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What are Disadvantages and Advantages of Financial Statement Analysis?

Posted on by Imarticus Learning

Companies choose different processes to be profitable, safely increasing their productivity. One of the safest ways is the analysis of financial statements; its use makes it easier to respond to possible problems. The advantages of financial statement analysis in a company include the fulfillment of the business plan, such as better communication within the company and increased productivity.

The objectives of financial analysis is to generate financial statements that are true statements of the company’s health. Financial documents and statements must be prepared and published on a yearly, quarterly, biannual, and monthly basis.

What is Financial analysis? 

Financial statement analysis covers a company’s operational budget, assets, expenses, liabilities, earnings, and the net worth of liabilities and assets. Financial analysts, accountants, and planners use these statements to enable decision-making expansions, future planning, fundraising, and market launches among others. However, there are bound to be some disadvantages too. Let us explore them.

Financial Analyst course

Advantages of Financial Statement Analysis 

Pattern Detection and forecasting: The importance of financial analysis lies in its ability to reveal earnings per year, sales, and profits accrued. Though sales figures may vary, financial planners will be in a position to find a correlative pattern over a few years of sales data. Take the example of a company that may reveal a trend of sales increases whenever new products are marketed and released. Sales could drop after, let’s say, a year of the product launch. The advantages of financial statement analysis are huge for companies, as it forecasts a market life of about a year, which is useful as it shows sales patterns for product launches, a sales drop after a year, and a need for new products in a year.

Budget Outline in Real-Time: Decision-making for planning the future, budget estimations, corrective actions required for efficient budgeting, and more such decisions are some of the aspects that add to the importance of financial analysis. One of the advantages of financial statement analysis is that it reveals how much you can spend on marketing or product launches, strategizing for marketing campaigns, future expansions, and requirements for funding. 

Disadvantages of Financial Analysis 

Based on the patterns of the market: A big disadvantage of financial statement analysis and use for making strategic decisions is that it is based on figures and data on current market conditions, which may fluctuate. Past performance is a good indicator and motivator. It cannot, however, guarantee fluctuations and future demands. A cautious approach is needed as part of the objectives of financial analysis for the interpretation of financial ratios and statements to prevent excessive risk-taking based purely on forecasts.

Analysis of At-One-Time basis: As the name suggests, the forecast and analysis are applicable at that time only. It does not reveal or compare the past performance or future forecast at one glance. One will need to exercise caution by generating and reporting continuously rather than on a one-time basis. Such extrapolation of data and financial analysis undertaken frequently is crucial to the company’s health and decision-making abilities.

Why study financial analysis?

Consider getting a finance certification so that you will understand the advantages of financial statement analysis better.

Course skills and requirements

A graduation degree or even a Master’s in Finance goes a long way. Add relevant certifications. Those from a non-financial background can also take these courses, as most offer boot camps to understand what is financial analysis.

Course advantages: The course offers a good grasp of basics, concepts, theoretical knowledge, practical skills, and finance certifications that could help enhance your resume and career.

When Applying For a Financial analyst Position What Skills Should You Have?

Posted on by Imarticus Learning

When Applying For a Financial analyst Position, What Skills Should You Have?

Depending on your career plan, resources, specialization choices, and eligibility choose your certification. These have different prerequisites in terms of educational background, experience, and examinations taken to be finally added on to your resume. All of them provide you with a well-defined skill set meant to ensure you are industry ready and have the required skill sets. Let us explore some areas.

Education
 A graduation degree or even a Master’s in Finance goes a long way. Add certifications that are relevant like the CFA from the Chartered Financial Analyst Institute. Those from a non-financial background can do an MBA and take a course on financial analysis as these courses offer boot camps to bring you to speed. Analysts aspiring to work in securities should take their Series 63 and Series 7 exams to be ready for any suitable position.

Non-transferable skills will also need to be developed and aligned with the enterprise’s needs. You must have the following traits.

  1. Interpersonal Communication skills
  2. Ability to solve problems creatively.
  3. Collaborative team skills
  4. Ability to work with ambiguity, pressure, and demands from the startup environment.
  5. Discipline and integrity since you will be working on financial transactions.
  6. A good learner as there may be no prior standards in financial interpretations.Experience
    Most financial analysts gain employment as soon they finish their CFA certification or an MBA from a reputed university. However, other than education and the skills above you will need luck. That’s all. Ignore the payouts and work diligently. In a few years, you will be successful and climb the ladder of success. The payouts get more handsome as time moves on. And the scope is limited solely by you. The industry demands for good Financial Analysts have always been short of supply and have and will never end.Skill sets:
    A Financial analyst has to have a gamut of traits besides training which can be acquired through online refresher courses and extensive research. The importance of continued learning can never be stressed enough. Once you have your skills in place and your certification to validate you are industry-ready, act on taking your skills to the next level.

    The skills of a financial analyst might include:
    • Financial modelling: The modern Financial analysts must be excellent at presenting financial issues in modelling form such as through models like the Sortino Ratio.

    • Financial analysis: This is what the job role demands most from you. You can do accredited online or regular courses to equip yourself. Get certification from CFA under your belt.

    • Data analysis: Digital data today and especially in this field involves Big Data and Deep Learning tools. You will need to update your technical skills to include DevOps, SQL, Python, R etc.

    • Marketing skills: This is one non-transferable skill that you learn from experiential learning. Do a course to stay abreast of the latest technological trends to help reduce your work burden in advisory or forecasting roles.

    • ERP systems: To effectively manage the back-end offices and for automation, you need to be fluent in ERP systems.

    • Strategic thinking: Get creative, and innovative and rely on your own innate skills to develop this invaluable trait you cannot learn from college.

    • Decision-making: The financial analyst services and advise others on making investment decisions. Your acumen needs to be sharp and abilities in decision making clear, precise and data-based when making your presentations.

    • Thought skills: Your head has to be your best ally as you make those calculations and wade through complex equations while landing on your Agile feet at all times. What better way than extensive reading, discipline training and building a hobby to keep you in the developing mode.

    • Attention to detail: Even a tiny mistake on the part of a Financial Analyst will never be tolerated and has a cascading effect on the firm, investors, and profit. No one but you can help yourself! Decide wisely because the Financial Analyst role is definitely not for everyone.

What Training or Experience is Needed To Start Private Equity Fund?

Posted on by Imarticus Learning

 

How to start a private equity fund

Today most PE firms are mid-size or small enterprises with 2 to 100s of employees. To start a PE fund is a well strategized and thought of venture. Managers should follow these essential steps when launching a private equity fund. The large PE’s include the well known TPG Capital, Carlyle Group, Goldman Sachs Capital Partners, Apollo Management, and the Blackstone Group. The main steps of your roadmap to successfully starting a PE fund are detailed below.

Business strategy forming:
The first step is to outline the sectors of your business strategy. Make your financial plan unique and different from your competitors and normal benchmarks. Base the business strategy on documented research into a specific market or sector. Some examples are energy development, biotech or fintech companies. The baseline is that your fund goals are important to your investors.

Operations and Business Plan:
Just as in good plans, record yours with fund-time frames, calculated cash flow, capital raising periods, the time taken to exit investments in portfolio management, and your detailed 10-year plan. Let your strategy and action plan sew the goals recorded details together. Your strategy will include advisory board, think-tank setting up, back end operations, staff hiring, documenting policies, compliance measures and all details of the most major event of PE fund set up.

Investment Vehicle establishment:
After your early operations house is in order to move to establish the legal structure of the fund. Will it be a private limited, partnership, LLP, or LLC? Enrol the services of a good lawyer to form the articles of association or legalese involved in legally establishing the fund.

Fee Structure Determination:
Set out the provisions for management fees, carried interest and other rates for fund performance. Typically, annual management fee to fund manager is 2% of the investment committed capital received from investors
Te carried –interest should be about 20% above the anticipated return levels while the hurdle rate is 5% and the returns split in a 20:80 ratio, between you and investors. Ensure the setting up of norms of compliance, valuation, risk etc. for the PE fund.


Capital Raising:
Finally, you are ready for the PE capital raising stage.
You will need the:
• Offering memorandum
• Subscription agreement
• Partnership terms
• Custodial agreement
• Due diligence questionnaires

Ensure materials for marketing are ready well before raising capital. Severance letters of new fund managers are to be recorded. This is when you move into the crucial investor finding stage. Invest your funds and ensure capital commitments from your fund managers.

Your marketing panache and networking is the pivot of your fund. Ensure compliance in investments from accredited investors, institutional investors etc. Your fund managers can build on their portfolios and target their clients from there on.

To get a clear picture of how to go about setting up a Private Equity Fund one needs to research well, have a great network of clients and proper knowledge. Do short financial analysis courses online to revise and equip yourself with the small details required in setting up your fund. You can also do an accredited financial analysis course and obtain a certification that will stand you in good stead on your sojourn into your PE fund. Most of these courses will give you insights into theoretical and practical aspects that you have possibly forgotten. Best of all it allows you to move forward confidently. 

In parting, the roadmap is a sure way of finding your way through unchartered territory. PE funds are thriving, growing and out-classing other forms of funds.

 

What Kind of Background and Training is Needed to Work in Private Equity?

Posted on by Imarticus Learning

Youngsters and fresh graduates with an MBA are passionate about getting PE-Private Equity or VC-venture capital jobs. That’s a good goal to start with. What you really need is to research what these firms do, what your job entails, why you want to make a career in this field, what you can do to achieve your goals and much more. Let us explore the kind of background and training you will need to work in PE.

What does a PE Firm do?
PE firms obtain their funds from HNIs with surplus cash and utilize it to acquire stakes of equity in companies that show promising returns. The main players in PE are institutions, accredited investors, and HNIs who invest large amounts of money over long lock-in periods in return for profit shares in the fund. Duration of a PE can be from 5-7 years. On completion, the PE firm will sell through an IPO its stakes to gain from huge profits.

A courses on financial analysis will help you understand who and where you will be working with and prepare you to perform in the chosen role. Again, research the proposition. Provided below are some details that can help you distill your thoughts.

Responsibilities of a PE analyst
• Manage and monitor investments under management.
• Finalise annual and quarterly returns, financial statements, fund-reviews, and portfolio companies.
• Update, create projection and valuation models
• Involve in the review, study, research of fresh investments, and due-diligence activities.
• Execute target investments research, plan and create collateral fundraising
• Transcribe, research, present industry studies with the aim of detecting future investments.
• Prepare detailed reports and memorandums of information
• Review deals and legal documentation
• Build performance metrics and portfolio analysis
• Interact with peers, senior members of other PE firms to get business intelligence on potential and existing investments
• Diligently complete allotted additional duties and stay updated through financial analysis courses online.
Education

A graduation degree or even a Master’s in Finance goes a long way. Add certifications that are relevant like the CFA from the Chartered Financial Analyst Institute. Those from a non-financial background can do an MBA and take these courses, as most offer boot camps to bring you to speed. Analysts aspiring to work in securities should take their Series 63 and Series 7 exams to be ready for any suitable position.

Non-transferable skills will also need to be developed and aligned with the enterprise’s needs. You must have the following traits.

  • Interpersonal Communication skills
  • Ability to solve problems creatively.
  • Collaborative team skills
  • Ability to work with ambiguity, pressure, and demands from the startup environment.
  • Discipline and integrity since you will be working on financial transactions.
    ExperienceMost financial analysts gain employment as soon they finish their CFA certification or an MBA from a reputed university. However, you other than education and the skills above you will need luck. That’s all.Ignore the payouts and work diligently. In a few years, you will be successful and climb the ladder of success. The payouts get more handsome as time moves on. And the scope is limited solely by you. The industry demands for good Financial Analysts have always been short of the supply and has and will never end.
  • Skill sets:
    A Financial analyst has to have a gamut of traits besides training which can be acquired through online refresher courses and extensive research. The importance of continued learning can never be stressed enough. Once you have your skills in place and your certification to validate you are industry ready, act on taking your skills to the next level.

What is the Easiest Way To Learn How To Analyze Financial Statements?

Posted on by Imarticus Learning

Financial professionals must know and learn financial analysis to be able to analyse the statements of finance of an enterprise effectively. This requires a financial understanding of the basic key regions as financial analysis courses will teach you. They are : 

  1. Financial statements structure.
  2. The market economics of the environment within which the industry operates
  3. The goals and strategies employed and pursued by the firm to stay ahead of the competition. The route to learn financial statements analysis lies in the below plan or strategy.Industry characteristics and economic factors considerations: Porter’s Five Forces or economic attribute analysis will help determine the activities performing in the chain.Ex creation of the product, its manufacture, the distribution channels, retail outlets, price, transportation costs and so on. You now do the value analysis of the chain.

    Company strategies identification: Look at the company’s product, its nature including the product uniqueness, profit margins levels, brand loyalty creation strategy, and cost control measures. Factors considered are the integration of the supply chain, diversity of geographic locations, industry etc.

    Quality of the statements of the organisation’s financial statements assessment: Assess the key statements for relevance within the boundaries of accounting standards. While examining the accounts pay attention to issues of recognition, classification, valuation in the balance sheet accounts to arrive at a proper assessment.

    The main focus area checks if the balance-sheet forms a complete and real picture of the economic position in the firm. In assessing the statement of income, the focal area is to make a true assessment of earning quality to be the representation of economic performance in the organisation.

    Profitability and current risks analysis: In this step, the financial professionals add value to the financial statements and assessment of the firm through the tools of financial statements.

    Common tools for analysis are ratios of the financial statement which are the key to debt management or coverage ratios, liquidity, profitability, asset management, risk management, and market valuation.

    Ask the two questions related to profitability namely regarding how very profitable are operations and how much profit accrues to shareholders of equity. This enables the forecasting of the future health of the firm.

    Preparation of financial statements and forecasts of financial statements:
    Financial professionals will find challenges in making assumptions that are reasonable when speaking of the health and the firm’s future in comparison to the comparative values of growth in the industry.

    They will then study the effects of funding and cash flows on these assumptions. Standardization techniques and approaches like sales percentile values help draw up the pro-forma of the financial statements.

    Firm Valuation:
    Discounted cash flow methodology is most often used from among the many approaches to assessment of firm valuation. Cash flow is assessed and valued in the context of projected and awarded dividends.

    More advanced and technical detailed analysis techniques use available cash-flows to the enterprise or shareholders of equity. Yet another way would be to use the value-added economics method of relative valuation and measures which are accounting-based.

    The final steps:
    On completion of the analysis, valuation and financial statements the integrity of testing is called upon. Are these figures real and true pictures of the firm’s finances and positions?

    Many representations are fudged, enhanced and irregularly reported making the final test critical and valuable to the forecasting and financial data analysis. The financial analyst needs to be an ace at recognizing manipulation, detecting frauds, and correcting the statements.

What are Some Of The Advantages Of Financial Ratio Analysis?

Posted on by Imarticus Learning

What Are Some Of The Advantages Of Financial Ratio Analysis?

Financial ratios are investigative tools to evaluate the relative health of companies by performing calculations on data items on the income and financial statements, cash flow statements and balance sheets.
Ratios measure the companies’ operational liquidity, efficiency, profitability, and stability giving the investors information and results rather than complicated financial data. Both analysts and Investors gain profit-earning advantages in the stock market through the use of the very widely used technique of ratio analysis to give arguably popular and indispensable insider-information on the company’s health.

The advantages of financial analysis:

  • Company comparisons: Financial ratios provide a well bench-marked method to compare industries and companies. Using the financial ratios ensures an equal and level playing field of all companies from the point of view of financial analysts. Companies are evaluated based on performance rather than their sales volume, market share or size. The raw financial data comparison of two companies coexisting in the industry can only offer a perspective of limited-insight. Ratios are never mere numbers and are true reflectors of the company’s health and stability. They reflect the profit, growing sales, funding the business, the debt accumulated and many other factors.
    Let’s take the example of two companies. The older of the two companies may boast of revenues that are mind-boggling and make it appear stronger than the newer of the two. However, assessing the two companies on the basis of ratios such as ROA-return on assets ROE-return on equity, the profit margins both gross and nett could reveal the smaller company functions more efficiently, while generating more profits and being substantially the healthier of the two in terms of the financial ratios, and assets employed per profit dollar.
  • Analysis of industry segment: Ratios can forecast trends in particular segments of industries by creating benchmarks against which the industry players can be judged. Small businesses can effectively use industry benchmarks to draw up an effective organizational strategy while measuring their performance as against the industry standards.
  • Stock valuation and indices: The understanding of ratios helps investors and analysts to communicate and evaluate the weaknesses and strengths of firms, companies, and industries. Fundamental financial analysis is termed financial ratios and used in determining the relative health of companies as a precursor to investing.
  • Performance and planning: Ratios can guide entrepreneurs to better business plans while making presentations, and in guiding investors and lenders. By using the trends for the particular industry owners of small businesses can set realistic time-bound goals for performance in the context of specific ratios giving investors a peek into the true picture of the company. Ratios can also help as a motivator for strategy and change in the organization, providing flags and guidance to the management as constructive feedback reflected as ratios in valuation-shift when the organization changes. Ratios help managers stay alert by reflecting the financial opportunities as well as company weaknesses.

By doing quick financial analysis courses, one can learn the advantages of financial analysis and how to use the tools effectively in becoming a great financial profession. These courses offer a good grasp of basics, concepts, theoretical knowledge, practical skills and certifications that could help enhance your resume and career.
They also offer boot camps, short term workshops, and knowledge valuable to enter the industry. Another advantage in such a course is of mentoring by certified and experienced industry aces that helps garner the latest best practices, techniques, skills, and practice on the latest trending technologies in the financial industry.

Also Read: How Ratio Analysis Helps Modern Age Financial Analyst