in which we will be analysing.
KCQ4 – What does it Take?
At some point of this we will find that we have gained new insight into a firm’s business realities and what is produced through its financial statements. Focussing on a firm’s key economic and business drivers and what will happen in the future will give us a new techniques and skills to analyse financial statements. To me it takes commitment and sound judgement to be subjective when analysing financial statements
Can I relate the concepts back to personal experiences or life in general?
Looking at Financial analysis draws me to the thought of when I was a child and getting that first amount of pocket money. As child I could look at different ways of disbursing my money. I could put it away in my bank account and allow it to grow or decide what I would like to buy with that money.
Just as it is today analysing Financial Statement allows the viewer to gain an insight to where the finances are going. Are they being managed correctly or is it being frizzled away? Is there a way the business can improve its practice? These are just a couple of questions that can be considered when looking into a Firm’s Financial Statements.
What can I consider to be my challenge in this subject?
Over the years I have found that I tend to overthink what I do in my studies. When coming to this exercise I found that putting all the thoughts that are running around my head on paper a challenge and quite daunting.
ACCT13017 - Financial Statement Analysis 