Day 1 - Accounting Fundamentals, The Income Statement & Working Capital

Day 1 - Accounting Fundamentals

The aim of this session is to provide participants (particularly those who have no prior knowledge of finance) with an introduction to financial statement analysis. The income statement, balance sheet and cash flow statement are introduced, and the key interactions between the income statement and balance sheet are explained. Participants will build simple financial statements using a list of transactions.

Key topics:

• The structure of financial statements
• The income statement
• Balance sheet
• Cash flow statement
• Key links between the financial statements
• How business transactions are reflected in the financial statements

Day 1 - Income Statement

Throughout this module participants analyze a group of companies in the food manufacturing industry in order to calculate several income statement metrics. The matching/accruals concept and its impact on the income statement is covered in detail and the link between the income statement and the retained earnings account is investigated. Profitability is analyzed in various ways, using real companies’ financials to calculate key indicators of operating and financial performance. Participants complete a full profitability comparison for the peer group.

Key topics:

• Sales recognition
• Fixed and variable costs
• Accrual accounting and link between earnings and cash flow
• Expenses or assets – key concepts explained
• Adjusting cost of goods sold and selling, general and administrative expenses for depreciation and amortization
• Adjusting earnings for non-recurring items to produce normalized earnings estimates
• EBITDA, EBIT, net income and EPS
• Margin calculations

Day 1- Working Capital

This module provides participants with an understanding of the importance of working capital in the context of a company's financing structure and cash flows. The difference between working capital and operating working capital is analyzed using several ratios. Participants complete a working capital analysis for the peer group.

Key topics:

• Inventories, receivables, payables, prepaid items and accruals
• Definition of working capital and operating working capital
• Operating working capital and the cash cycle
• Working capital ratios and day calculations