Hi Readers, hope you have been balancing your balance sheet.
Welcome back everyone to another and final update on Corporate Financial Accounting (CFA) gist page based on my class experiences. Yes! you read correctly, this is the final update and just like you, I am also finding it difficult to accept the fact that after today’s blog, I will miss sharing my experiences from corners of citadel of learning called Lagos Business School (LBS) as a participant in the ongoing Executive Master of Business Administration (EMBA) program cohort 28.
Recall my first day in Corporate Financial Accounting (CFA) class with Professor Akintola Owolabi on 10th February 2023 where the fundamentals of CFA was explained in layman’s language class with emphasis on structural nature of CFA with clear rules and regulations that have been established over years to handle different business transactions and scenarios. Ultimately, every lover of financial accounting must know the almighty formular:
Assets = Liabilities + Owners’ Equity
Of course, the relationship above is vital but of significant importance is to recognize the transactions that qualify as either Assets, Liabilities or Owners’ Equity, how do you post such transaction to ensure that at the end the balance sheet is balanced and the relationship above is respected. All of these and more were discussed in Part I of this series.
In Part II, I shared my further learning experience in CFA on the nature of business environment. Posting transaction rightly is key but what is a transaction, how and where do you get transaction, who is involved in transaction and other questions that were discussed with my second CFA facilitator (Dr Chiemeka Ojiabo).
From ownership/model of a business to setting business strategy and making necessary decisions to transform the strategy to operations and execution of these decisions will generate business events or transactions which will be post as either Assets, Liabilities or Owners’ Equity as the topmost levels. The entry as it is technical called, will enable a business to generate relevant financial statements to present its report, performance, challenges and supports required in an agreed industry standard formats thereby making it easy for every stakeholder in a business entity to have clear understanding of how the business is performing.
The financial statement can be in form of Balance Sheet, Cash flow Statement or Profit and Loss Statement. The combination of these financial statements is used by various stakeholders to determine so many valuable information about a business entity.
Now, I am glad to inform the readers that your ‘CFAite wannabe’ has graduated from dreading accounting figures to level where I can utilize the three financial statements mentioned above to determine various financial ratios used to determine the health of a business such as:
- Liquidity ratios (measure of a business ability to pay off short-term liabilities; ratios include current ratio, acid/quick ratio, etc),
- Solvency ratios (which determines the business ability to pay-off its total liabilities and continue to operate; ratios include debt-equity, debt-assets, and interest coverage),
- Profitability ratios (measures the performance of a business in generating profits from its operations. Ratios include return on asset, return on equity, gross profit margin, etc),
- Efficiency ratios (which is an indication of how well a business uses its assets and liabilities to generate sales and optimize profits for the investors. Key ratios are turnover, inventory and days of sales in inventory, etc)[1]
These are few of the financial performance ratios that I learnt in the last set of classes and not only in theory but ‘hands-on’ with group capstone project where 10-years audited financial reports of two well-known and established industrial goods manufacturing companies in Nigeria were analyzed thoroughly and recommendations were made to company management as well as potential investors based on the outcome of the analysis.
This is hallmark of LBS EMBA program, learn the theory, apply to real life event and the learning sticks!
Thank you, readers, for your congratulatory messages on my successful completion of Corporate Financing Accounting course and transforming magnificently from ‘I’m not the CFO, why worry about the figures’ to ‘My analysis of your company financial ratios shows that your business is……….’
Sorry readers, you must consult to get financial advice on your company’s performance!
[1] Financial Ratio Analysis: Definition, Types, Examples, and How to Use (investopedia.com)
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