Along the journey of my education and career, I have taken accounting courses on different occasions. I remember after my bachelor’s degree when I was deciding on which certification I was going to undertake to augment my first degree, I contemplated on two certifications – The Association Chartered Certified Accountants, ACCA exams or the Stockbrokers’ certification exams. I started with the ACCA and attempted two basic accounting exams which introduced me to the world of accounting; it was interesting. Unfortunately, I dropped the ACCA exams along the line and opted for the stockbroking certification which was, at the time, affordable for me. I still had to write accounting exams in my newly found endeavour. So, I was familiar with the concept of accounting and by extension the financial statements. But the whole perspective changed during my first intensive week at the Lagos Business School when Prof Akin Owolabi, the faculty member taking corporate financial analysis, took us through different concepts of financial statement analysis.
Prof. Owolabi made us realise that most of the concepts in accounting are just mere convention. For instance, before now, I used to believe vehicle as an asset has to be depreciated for four years. But he asserted that to be mere convention; he says company can elect to depreciate for less or more years. Of great importance to my deeper understanding of the analysis of financial statement is the classification of asset and liabilities. To my amazement, he opines that asset can be broadly categorized as income or non-income generating and liabilities can be divided into interest and non-interest bearing. This was an eye opener for me because this has made me understand the components of the assets and liabilities of companies better. Some other highlights of his teaching were:
- The classification of Asset to be current assets or non-current assets is based on the intended usage
- Owners ‘equity is broken down to contributed capital and earned capital
- The most important Cashflow source is the cashflow from operating activities
- Asset is the summation of owners’ equity and liability as the basic accounting equation
With few days into the rudimentary learning of the analysis of financial statements, some of my colleagues that have never studied accounting were beginning to analyse financial statements of companies and give informed opinions on whether the companies were healthy or not. Some were confident to the extent of giving advice to investors whether to invest in the analysed companies or not. To test our understanding of the basic concepts, Prof. Owolabi gave us group assignment – Capstone assignment – which has to do with analysing a public company listed on the stock exchange and compare it with another company in the same industry. It was surprising that all the groups carried out the assignment excellently. This was obvious during the presentation of the assignment because the presenter from each group was a group member without a prior accounting or finance background. I believe we still have a lot to learn as we progress in the study of corporate financial analysis.