Key Details in a Corporate's Annual Report
Ted Wainman
20 years: CA & educator
In this video, Ted outlines the 5 key things to look for in a company’s accounts. This includes: the net profit; the cash generated from trading operations; the affordability of its debt; liquidity; and the company’s commitments and contingent liabilities.
In this video, Ted outlines the 5 key things to look for in a company’s accounts. This includes: the net profit; the cash generated from trading operations; the affordability of its debt; liquidity; and the company’s commitments and contingent liabilities.
Key Details in a Corporate's Annual Report
9 mins 45 secs
Key learning objectives:
Uncovering additional commitments and contingent liabilities
Understand how to calculate the profit margin
Identify the cash generation
Assess the affordability of debt
Understand the liquidity position of the business
Overview:
The ability to quickly read a set of financial statements is a skill worth having. In this video, Ted looks at the 5 key things to look for in a set of accounts.
What is the net profit?
The ‘top line’ shows the sales of a company, the ‘bottom line’ is the profit after all the costs have been deducted.
What is the cash profit?
‘Profit’ can be manipulated by the accountants, but ‘cash is king’ (as the saying goes). Identifying the cash profit of a company is a key metric.
Is the debt affordable?
Being able to service its debt will allow a business to refinance its debt. The interest cover identifies the affordability of debt to a business.
Is it liquid?
From a day-to-day perspective, it is essential that a company can meet its financial obligations as they fall due. The liquidity ratio will highlight any issues in this area.
What are off balance sheet liabilities?
The Commitments and Contingent Liabilities note will help to uncover additional liabilities that may reside ‘off balance sheet’.
Ted Wainman
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