In order to understand the process of valuing a company, it is necessary to have a solid understanding of financial accounting and the key financial statements that comprise financial returns. In the UK, all registered companies are required to file financial accounts. However, publicly listed companies and private companies with a turnover exceeding £6.5 million are required to produce and publish more substantial, fully audited financial accounts. For investors, financial accounts may indicate the viability of different investment options. They provide an insight into a company’s financial performance and financial standing. For investment bankers, financial accounts are the building blocks for an analysis of a company’s ability to create shareholder value (returns for shareholders in the form of capital appreciation and/or dividends) and meet interest repayments (for example, payments to banks that have lent the company money). There are three key financial statements that candidates should understand:
- The Income Statement: this measures a company’s revenue, expenses (including interest and taxes) and after-tax profit over a year.
- The Balance Sheet (or Statement of Financial Position): this provides a snapshot of a company’s financial position at a particular date (usually the end of the year); and
- The Cash Flow Statement: this measures a company’s cash inflow and outflow over a year.
Click the links to find out more.
. . .
By Jake Schogger - City Career Series