Corporate Financial Accounting is an essential aspect of any business organization that helps in keeping track of financial transactions and ensuring accurate financial reporting. It involves recording, summarizing, and presenting financial data to help management make informed decisions. As a business enthusiast, learning about Corporate Financial Accounting can seem overwhelming, but understanding its importance is crucial for any individual pursuing a career in finance and business owners.
The major learning objectives of the course is to understand financial statements. There are five methods of financial statement analysis and this is examined below;
- Horizontal Analysis: is a method of financial analysis in which the changes in financial data over a period of time are compared, typically year-over-year. This involves analysing the changes in the absolute naira amounts and the percentage change of line items in the financial statements, such as the income statement, balance sheet, or cash flow statement. Horizontal analysis helps to identify trends in the financial performance of a company, such as whether revenue is increasing or decreasing, whether expenses are rising or falling, and whether assets and liabilities are growing or shrinking. This type of analysis is useful for evaluating a company’s financial performance over time, identifying areas of improvement or concern, and making informed decisions about investments and financial strategies.
- Vertical Analysis: is a method of financial analysis in which the different items of a financial statement are expressed as a percentage of a base amount, typically the total revenue or total assets of the company. This allows for a comparison of the relative proportions of each item and provides insights into the financial health of the company. By expressing each line item as a percentage of a common base, vertical analysis makes it easier to identify trends, patterns, and potential areas of concern. It is a valuable tool for investors, analysts, and financial managers seeking to gain a deeper understanding of a company’s financial performance and position.
- Common- Size Statements: Financial statements that show only percentages and no absolute naira amounts. It is created using vertical analysis, which involves expressing each line item in the financial statement as a percentage of a common base.
- Trend Percentages: is a method of financial analysis that involves examining data over a period to identify patterns, trends, and relationships. This type of analysis is used to evaluate the performance of a company or to forecast future performance based on historical data. Trend analysis involves looking at financial statements, such as the income statement or balance sheet, and comparing the data from one period to another. This allows analysts to identify trends in revenue, expenses, and other financial metrics. By examining trends over a longer period, analysts can determine whether a company’s financial performance is improving, declining, or remaining stable.
- Ratio Analysis: Ratio Analysis is a method of financial analysis that involves the calculation and interpretation of financial ratios to evaluate a company’s financial performance and position. Financial ratios are calculated by comparing different financial metrics, such as revenue, expenses, assets, and liabilities, to provide insights into a company’s liquidity, profitability, efficiency, and solvency. There are several types of financial ratios that can be calculated, this will be discussed in my subsequent post.
As a graduate of accounting and a practicing accountant, I have always been interested in expanding my knowledge and skills in the field of finance. That’s why I decided to enroll in the CFA class, which is a prestigious and rigorous program that covers various topics related to financial analysis, valuation, ethics, and portfolio management. Taking the CFA class has been a rewarding and challenging experience for me. It has also reminded me of my undergraduate days, when I first learned the basics of accounting and developed a passion for this discipline. I have enjoyed revisiting some of the concepts that I studied back then, as well as learning new ones that are relevant to today’s dynamic and complex financial environment.
