Chapter 1 - Fundamentals of Financial Statements

1.01 Introduction to Financial Statements (8 min.) Sample Lesson
1.02 The Flavors of Money (14 min.)
1.03 Debt & Risk (12 min.) Quiz: 1.03 Debt & Risk
1.04 Equity (16 min.) Quiz: 1.04 Equity
1.05 Managing Risk (12 min.) Quiz: 1.05 Managing Risk
1.06 Bookkeeping (18 min.) Quiz: 1.06 Bookkeeping
1.07 Income Statement (12 min.) Quiz: 1.07 Income Statement
1.08 Depreciation (8 min.) Quiz: 1.08 Depreciation
1.09 Depreciation - Example (12 min.)
1.10 Cash vs Income - Example 1 (12 min.)
1.11 Cash vs Income - Example 2 (9 min.) Quiz: 1.11 Cash vs Income - Example 2
1.12 Real Examples, Cash vs. Income (9 min.)
1.13 Margin and Breakeven (9 min.) Quiz: 1.13 Margin and Breakeven
1.14 Income vs Adjusted Income (9 min.) Quiz: 1.14 Income vs Adjusted Income
1.15 EBIT and EBITDA (8 min.) Quiz: 1.15 EBIT and EBITDA
1.16 Tax (9 min.)
1.17 Cheating on the Income Statement (8 min.) Quiz: 1.17 Cheating on the Income Statement
1.18 Retained Earnings (5 min.) Quiz: 1.18 Retained Earnings
1.19 Balance Sheet (15 min.) Quiz: 1.19 Balance Sheet
1.20 Understanding the Balance Sheet (27 min.) Quiz: 1.20 Understanding the Balance Sheet
1.21 Balance Sheet - Key Learnings (16 min.) Quiz: 1.21 Balance Sheet - Key Learnings
1.22 Example - The Fatal $1 Million Sale (13 min.)
1.23 More Thoughts on Debt to Leverage (18 min.) Quiz: 1.23 More Thoughts on Debt to Leverage
1.24 Preferred Shares (13 min.) Quiz: 1.24 Preferred Shares
1.25 Statement of Cash Flow (19 min.) Quiz: 1.25 Statement of Cash Flow
1.26 Share Buyback & Dividends (7 min.) Quiz: 1.26 Share Buyback & Dividends

Chapter 2 - Using the SCF to Understand Companies

2.01 Example - Enbridge (14 min.)
2.02 Example - Suncor (14 min.)
2.03 Example - ExxonMobil, Talisman & Ensign (13 min.)
2.04 Closing Thoughts (8 min.)

Understanding Financial Statements / Chapter 1 - Fundamentals of Financial Statements

Lesson 1.01 Introduction to Financial Statements

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Transcript

01. Lesson 1.01: Introduction to Financial Statements 02. Why This Course?03. Why This Instructor?04. A Company

01. Lesson 1.01: Introduction to Financial Statements

OK, welcome to the course. Let me start with why this course?

02. Why This Course?

Knowing key concepts about financial statements, I think for anybody, helps people understand major choices that their company is going to make. I recall, for instance, that Shell at one point worldwide told people absolutely minimize the use of cash, cut capital. I learned this from a person that worked for Shell, but had no idea why that was true. And I think if you understand financial statements, you can make a little bit more sense out of what your company is trying to do.
If your career path takes you into senior management, it is an absolutely necessary skill. You must know this stuff. We will talk in the course about the difference between operational management and financial management. Financial management, typically done by a smaller set of people in a company. But if you're in senior management, you must know this.
And I think a third reason is that most of us end up saving money in our lifetime so that we don't have to work in our very late years and so you're going to be managing aof assets in an IRA or an RRSP, and you will make some better choices if you understand some concepts about financial statements.
I want to emphasize that financial statements are a management tool and a communication tool. So they're going to tell managers what's going on and managers can then respond and make good choices about what they do. But those statements are talking outside the company as well. And in the first part of this course, I want to spend a lot of time talking about who those statements are talking to. We'll all know that they're talking to management, but they're going to be talking outside the company as well. So before we get to the statements, we'll focus on that.

03. Why This Instructor?

Why this instructor? I graduated as an engineer. I got into management, became a senior manager, an executive. I ended up overseeing two companies that were in very tough times. And I like to say that you learn to be a better manager in tough times than in good times. Or if you want a military example, you get to be a better general in retreat than marching forward. It's fun to march forward, it's fun for good times. But boy, you learn tougher skills in tough times. And just so it happened, the two companies I ran, both of them were in tough times. One was an oil service company. And the oil and gas industry is subject to what I call "boom and bust", up, down, up, down. And so the down that I was in was 1988 - 1991, but there have been lots since then. The oil service company I ran was, G.E. was the major shareholder, and they made the absolutely correct decision to sell. And I was the chief operating officer of the company and I went and I asked their permission, even though I was the seller, to be a buyer, to try to put together a big to buy the business and I wasn't sure they would say yes. In fact, they were thrilled. They said if management tries to buy a company we're selling, it will stop "stink bids" because everybody else knows that management knows what the business is, of course. And we had to raise irrevocable financing. We couldn't bid for the business and then go out and try to get the money, no we had to have locked in financing in place and that was $10 million, 1991. It was a mix of debt and equity. We worked with a venture capital firm, but we had two lines of credit. And if you lock those in, you have to pay for it. We spent over $50,000 just locking in that. Now, the bid turned out not to work. It didn't work for good reasons. We were a financial buyer. We were essentially buying the value the company could bring and we were outbid. It happened to be a firm in Canada. We were outbid by a U.S. firm that had synergy. So the U.S. firm had some products they wanted to market in Canada. We were an existing marketing arm, vice versa, and going into the U.S. So they bid 20% more than we did and got the company. But nonetheless, I really learned about money through that process. My third comment about myself is I manage a minorof funds, but it's very important to me because I am retired and so I'm my own pension fund manager and again, that sharpens the thinking.
I want to emphasize that this is a management course, not an accounting course. At one point in this course, we will talk about an aspect of how the statements are built. But this is not the focus and you can forget that stuff as soon as we get through it. This is about managers. What are the statements saying? What do they need to say? And what can managers do with it? So that is the focus of the course.
And hence the focus is going to be key concepts, not accounting details. Part of mylater is going to be don't look at small details. If you're an accountant, they're important. If you're an engineer doing an energy balance or a mass balance, the details are very important. But if you're a manager, you're going to look at the bigger numbers and say what are they telling to me? And the result of this is I'm going to use profoundly simple examples. And what I hope to illustrate are profoundly important financial concepts with those.

04. A Company

OK, a company. If you've ever had the fantasy of being a CEO of a company, it's easy to do. Just take some money, not much, walk into a law firm and say form a company for me. Most law firms will have what we call shelf companies. They've already formed them, they just take it off the shelf. And for a small fee, you can go home and tell your significant partner hey, I'm a CEO. But it doesn't mean anything of substance until that entity takes in money. It's going to take in money from somewhere. Then it's going to perform activities. And the object of all of this is to create value. And we're going to talk a lot about value because value is a subset of the cash that comes into a company. Then you're going to try and prove that you're creating value. Why? Because you're going to try and convince the people that gave you money that they were right to do that. You're going to try and convince yourself and others that indeed, this enterprise is creating value. Here's one of the big financial statements that is focused on are we creating value?