Accounting Analysis
Not every possible case will be covered: some questions, such as those on historical trend, estimates, percentages or behavior during crises, you will need to work on independently.
The aim is for you to understand the basic concepts so that you can then apply them in other contexts, such as analyzing historical trend.
Template
Although the template has an important limitation—it only allows you to enter data for the current year—the FCF calculation is incomplete, as it does not include the change in Working Capital.
The template’s real potential lies in using it to make estimates for the next five years. Even so, I hope it at least serves as a base for understanding accounting better.
You can download it from the following link:
List of questions
Financial and strategic position
Company revenue
What type of sales are they? Organic or inorganic?
- Is it possible to get the percentage of total?
- Is it possible to get their historical trend?
Sales segmentation
- Sales segmentation by business line
- Sales segmentation by country
- Sales segmentation by customer: what percentage of sales comes from the largest customer?
Recurrence in sales: is there pricing power?
Is there seasonality in sales throughout the year?
How much have sales grown historically?
- Is it possible to make an estimate?
How did sales behave during the 2008 and 2020 crises?
Company earnings
Check EBITDA, EBIT, Net Income and FCF
- Is it possible to check their historical growth rate?
- Is it possible to make an estimate?
How did these metrics behave during the 2008 and 2020 crises?
Company profit margins
Check margins: EBITDA, EBIT and Net
Is there operating leverage?
Is it possible to get the margins for the different business lines?
- Which business line contributes the most profit?
Check whether historical trend of margins is available
Company profitability and efficiency metrics
Check ROIC and ROE
Does the company have the ability to pay down debt or do buybacks without taking on more debt?
What is the historical trend?
What is the reinvestment rate?
- Is it possible for cash flow to be reinvested?
- If it can be reinvested, what percentage?
Company financial health
Check whether the company has Net Cash or Net Debt
We saw this in Valuation -> Net debt. A negative result means Net Cash (the company has more cash than debt). A positive result means it has more debt than cash.
Check the Net Debt/EBITDA ratio
How many years of EBITDA it would take the company to repay its debt.
Is it possible to know the type of debt?
- Is it at a fixed or variable rate?
- Is it possible to know at what interest rate the company is financed?
Is it possible to know how the company uses its debt? To create value or to destroy it?
Company cash generation
Check FCF and the EBITDA-to-FCF conversion (percentage)
- What is the historical trend of EBITDA/FCF?
What are the CAPEX levels?
What are the levels and trend of Working Capital (WC) and WC/Sales?