3.CFA Level 1 Financial Reporting and Analysis Reading 21 LO6
the financial statement analysis framework that's presented in this reading is fairly straightforward nothing really interesting or new here I want to draw attention to number one because everyone glazes over number one number one determine the purpose in context of the analysis yeah that's right let's move on well hang on a second here this is probably the most important step because it will set not only just the scope of your analysis but also the limitations of your analysis where you will not go and where you will need to go why are you doing this analysis number one is it is it to buy the shares is it to make an investment because we buy the future statements report on the past so you're going to have to be very good at looking at the statements and projecting into the future and sometimes you'll be analyzing a company where the past isn't anything to talk about but their future looks incredible so that you can't really rely on financial look at the balance sheet the income stream you say there's not much here there's not much here but what a future they've got what they've got this patent they've got this this technology it's going to be incredible so you have to be able to go beyond the number so you have to know what your purpose is and that will guide you if your purpose is a credit analysis well you really have to look at their current position again if we go back to that young company where your purpose is to invest looking at their current position might not give you the best answer so always start with a very well formulated question what am I looking at this for don't just nod your head say yeah yeah yeah really think about why do you want to analyze this company what is your goal that will that will limit the stuff you look at and it will also include a set the scope of the stuff you need to look at it makes it a lot easier process going through once we know our purpose and the context and analysis once we know what we need and what we don't need go ahead and collect it now financial statements discussions with management company site visits whatever what it is you think you need and then process the data that means the ratios and and you'll calculate your ratios after the required adjustments sometimes you have to adjust the statements for different reporting standards or different accounting policies that's what this whole this whole four study sessions and 13 readings are primarily about is to understand the difference between everything and how we need to adjust calculate some growth rates construction common size statements the comments I statements just allow you to read a balance sheet over a period offive years a lot easier you can pick out trends a lot faster and then apply whatever statistical tools that you need to analyze and interpret the data after you've processed it analyze and interpret come up with conclusions and some recommendations let's get a close bracket in there to make it closed develop and communicate conclusions this is writing your analyst report and think about this for a minute um and without again I stress number one but I also want to stress number five here how you communicate is sometimes more important than what you're communicating you may have something very important to say but if you don't say it in a way that's well understood if you don't say it in a compelling way no one's listening to you no one is listening to you you may have something quite ordinary to say but if you say it in a very compelling way if you if you write in a very inviting and accessible way everyone's listening to you so if you want to have impact it's not enough for you to say you figure out what I'm saying here's here's everything I found here it is on the paper like how much more clear do you want me to be you have to put yourself in the readers perspective and say how would I like to receive the information so that it's easy for me to understand and it's an enjoyable read because some of these reports can be boring so you have to become an author really and you have to be a little creative in your language to capture attention to get your point across and learn how to write a report and present information in such a way that Pete that you're understood if have to work to understand you I'm moving on I'm not even going to pay attention so if you look at some of the great philosophers throughout history Kierkegaard was had a lot of great things to say but he's so hard to read me so inaccessible that he's a second tier third tier or fourth tier of philosopher for most students of philosophy simply because I got the time to read them let's read someone I can understand right don't be a Kierkegaard okay and in your analyst report this is a if you go back to the conduct and practices a part of the course you must distinguish between opinion and fact you cannot pawn off opinion as a statement of fact if you're making an opinion you must be very clear that it's your opinion you must separate the two and finally follow up because hey you can do an analysis on the company and three months later something has changed you've got to keep up on it and if something changes then you have to issue a follow-up report because people maybe depending on your statements to make their decisions and if you're not following up you're doing an injustice and a disservice to the people who want to follow you you
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3.CFA Level 1 Financial Reporting and Analysis Reading 21 LO6CFA|||||||
3.CFA Level 1 Financial Reporting and Analysis Čtení 21 LO6
3. CFA Nível 1 Relatórios Financeiros e Análise Leitura 21 LO6
3.CFA Уровень 1 Финансовая отчетность и анализ Чтение 21 LO6
the financial statement analysis framework that's presented in this reading is fairly straightforward nothing really interesting or new here I want to draw attention to number one because everyone glazes over number one number one determine the purpose in context of the analysis yeah that's right let's move on well hang on a second here this is probably the most important step because it will set not only just the scope of your analysis but also the limitations of your analysis where you will not go and where you will need to go why are you doing this analysis number one is it is it to buy the shares is it to make an investment because we buy the future statements report on the past so you're going to have to be very good at looking at the statements and projecting into the future and sometimes you'll be analyzing a company where the past isn't anything to talk about but their future looks incredible so that you can't really rely on financial look at the balance sheet the income stream you say there's not much here there's not much here but what a future they've got what they've got this patent they've got this this technology it's going to be incredible so you have to be able to go beyond the number so you have to know what your purpose is and that will guide you if your purpose is a credit analysis well you really have to look at their current position again if we go back to that young company where your purpose is to invest looking at their current position might not give you the best answer so always start with a very well formulated question what am I looking at this for don't just nod your head say yeah yeah yeah really think about why do you want to analyze this company what is your goal that will that will limit the stuff you look at and it will also include a set the scope of the stuff you need to look at it makes it a lot easier process going through once we know our purpose and the context and analysis once we know what we need and what we don't need go ahead and collect it now financial statements discussions with management company site visits whatever what it is you think you need and then process the data that means the ratios and and you'll calculate your ratios after the required adjustments sometimes you have to adjust the statements for different reporting standards or different accounting policies that's what this whole this whole four study sessions and 13 readings are primarily about is to understand the difference between everything and how we need to adjust calculate some growth rates construction common size statements the comments I statements just allow you to read a balance sheet over a period offive years a lot easier you can pick out trends a lot faster and then apply whatever statistical tools that you need to analyze and interpret the data after you've processed it analyze and interpret come up with conclusions and some recommendations let's get a close bracket in there to make it closed develop and communicate conclusions this is writing your analyst report and think about this for a minute um and without again I stress number one but I also want to stress number five here how you communicate is sometimes more important than what you're communicating you may have something very important to say but if you don't say it in a way that's well understood if you don't say it in a compelling way no one's listening to you no one is listening to you you may have something quite ordinary to say but if you say it in a very compelling way if you if you write in a very inviting and accessible way everyone's listening to you so if you want to have impact it's not enough for you to say you figure out what I'm saying here's here's everything I found here it is on the paper like how much more clear do you want me to be you have to put yourself in the readers perspective and say how would I like to receive the information so that it's easy for me to understand and it's an enjoyable read because some of these reports can be boring so you have to become an author really and you have to be a little creative in your language to capture attention to get your point across and learn how to write a report and present information in such a way that Pete that you're understood if have to work to understand you I'm moving on I'm not even going to pay attention so if you look at some of the great philosophers throughout history Kierkegaard was had a lot of great things to say but he's so hard to read me so inaccessible that he's a second tier third tier or fourth tier of philosopher for most students of philosophy simply because I got the time to read them let's read someone I can understand right don't be a Kierkegaard okay and in your analyst report this is a if you go back to the conduct and practices a part of the course you must distinguish between opinion and fact you cannot pawn off opinion as a statement of fact if you're making an opinion you must be very clear that it's your opinion you must separate the two and finally follow up because hey you can do an analysis on the company and three months later something has changed you've got to keep up on it and if something changes then you have to issue a follow-up report because people maybe depending on your statements to make their decisions and if you're not following up you're doing an injustice and a disservice to the people who want to follow you 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