Finance & Accounting for Management Consultants and Analysts

In the second section I will concentrate on the first financial statement the income statement often called profit & loss statement (P&L). I will show you step by step all elements of profit and loss statement. We will also have a look at examples of P&Ls for firms like Amazon, Disney, P&G, LPP. We will devote a lot of time to the depreciation and amortization

There are 3 financial statements that you have to look at when analyzing the firm: Profit & Loss / Income Statement, Balance Sheet, Cash flow. Here we will discuss what each and one of them covers, what kind of information it gives you

There are 2 main goals of P&L / Income statements. It shows you how much you have earned / lost and it shows you how you did it? This has impact on how we show the profit and loss statement and we will discuss it in this lecture

There are 3 ways in which you can get Revenue / incomes:

• You can sell your own products or goods from other firms

• You can get interest from money you have or get other income from financial activities

• You can get other operating income i.e. higher value of your assets, grants, penalties

We will discuss them in this lecture

Let’s imagine that you have to estimate the revenues of a burger chain. Using data try to estimate the 3 groups of revenue & income

Here I will show you the data in Excel file that we will use for this case.

Here I will show you the solution to the previously introduced case study.

There are 3 main components of costs

1. Operating Expenses

2. Interest paid as well as other financial costs i.e. gains due to exchange rate differences

3. You can get other operating costs i.e. Lower valuation of your assets, penalties paid

We will discuss them in this section

We are back to our burger chain in Spain. Using data try to estimate the 3 groups of costs / expenses.

Here I will show you the solution to the previously introduced case study.

Now let’s get everything together and see different levels of Profit / Income. We will use the division of revenue and costs into 3 components to define different levels of profits / margins

Now let’s get the revenues and costs that you have estimated previously together. Try using previous calculations to estimate the Profits / Income on different levels

Here I will show you the solution to the previously introduced case study.

Here I will show you the solution to the previously introduced case study.

Let's have a look at some alternative names for profits margins that are being used

There are 2 general ways in which you can divide the operational expenses / costs to present them to the Board of Management & shareholders: 

1. By type of costs

2. By stages

We will discuss them in this lecture

In this lecture we will have a look at how costs can be divided by stages

COGS (Cost of Goods Sold) are important part of Operating Expenses. They have plenty alternative names: costs of sales, cost of revenue etc. We will discuss them in this lecture

Gross Profit / Gross Margin is an improtant stage between revenues and operating profit. We will discuss in this lecture what it is and how it can be calculated

Net Profit /  Net Margin is an improtant stage between Gross Margin / Gross Profit and operating profit. We will discuss in this lecture what it is and how it can be calculated

We are back to our burger restaurant chain case study. You will be asked to estimate the Gross Profit / Margin given more detailed data on costs

Let's have a look at data that we will need to solve the case study

Here I will show you the solution to the previously introduced case study.

Here I will show you the solution to the previously introduced case study.

Here we will have a look at the income statement / profit and loss statement of Amazon

Here we will have a look at the income statement / profit and loss statement of Disney

Here we will have a look at the income statement / profit and loss statement of P&G

Here we will have a look at the income statement / profit and loss statement of LPP

Depreciation is a weird cost because it is not a cash cost and its size depends on the assumed accounting policy. It is crucial also for determining the value of non-current assets. Depreciation is trying to estimate to what extent a fixed asset was used in a specific period, what part of it’s value was transferred on products produced / sold? We will have a closer look at Deperciation / Amortization in this lecture

We will have a look at how to calculate the depreciation / amortization in practice

We will have a look at how to calculate the depreciation / amortization in practice

Let’s imagine that you are supposed to calculate the depreciation & amortization for a firm that does hand-made clay products

I will show you in this lecture how to model Intangibles;

Capex and Depreciation are one of the most difficult elements that you will model in Excel. Therefore, we have created a separate section devoted just to this subject . In this section you will learn how to follow specific group of assets, truck their gross and net value and calculate depreciation.

I will show you in this lecture how to model Machinery

We will this in this lecture the definition of EBITDA (Earnings Before Interest Taxes, Deprecation & Amortization) and how you can calculate it. We will also link it with previous things we have talked about: Gross Margin, EBIT etc

There are 3 main reasons why managers, investors, analysts look at EBITDA:

• You want a Profit that is impacted by cash costs only

• It is a good proxy for Cash generation

• Used widely for Valuation

We will discuss it in this lecture

In this section I will show you an example how to model the profit & loss statement in Excel for FMCG business model

In this section we will move to products. The first one to be discussed are FMCG products. I will show you the main challenges they are facing, KPIs that matter in B2C service, examples of companies. As an example I will show you how to model in Excel Cosmetics business.

I will shortly go through things that are important in other FMCG.

I will show you how we will approach modeling FMCG business model in Excel

I will show you in this lecture what KPIs, drivers are important for the FMCG model and how do they generated the end results – operating profti

In this lecture I will go briefly through the main assumptions for the model that we will work on in Excel. I will also go through the first sheet in which I generate the sales

In this lecture I will show you how we will estimate the fixed and variable costs in production

Here I will show you how to model Gross Margin for FMCG firms

Now it is time to estimate the cost of sales by channels and cost of marketing

In this lecture I will show you how to estimate the Net Margin using Gross Margin and the cost of sales and marketing

We have also take care of head office costs to get to profit and loss account

Finally we estimate the profit and loss account and we can try to draw conclusion on the business

• In the 4th section I will concentrate on the second financial statement – the balance sheet. As always we will go through each and every element of the Balance Sheet. We will also discuss the difference between the USA and European balance sheets. We will also have a look at examples of balance sheets for firms like Amazon, Disney, P&G, LPP.

Balance sheet is one of the 3 main finacial statements. It:

1. Shows what you have / what you need to have a legitimate business

2. Shows you also where you got the money from to buy the things you have (shareholders, banks, suppliers, other borrowers etc.)

We will discuss it in this lecture

Let’s discussed the components of both sides of balance sheet: Assets & Liabilties. We will have a look at the European and USA way of presenting data

Just as a reminder Non-current assets are a part of Assets. In USA you can find them in the lower part of the Assets. In Europe you can find them in the top part of the Assets. Let’s see what is included in non-current assets

Just as a reminder current assets are a part of Assets. In USA you can find them in the top part of the Assets. In Europe you can find them in the lower part of the Assets. Let’s see what is included in non-current assets

Here we will discuss how you can increase equity. There are 2 main ways to do that:

1. Capital paid in by Shareholders

2. Retained earnings

We will discuss it in this lecture

There are at 3 different prices when it comes to share:

1. Selling price of a share at the moment of issuing

2. Selling price of a share at current moment

3. Face value of a share / Par value

We will discuss it in this lecture

Just as a reminder Shareholder’s Equity is a part of Liabilities & Equity. In USA you can find them in the lower part of Liabilities & Equity. In Europe you can find them in the top part of the Equity & Liabilities. We will discuss what the Equity consits of both in USA and in Europe

Just as a reminder non-current liabilities is a part of Liabilities & Equity. In USA you can find them in the middle part of Liabilities & Equity. In Europe you can find them also in the middle part of the Equity & Liabilities. We will discuss what the non-current liabilities consits of.

Just as a reminder current liabilities is a part of Liabilities & Equity. In USA you can find them in the top part of Liabilities & Equity. In Europe you can find them in the lower part of the Equity & Liabilities. We will discuss what the -current liabilities consits of.

Imagine that we would have to trace the changes in the balance sheet for a ceramic tiles producer. Try to solve the exercises on your own

Imagine that we would have to trace the changes in the balance sheet for a ceramic tiles producer. Try to solve the exercises on your own. We will discuss the data available for this case.

Here we show the solution to the previously introduced case study

Here we show the solution to the previously introduced case study

Accrual Accounting has impact both on costs as well as revenues. We will discuss it in this lecture

Imagine that we would like to see what will be the impact of prepayment for a software on the balance sheet of the ceramic tile producer

Imagine that we would like to see what will be the impact of prepayment for a software on the balance sheet of the ceramic tile producer. Here we will look at available data.

Here we show the solution to the previously introduced case study

Here we will go through the Balance Sheet of Amazon

Here we will go through the Balance Sheet of Disney

Here we will go through the Balance Sheet of P&G

Here we will go through the Balance Sheet of LPP

In this section I will concentrate on the last financial statements – the cash flow. I will show you step by step all elements of cash flow . We will also have a look at examples of cash flows for firms like Amazon, Disney, P&G, LPP

There are a number of things you want to achieve by creating and analyzing Cash Flow (CF). We will discuss them in this section

We want to see how the Cash Flow has altered the cash position during the period. We divide the Cash Flows into 3 streams: 

• CF from Operating Activities:

• CF from Investing Activities:

• CF from Financing Activities:

We will discuss this issue in this lecture

Let’s see how we calculate the Cash Flow from Operating Activities

Cash Flow from Investing Activities we would calculate using the following elements

Cash Flow from financing activities consist of the following elements:....

Let's have a look at the Cash Flows of Amazon

Let's have a look at the Cash Flows of Disney

Let's have a look at the Cash Flows of P&G

Let's have a look at the Cash Flows of LPP

In this section we will have a look at different sets of financial indicators that you can use to analyze a firm. We will have a look at Profitability ratios, ROE Decomposition (DuPont Model), Liquidity ratios, Activity ratios, Debt ratios. We will also calculate them for Amazon so you can see how to use those ratios in practice

There are plenty of profitability ratios used. We will discuss in this lecture the most popular ones

We will try to calculate the ratios for Amazon using data from Yahoo Finance. Let's have a look at available data

Here we will have a look at the solution to previously introduced case study.

ROE can be decomposed into other ratios. We will have a look how it can be done in practice

There are plenty of liqudity ratios used. We will discuss in this lecture the most popular ones

Here we will have a look at the solution to previously introduced case study.

There are plenty of activity ratios used. We will discuss in this lecture the most popular ones

Here we will have a look at the solution to previously introduced case study.

There are plenty of debt ratios used. We will discuss in this lecture the most popular ones

Here we will have a look at the solution to previously introduced case study.

In this section, I will show you how to do the valuation of the company that we have created the financial model. We will use the 2 sets of methods DCF and multipliers

In this lecture, I will show you the basic assumptions behind the DCF methods

There are 2 main DCF methods: FCFF and FCFE. Here I will show you the difference between them before we go into details

In this lecture we will apply the DCF using FCFF model to the financial model we have created

In this lecture, we will apply the DCF using the FCFF model to the financial model we have created

In this lecture, we will apply the DCF using the FCFE model to the financial model we have created

Now we move on to multiplier methods of valuation

We will start with the EBIT and EBITDA multipliers

In this lecture, I will use the P/E to do the valuation

Additional resources on valuation

A few practical tips on how to increase the value