Studying financial statements is an important part of the lives for finance students. This is not made any easier when lengthy assignments have to be written need to analyse the financial statements.
You don’t need to be Warren Buffet to analyse where your company’s money is going and where it should be sent. All you have to do is be aware of the 5 components of the financial statement analysis.
The first thing is to start with the business strategy analysis. When you analyse the strategies of the business, you will get an idea for the analysis that will follow. For an effective financial statement analysis, you have to be aware of what policies does the business adopts. Look into the mind of your soul and you will see what secrets your business strategy has to unfold.
When you are conducting the financial analysis of the organisation, you have to take care of the rules and regulations that are set by various bodies. These bodies may be governmental or maybe the rules in the code of conduct of the organisation. Using these rules, you have to determine the real economics of the firm. Even Starfleet Command didn’t allow transport of prisoner because the intergalactic treaty didn’t allow it.
You should also be aware of the standards and benchmarks that the organisation should follow. You should be aware of them so that the firm’s finances can be checked against the standards. If you are not following abiding by these standards, the aliens won’t visit you.
The finance manager also has to conduct a possible analyse and develop the predictive financial statement data and information. This information is useful to estimate the value of the firm. Or you can simply see the future in a Crystal Ball.
Using all the techniques above, the managers need to perform the equity security analysis, the analysis of the company’s credit, prediction of distress in the future. Also, the managers have to understand the components of a merger and the activities of an acquisition.
Looking For A Sample?
There are many things that need to be adhered to while writing an assignment in corporate financial policy. Check the sample below to understand what an assignment wants.
This is a sample of the assignment that a student sent our team.
After going through a case study of Rakuten Inc., the students had to answer the above questions.
What Should Be Kept In Mind?
There are many things that a student must keep in mind while answering any assignment. The primary one is always fulfilling the course outcomes in the answers.
For that, you should be aware of the following pointers.
- You should measure if the business strategy adopted by the firm is good or not. This is made in comparison with the industry that the company operates in and the likelihood of future developments in the same.
For example, a car manufacturing company like BMW will be thinking about the initiatives by the competitor Mercedes Benz and develop their strategies according to the same.
- You should also keep in check the accounting policies as followed by the organisation. This is cross-referenced with the income statement and the balance sheet. Any discrepancies are eliminated if found.
For example, companies like KPMG and others check their accounts by conducting an internal audit before an external expert comes in. This is done to minimise the effect of any inappropriate accounting policies.
- After analysing the business strategy’s appropriateness and the accounting policies, you should look for the profit. The performance of the organisation is measured with respect to the profit generated. This is measured by comparing the existing business strategy to the proposed, the current performance and the accounting policies.
- After the future performance of the firm has been evaluated and measured, value the firm.
- Then, the equity of the business and the credits are analysed. Also, merger activities and the acquisition activities of the organisation are calculated.
- The correct components of the existing communication techniques within the business are identified and analysed. On the basis of this, the business analysis and valuation process are conducted.
Important Topics That You Should Be Good At
Every course and subject have a couple of topics that are so difficult that you can actually call yourself an alleged master if you have them at the tip of the tongue.
Here is a list of a few such subjects that you should keep in mind and be proficient in if you want to lead your squad as Dr Strange did with Thanos’ messenger.
What topics they are? Presenting to you (drumroll, please?) the topics of FINA 2222 that can make you a king.
Dividend And Capital Structure Decisions
Capital structure is the way in which any company finances the assets it has. This is generally done with the help of combining equities, debts, or by hybrid securities.
The primary theories to study in this are – Trade-off Theory; Pecking Order Theory; Agency Costs; and Structural Corporate Finance.
Dividend policy is used when the firm has to either retain the earning from capital investment or to either distribute to the stakeholders or to retain some of the earnings and distribute the rest.
This can be done easily when the student is aware of the theories like Walter’s Model; Gordon’s Model; Traditional Approach; and Modigliani and Miller’s Model.
Weighted Average Cost Of Capital And Capital Budgeting
The weighted average cost of capital is how much the business needs to earn annually from the investments so that the value of the firm does not decline.
Capital budgeting is determining if the long-term investments of the firm (launching a new service, purchasing new machinery, etc.) are going to yield some positive result or not. Then, it is decided if the initiative is worth investing in or not.
Mergers & Acquisitions
Mergers & Acquisitions are activities where the ownership of the organisation is transferred to other entities or is consolidated with them.
The merger, technically speaking, is when two or more companies choose to work together and work as one brand. For example, Maruti Suzuki in India.
The acquisition is when one organisation takes over the stocks of other company. For example, acquisition of Nokia by Microsoft.
Application Of Option Pricing Theory
There is a substitute for almost every product that is in the market today. Thus, every person wants to evaluate the options available.
Thus, you can calculate the fair value of available options by using Option Pricing Theory.
Any set of rules and regulations that govern the operation of any organisation is called corporate governance.
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