Finance & Accounting for Non-finance professionals

Discover the fundamentals of financial accounting and how accounting statements are prepared. Learn why we need accounting, the basic statements, and how to record transactions.

Learn how accounting records the two-sided nature of every transaction through basic book-keeping, capturing the give and receive aspects to produce daily accounting statements.

Discover why accounting matters for individuals and businesses, tracking spending, revealing revenues, costs, and profits, and enabling filings with regulators and tax calculations.

Understand how a typical income statement presents revenues, subtracts direct and indirect costs to derive ebitda, subtracts depreciation to reach ebit, subtracts interest and taxes to reveal profits after taxes.

Learn how a balance sheet lists assets and liabilities, including fixed assets, current assets (inventory, accounts receivables, cash) and current and long-term liabilities, with total assets equaling total liabilities.

Illustrate how to record ten different accounting transactions in the income statement and balance sheet through a pizza delivery business, focusing on what the business gave and received.

Record the 2500-dollar personal capital contribution on the balance sheet under shareholders equity and cash, noting impact on the income statement and the balance sheet.

Record the second transaction by recognizing a 7,500 cash inflow from the bank and a 7,500 long-term debt liability. Update the balance sheet to reflect total cash of 10,000.

Record this transaction by adding land and plant and machinery as fixed assets worth 5000 and 3500, respectively, and reducing cash by 8500 to 1500, updating the balance sheet.

Record the fourth transaction by classifying $350 as cost of goods sold and $150 as selling and distribution, then show $250 cash paid and $250 accounts payable on balance sheet.

Record $1,000 revenue from 50 pizzas and compute EBITDA of $500 after COGS and selling and distribution expenses. Reflect $500 cash and $500 accounts receivables on the balance sheet.

Learn how to record depreciation for pizza equipment, a 5% depreciation of 3500, exposing non cash costs in the income statement and reducing asset value on the balance sheet.

Record the seventh transaction by recognizing 1% interest on a $7,500 long-term loan as interest expense and adding $75 to long-term debt, with no cash movement, and EBT of $250.

Record a $2000 purchase of pizza ingredients as inventory and a short-term debt from a friend, updating assets and liabilities on the balance sheet; no income statement impact yet.

Record the ninth transaction by calculating taxes on earnings before taxes of 250 at 40%, yielding post-tax profit of 150 and reducing cash by 100 in the balance sheet.

Reinvest profits earned this year by increasing shareholder equity by $150, reflecting net profit, and ensure the balance sheet balances with assets and liabilities totaling $12,475.

Recap the module by showing how accounting records transactions, balancing what the business gives and receives, and using income statements and balance sheets for internal performance assessment and regulatory purposes.

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Explore how to analyze a company's financial performance through operating and financing health, and benchmark outcomes using a scorecard framework that calculates key metrics and ranks four real-life companies.

Assess a company's health through financial performance analysis. Lay out a broad framework to diagnose performance issues.

Assess a company's performance by examining operating health, the core business performance, and financing health, the ability to meet financial obligations, using the income statement and balance sheet.

Explore the parameters to measure company performance by examining operating health including profitability, capital efficiency, and growth, and financing health including capital structure and liquidity, with methods to calculate each.

Identify important operating performance metrics and compute ebit margins, defined as earnings before interest and taxes divided by revenues, using the income statement and balance sheet.

Learn how to calculate return on invested capital (ROIC) using earnings before interest and taxes and invested capital, and interpret its pre-tax profitability across the income statement and balance sheet.

Calculate the invested capital turnover ratio by dividing revenues by invested capital to measure capital efficiency, revealing revenue per dollar invested and signaling better performance when the ratio rises.

Learn how to measure operating growth by calculating year-on-year revenue growth as the increase in revenues over the prior year, signaling stronger company performance.

Assess a company’s financing health through leverage, defined as total debt divided by total equity; a lower debt-to-equity ratio signals less reliance on external borrowings and greater flexibility.

Explore the leverage metric, defined as total debt divided by EBITDA. A lower debt to EBITDA signals stronger debt repayment from cash profits and lower leverage.

Explore liquidity as a financing health parameter and calculate the current ratio, current assets divided by current liabilities, to assess the ability to pay short-term obligations.

Learn how the coverage ratio, a liquidity metric, is calculated as EBITDA divided by interest payments to show a company’s ability to cover interest with cash profits.

Identify eight metrics to assess a company’s financing health by evaluating operating health—profitability, capital efficiency, growth—and financing health—capital structure, liquidity—illustrated with an example.

Illustrate the overall performance assessment framework by comparing four anonymized companies' operating and financing health to identify the best performer.

Download the annual report for listed companies from the company website to begin performance assessment. It provides qualitative and quantitative data, including the income statement and balance sheet.

Extract Alpha's income statement and balance sheet from its annual report, verify revenue, EBITDA, EBIT, and net profit, and confirm assets equal liabilities plus shareholder equity.

Compute EBIT margins by dividing earnings before interest and taxes by revenues. For Alpha, an EBIT of 1450 on revenues of 8500 yields about 17 percent.

Compute Alpha's pre-tax ROIC by dividing EBIT 1450 by invested capital 14150, where invested capital equals total debt 4450 plus equity 9700, yielding about 10%.

Calculate the invested capital turnover for Alpha by dividing revenues by invested capital. Derive a 60% ratio from revenues of 8,500 and invested capital of 14,150.

Calculate Alpha's revenue growth rate by dividing the year-over-year change in revenue by last year's revenue, yielding about 19%.

Calculate Alpha's leverage ratio by dividing total debt (4450) by total equity (9700), yielding a leverage of about 46%, illustrating financing health metrics.

Calculate the total debt to ebitda ratio by dividing Alpha's $4,450 total debt by its $1,850 ebitda, yielding about 2.4x as the second leverage metric.

Calculate the current ratio to assess Alpha's liquidity by dividing its total current assets ($2,500) by its total current liabilities ($4,100), yielding 0.6.

Calculate the coverage ratio by dividing EBITDA by interest expense to assess financing health. For Alpha, EBITDA is $1,850 and interest expense is $190, yielding about 9.8 times.

Calculate eight financial performance metrics for Alpha and extend the same calculations to beta, gamma, and theta to enable a cross-company comparison.

Calculate eight operating metrics from the annual report income statement and balance sheet, and compare four companies, Alpha, Beta, Gamma, and Theta, using EBIT margins and operating health indicators.

Plot the four financing health metrics, including the total debt to total equity ratio, for Alpha, Beta, Gamma, and Theta, and learn how to assess these metrics across the companies.

Apply a ranking-based framework to evaluate four companies across eight metrics, assigning green for best, orange for average, and red for worst performances.

Compare EBIT margins across four companies using a ranking-based approach; Alpha and Beta lead with 17%, Gamma is average at 12%, and Theta trails at 1%, with color-coded performance indicators.

Rank the pre-tax ROIC across companies, with Alpha at 10% (green) as top, Beta and Gamma as average (orange), and Theta at 1% (red) as bottom.

Rank operating health by the revenue growth metric. Alpha and gamma lead with around 20% growth (green), theta around 15% (orange), beta at 0% (red).

Rank the leverage metric across four companies by total debt to equity ratio; alpha and gamma lead with the lowest ratios, theta is average, and beta trails with the highest.

Assess the total debt to ebitda across four companies, where lower values are better; Alpha and Gamma post the lowest ratios (green), while Beta and Theta show higher ratios (red).

Evaluate the liquidity metric, the current assets to current liabilities ratio, noting all companies stay below 1, ranging from 0.6 to 0.8, labeled as average performers with orange colour circles.

Rank the ebitda to interest coverage ratio across four companies to assess financing health, highlighting Alpha at 9.8x (green), Gamma 7.4x and Beta 4.9x (orange), and Theta 2.8x (red).

Evaluate four companies across eight metrics with a scorecard framework, rule out Theta and Beta as underperformers, and conclude Alpha is the top performer.

Assess company performance through operating health and financing health metrics using a scorecard framework with eight metrics to rank four sample companies and identify the top performer.

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Explore three main valuation approaches: negotiation-based, relative valuation based, and discounted cash flows based valuation approach, to value a company using practical frameworks discussed in this module.

Determine how the market value of shareholder equity reflects a company's valuation, the price to buy ownership rights, and the broad approaches to estimate it using balance sheet concepts.

Learn how valuation approaches differ by a company's life-cycle stage—early, high-growth, and mature—driving decisions from pre-revenue ideas to profitable, stable businesses.

Early stage companies lack a scientific approach to valuation, so valuation relies on a negotiation-based approach due to uncertain financial performance. The valuation method depends on the company lifecycle stage.

Find the valuation of an early stage company by negotiating funding and equity: raise 1.5 million for 25% equity, implying a 6 million dollar valuation.

Learn how to value a growth stage company using a sales multiples based approach, accounting for high revenue growth and limited profits.

Explain the sales valuation multiple, or price to sales, as market value divided by revenue, and illustrate its use for valuing growth stage companies.

Evaluate the valuation of a fast-growing online retailer using a sales multiple approach, given five years of operation, current revenue of 5 million, and no profits.

Value a high growth company by multiplying revenue by a comparable company sales multiple; 5 million in revenue at 4x yields a 20 million valuation.

Value a mature stage company using the earnings multiple approach, leveraging its revenue and profit history and its similarity to the sales multiple based valuation.

Explain the earnings valuation multiple, or price-to-earnings ratio, as market value divided by earnings; for 100 million market value and 4 million earnings, it equals 25x, signaling higher valuation.

Estimate a mature company's value using the earnings multiple based approach, given stable 4–5% growth and healthy net profit of 5 million dollars, as illustrated by a pharmaceutical firm.

Apply the earnings valuation multiple to a mature stage company's earnings, using a 25x multiple on 5 million earnings to derive a 125 million valuation.

Apply the discounted cash flows approach to valuing a mature company by assessing cash flow generation and estimating value through a detailed illustration.

Illustrates how a stable IT services company's dividends of 80 million are valued using the discounted cash flow approach, accounting for reinvestment and residual profits.

Value a company by the present value of its future cash flows using the discounted cash flows approach, recognizing dividends as cash flows to shareholders.

Learn how to project free cash flows into the future by assuming a stable, forever going concern with a constant annual cash flow of 80 million.

Explain the timing mismatch of fixed $80 million cash flows across years, and apply present value to sum future cash flows for today’s company valuation.

Explore the time value of money and the present value of future cash flows, using a fixed-deposit example to show how today's 100 becomes 105 and beyond.

Discount future cash flows to present value by dividing year 1 cash flow by (1+R%) and year 2 by (1+R%)^2, illustrating 105 and 110.25 equals 100 today.

Use the present value concept and discounted cash flows to value an IT services company, calculating future cash flows at 10% and summing to about $800 million.

Apply the discounted cash flows approach to value a company by summing the present value of future cash flows, i.e., profits minus reinvestments that become dividends, using a return expectation.

Explore four valuation methods by company lifecycle, focusing on the negotiation based approach for early stage startups, calculating value as funding needed divided by the equity percentage offered.

Apply the earnings multiple approach to value mature stage companies by multiplying earnings by a comparable company's price-to-earnings multiple, using it as a proxy for our own value.

Apply the discounted cash flows approach to valuation by estimating future cash flows and discounting to present value, illustrated with an IT services company earning $80 million annually at 10%.

Explore a broad range of techniques to value a company, and we hope you have enjoyed this module.

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