I am very much delighted that the capstone project has come and gone.
Although it was a group CFA project, it feels as though a heavyweight has been taken off my shoulders.
I have a dream of acquiring companies someday in my business life, so understanding financial statements is one of the major reasons for starting an MBA at LBS.
A good understanding of a company’s financial statements is very important when making investments like mergers and acquisitions, which is why I’ve always thought that this skill is very important.
The capstone project was an important tool to help me achieve this expectation of being skilled in understanding and analyzing financial statements.
We were meant to choose a company in any sector and analyze its 10-year performance using its financial statements. Then we are to benchmark it against another company in that sector.
My team analyzed the 10-year performance of Unilever Nigeria Plc and benchmarked it against Nestle Nigeria Plc.
Because of my background in electrical engineering, CFA is a new concept to me.
However, I have a very accommodating team, particularly the accountants who took the time to teach and mentor the non-accountants on accounting and financial statement assessment measures such as ratio analysis.
So far, I have come to understand the different types of financial statements, which are
- Statement of financial position (balance sheet) – tells us about an entity’s (company’s) position at any point in time. It looks at the assets, liabilities, and owners’ equity of the entity.
- Statement of Profit or Loss (Income Statement) and other comprehensive income, which shows how profitable the business is. It looks at the revenue and expenses.
- The statement of cash flow – contains the movement of cash in and out of the business.
- It is made up of the operating cash flow – cash movement in the day-to-day running of the business.
- Financing cash flow—the injection and repayment of capital
- Investing cashflow – the acquisition and disposal of assets
- Statement of change in owners’ equity: this gives information on the changes in the stockholder’s equity over a period of time.
- Finally, there are notes to the account. These are explanatory notes that tell the person who is looking at the financial statement what assumptions, accounting policies, methods, and estimates were used to make the financial statement and how they were used.
Liquidity and solvency are terms I have heard for a long time, but I never understood what they meant.
Luckily, I now know that while liquidity refers to a company’s ability to meet its short-term obligations, solvency is a company’s ability to meet its long-term obligations.
We also used the Corporate Finance Ratio Analysis for our capstone project. This is the most important accounting measure we used for it.
These ratios are quantitative measures that are used to assess a business.
They are used to study the relationships between different line items in financial statements, in order to make informed business decisions.
Throughout the process, I learned about the various ratios and what they measure.
Some of the ratios assess the liquidity of the company, others assess the profitability, while there are others that check the efficiency of its operations and how indebted the company is.
The project was successfully presented last week. Nevertheless, I believe this is the beginning of my CFA learning curve.
