Hello guys, so for those of you that didn’t read the first part of this write-up, here it is. Summarily, I explained how we, the members of the AAA (Association of Accounting Avoiders), are now being forced not just to understand but also to love accounting. I also tried to give a rundown on the topics taught by the ‘faculty’(something else I just learned in business school) and how I understood them. My aim of these AAA posts is to make you see that accounting is not just for sad restricted people on suits and ties.
So, that being said, I will continue to outline my understanding of what each topic in the CFA course aims to teach:
The basics of profitability analysis: As the name implies, this topic was gold. I own a bar and restaurant business that I intend to franchise. This topic made me see why that dream is still a dream five years after the launch of Crest Karaoke Bar. Sometimes, you are making sales in business, and customers can’t stop talking about your product/service. Like most entrepreneurs can attest, this does not translate to money in the bank. Why is that? I paid a lot of money for this MBA, so I would not give you the satisfaction of understanding this without engaging me as a consultant for your business.
Business analysis within the context of a competitive environment: This was also a fun topic as it made me understand the importance of knowing my market share. You hear a lot of people talking about market research, and it seems like a load of bull, right? Well, that’s why you are struggling against the tide. No matter how much you feel you are a monopoly, every business has competition. Well, except you are GOOGLE, and even they struggle to fend off Bing and Facebook from nibbling on their market.
The accounting principles and regulations that frame financial statements: Have you ever wondered why some civil servants are so wealthy? Positions like a level 9 Local Government cashier, having so much cash that their children school out of the country. Well tada! It is easy for them to make a killing by putting an extra zero (0) or two behind a figure. Let me put this in context for you. If you add Zero (0) to 1 Million Naira (1,000,000), it does not turn to 2 Million; it turns to Ten million (10,000,000). That is precisely 1,000% profit. You cannot make that kind of profit anywhere else, even if you found a clever way to sell air. Some regulations and principles act as checks and balances for these things. In my understanding, this is what this topic aims to teach.
Balance Sheet: Finally, some familiar territory, right? WRONG! The balance sheet is a beautiful work of art. It is also called the statement of financial position for a reason. This financial statement gives you an overview of what your company owes (Assets) and what it owes (Liabilities). You can pull it up at any date to show where the company stands at any point in time. Remember our earlier example of selling and not seeing profits? Well, it may be that your liabilities and expenses out way your revenue and assets. Although the sheet is supposed to balance at each point, i.e., total assets must balance with total liabilities plus shareholder’s equity, you can quickly tell if you are overstocking or paying too much as salaries to your employees.
Let me stop here to have time to go and work on my other courses.
Until I see you again next week when we take a deep dive into the CFA outline, let me leave you with one of my impactful words of wisdom.
‘Nobody can make you feel inferior without your permission’ – Eleanor Roosevelt
Signed:
The Prince of Business
Solving Business Problems