Financial Analyst Training Programme

10 Days Delegate Profile: This course is targeted at delegates who are new to banking and finance and provides a comprehensive overview of financial reporting, financial and credit analysis and valuation.

Key Learning Outcomes

• Delegates will learn the fundamental principles behind financial reporting, and how to read and interpret annual reports and accounts

• They will learn how to analyze financial information to determine financial performance, position and cash flow generation

• They will learn how to calculate and interpret key financial ratios and measures of profitability, liquidity, solvency and credit risk

• They will learn how to estimate company valuation, and the relationship between equity and enterprise value

• Finally, they will learn how to build financial forecasts and identify key value and cash flow drivers

Pre-requisite Knowledge: No prior knowledge of accounting and financial reporting is assumed.

Our Approach: In this course we facilitate the learning process through a combination of:

• Presentation of core knowledge and concepts using power point slides • Press articles and real life case studies • Short exercises (in excel and word) • Financial models, to teach delegates the principles of financial modeling • Regular summaries, to remind delegates of the key points of each session • End of Day quizzes, to confirm the achievement of the learning outcomes • Course summaries, as a take away and reminder of the key learning points

Each delegate should be provided with a laptop, which is pre-loaded with some exercises in excel format. (Note: the course may be delivered in either Excel 2003 or 2007, however, all delegates should use the same version of excel in the training room.)

Training Fees: £25,000 plus VAT (£2,500 per training day). This covers all research, design and delivery of the training by James Gilpin, for up to 20 delegates.

Expenses: All incremental travel and accommodation expenses will be charged separately, however, we will work hard to ensure all costs are kept to a minimum. With regard to materials, JGFT can provide 2 options:

• JGFT can arrange for all materials to be professionally printed and couriered to the training centre for which we would recharge the cost (for 20 delegates approximately £400 - £600)

• All materials will be sent electronically to the client with instructions to print internally (at no additional cost) With regard to excel exercises, JGFT can provide all these materials electronically, which must be loaded onto delegate laptops in advance of the course.

Day One: Financial Reporting Session 1 Financial Statement Overview

• Roles and Responsibilities: The Company, Directors, Auditors, Shareholders and Lenders • Stewardship and Decision-making information • Financial Performance, Financial Position and Cash Generation • Accounting Principles: prudence, accruals, consistency, materiality and going concern • Definitions of Assets, Liabilities, Equity, Revenue and Expenses • The concept of double-entry: revenue/receivables; inventory/cost of sales; inventory/payables; operating

expenses/cash • Measurement: Historic Cost vs. Fair Value • Financing: Debt vs. Equity

Session 2 Balance Sheet Analysis

• The Accounting Equation: Net Assets = Shareholders’ Funds • Fixed Assets: Additions and Disposals • Depreciation and useful economic life • Investments • Working Capital: Inventory, Trade Receivables and Trade Payables • Prepayments vs. Accruals • Corporation Tax • Provisions • Borrowings • Share Capital and Reserves

Session 3 Income Statement Analysis

• Presentation • Revenue recognition: Cash vs. Accrual Accounting • Price vs. volume drivers • Fixed vs. variable costs • Depreciation and Amortisation • Operating Profit: EBIT vs. EBITDA • Interest Expense • Taxation • Dividends and Retained Earnings • Other Comprehensive Income

Day Two: Financial Reporting Session 1 Balance Sheet and Income Statement Relationships

• BASE accounting reconciliations (Beginning, Additions, Subtractions, Ending) • Sales, Accounts Receivables and Cash Collections • Cost of Sales, Purchases, Inventory/Payables and Cash Paid to Suppliers • Selling & Administrative Expenses, Accruals and Prepayments and Cash Paid • Bad Debt Expense and Provision for Doubtful Accounts • Depreciation Expense, Accumulated Depreciation, Capital Expenditure and Gains/ Losses on Disposals • Amortization Expense and Accumulated Amortization • Interest Expense, Interest Payable on Debt and Cash Interest Paid • Tax Expense, Tax Payable or Deferred Tax and Cash Tax Paid

Session 2 Analyzing the Notes to the Accounts

• Linking the Financial Statements to footnotes and disclosures • Significant Accounting Policies • Revenue • Tangible and Intangible Fixed Assets • Acquisitions and Disposals • Exceptional Items • Accounts Receivable and Securitization • Inventory • Taxation • Cash, Liquid investments and Net Debt

Session 3 Cash Flow Analysis

• Definition of Cash and Cash Equivalents • Building a Cash Flow Statement • Cash Flow from Operating Activities • Cash Flow from Investing Activities • Cash Flow from Financing Activities • Indirect vs. Direct Method: Bottom Up vs. Top Down • Reconciling Cash and Cash Equivalents • Movement in Net Debt

Day Three: Financial Reporting Session 1 Company vs. Group Accounts

• Analysing group structures • Consolidating subsidiaries into group accounts • Adjusting for intercompany trading and financing • Acquisition accounting, goodwill measurement and impairment testing • Minority Interest • Consolidating foreign subsidiaries: translation adjustments

Session 2 Associates and Joint Ventures

• Accounting for Associates • Joint Ventures and Proportional Consolidation • Impact on Net Debt

Session 3 Defined Benefit Pension Schemes

• Fair Value of Pension Liabilities • Fair Value of Pension Fund Assets • Current Deficit / Surplus • Interest Cost vs. Service Cost • Expected vs. Actual Return on Plan Assets • Changes to Actuarial Assumptions vs. Changes to Terms of the Scheme

Session 4 Employee Share Options and Treasury Shares

• Fair Value of remuneration • Grant Date vs. Vesting Date • Income Statement, Balance Sheet and Cash Flow treatment • Treasury Shares

Session 5 Capitalized Interest and Research & Development

• Accounting principles • Examples of capitalised interest and financial effects • Examples of capitalised Development Costs and financial effects

Day Four: Financial Reporting Session 1 Financial Instruments

• Definitions • Monetary vs. Non Monetary assets and liabilities • Classification and Measurement of Financial Assets and Liabilities • Fair Value vs. Amortised Cost • Accounting for hybrid instruments (bifurcation of convertible bonds) • Accounting for equity issuance, dividends and share buybacks

Session 2 Derivatives and Hedge Accounting

• Definitions • Fair Value, Cash Flow and Net Investment Hedges • Typical hedging instruments and hedged items • Commercial vs. Compliant hedges

Session 3 Lease Accounting

• Definitions • Operating Leases vs. Finance Leases • Income Statement, Balance Sheet and Cash Flow effects • Disclosure Notes • Normalising on a ‘like for like’ basis

Session 4 Revenue Recognition on Long Term Contracts

• Accounting principles • Accounting for Long Term Contracts: examples and financial effects

Day Five: Financial Reporting Session 1 Contents of Annual Report and Accounts

• Chairman’s Statement • CEO review • Finance Director review • Directors Report • Corporate Governance and Remuneration • Audit Report and Accounts • Five Year Summary

Session 2 Review of Case Studies

• BAA (UK airports operator) • National Grid (UK gas transmission and distribution) • BT (UK telecoms) • BAe (UK defence)

Session 3 Examination

• Delegates will be examined on the technical content of the Financial Statement Analysis course. The examination will test their ability to analyse and interpret financial statements and their knowledge of accounting principles

Day Six: Financial Analysis and Credit Session 1 Capital Structure

• The Balance Sheet equations: Net Assets = Shareholders’ Funds; Capital Employed = Capital Provided • Pros and Cons of Debt vs. Equity • Examples of capital structures for different industries • Return on Capital Employed as a benchmark for value creation

Session 2 Measures of Profitability and Efficiency

• Profit Margins • Operational vs. Financial leverage • Return on Capital Employed and Return on Equity • Dupont Analysis: profit margins, asset turnover and leverage

Session 3 Debt Instruments

• Private vs. Public Instruments • Commercial Paper, Bonds (Investment Grade vs. High Yield) • Overdraft, Revolving Credit Facility, Asset Backed Lending, Syndicated loans and Mezzanine debt • Managing the Fixed vs. Floating mix using derivatives

Session 4 Equity and Hybrid Instruments

• Convertible bonds and Preference shares • Straight Equity: public vs. private

Session 5 Practical Considerations

• Visibility, stability or cyclicality of the cash flow profile • Liquidity risk • Solvency risk • Refinancing risk • Asset intensity: secured vs. unsecured financing • Risk appetite of directors: public vs. private companies • Practical Examples

Day Seven: Financial Analysis and Credit Session 1 Assessing Credit Quality, Financial Covenants and Debt Capacity

• Solvency Ratios: Debt / Equity and Debt / Capital Ratios • Leverage Ratios: Debt / EBITDA and Loan Life Coverage Ratios • Coverage Ratios: Debt Service and Interest Coverage Ratios • Cash Flow Profile: stability vs. cyclicality • The Role of Rating Agencies

Session 2 Measures of Liquidity

• Cash Conversion Cycle and the Financing Gap • Debt, Stock and Creditor days • Positive vs. Negative working capital positions • Current, Quick and Cash Ratio • Borrowing Facilities • Refinancing Risk and Access to Capital • Headroom and peak borrowing requirements

Session 3 Off Balance Sheet Financing

• Leasing • Receivables factoring • Securitisation • Impact on financial statements and ratios

Session 4 Structural Considerations in Credit

• Legal entity considerations • Contractual Subordination • Structural Subordination • Loan Cause, Purpose, Lending Rationale and Projections

Day Eight: Financial Analysis and Credit Session 1 Valuation Overview

• Overview of valuation techniques: fundamental (DCF) vs. multiples (comparable companies and transaction multiples) and asset-based (going concern vs. liquidation)

• Equity Value vs. Enterprise Value

Session 2 Fundamental ‘Discounted Cash Flow’ Valuation

• Time Value of Money formulae (discounting, perpetuity with/without growth) • Deriving free cash flow to the firm • Determining the forecast period vs. the terminal period • Deriving the discount rate for discounting (WACC, Cost of Equity and the Capital Asset Pricing Model) • WACC vs. Return on Capital Employed • Discounting free cash flow to determine NPV • Reconciling Enterprise Value with Equity Value and determining a fundamental price per share • Using DCF in investment appraisal and valuing synergies • Relationship between IRR, NPV and Payback period for valuation

Session 3 Relative Valuation using Multiples

• Overview of Income statement multiples (Sales, EBITDA, EBIT, PBT, PAT) • Historic, trailing, forecast and prospective multiples • Company vs. Sector vs. Market multiples and how they vary across the cycle • Comparing EV/EBITDA vs. PER: pros and cons • How accounting policies can distort multiples • Trading Multiples vs. Transaction Multiples: why pay a premium? • Industry specific multiples • Comparing Multiples vs. DCF: pros and cons

Session 4 Valuation in Practice

• Valuation on an IPO • Valuing a Target for an M&A transaction • Determining fair value for the shares in a quoted company • Determining fair value of a minority stake in a private company

Day Nine: Financial Analysis and Credit Session 1 Building a Financial Forecast

• Defining objectives for your model and designing a flowchart • Input, Workings and Output worksheets • Defining Operating, Investing and Financing Assumptions • Identifying the key value and cash flow drivers

Session 2 Building the Operating Schedules

• Revenue, Costs (Fixed and Variable) and EBITDA • Working Capital (Inventory, Receivables and Payables)

Session 3 Building the Fixed Asset Schedule

• Capital Expenditures • Calculating Depreciation • Accounting for Disposals with/without residual values • Simple capital allowance calculations

Session 4 Building the Taxation Schedule

• Current taxation • Accounting for losses and deferred taxation • Tax shield on interest expense

Session 5 Building the Financing Schedule

• Interest Expense calculations • Building a cash flow waterfall • Debt Repayment functions (amortising vs. bullet repayments) • Credit Ratios: liquidity, solvency and fixed charge coverage • Forecasting headroom/shortfall and peak borrowing requirement

Session 6 Completing the Financial Statements

• Balance sheet, Income Statement and Cash Flow • Balance Sheet checks • Examining Sensitivities and Scenarios for the Forecast

Day Ten: Financial Analysis and Credit Session 1 Events of Default

• Financial Covenant Breaches • Waive, Reset, Renegotiate, Restructure • Operating vs. Financial distress

Session 2 Determining Debt Capacity

• Free Cash Flow for debt service • Extending repayment profile and increasing credit spread • Coverage and covenant ratios • Managing for Cash vs. Growth

Session 3 Valuation of Distressed Companies

• Going Concern vs. Liquidation • Discounted Cash Flow vs. Multiples

Session 4 Debt for Equity Swaps

• Debt Capacity vs. Enterprise Value • Equity Value and Shareholder dilution • Negotiation dynamics with/without fresh equity • Treatment of subordinated debt providers

Session 5 Examination

• Delegates will be examined on the technical content of the Financial Statement Analysis course. The examination will test their ability to analyse the valuation and credit risks through calculating financial ratios and qualitative assessment of business and financial risks