The Kaplan Group, Inc. is pleased to announce that the Kaplan Group Annual Scholarship of $1,000 has been awarded to Stephen Lyons, a first year graduate student at the University of Georgia and a candidate for a Master of Accountancy.
A main goal of the scholarship was to expose students to career opportunities in credit management and commercial debt collections. Most are unaware that these positions provide an opportunity to utilize analytic and communication skills and create real value for employers. As we know, these jobs are more exciting than many other finance positions, as we are constantly facing new challenges and the need to be creative to achieve success. The industry needs a continuous supply of people with the right skills and attitude and we hope the increased awareness at the college level will help.
The Kaplan Group has a long history of giving to youth programs and supporting education for credit and debt collection professionals through seminars, articles, and ebooks. The scholarship program is another way for our company to give back to the community and industry.
Students at accredited colleges and graduate schools with Finance, Accounting, Law, Management, Entrepreneurship, Economics and Business Administration programs were eligible to apply for the scholarship. Applicants were required to submit a short essay on Financial Statements & Business Models or “Should You Sue Your Customer?”
Mr. Lyons was very excited to receive the scholarship and said, “Thank you to everyone involved. This is the best news I’ve had all summer! As students it means a lot to know that there are people out there who are willing to contribute to our futures through scholarship programs like this one.”
Stephen’s essay, reprinted below, was in response to the following prompt:
“Understanding how to view and analyze a financial statement is one of the most fundamental skills necessary to succeed in business. In 600 words, please tell us about a past business you have worked for and which financial statement you think is the most important to their business and why. Feel free to refer to our Introduction to Financial Statement Analysis modules if you need to learn more or brush up on your financial statement basics.”
This past summer, I worked for a real estate investment firm in New York City called ABC Company. We are the largest developer of public, non-traded REITs in the world, raising around 40-70 million dollars of private and public equity capital per day. The ability to analyze corporate financial statements is essential to the success of our investment programs. Without question, the most important financial statement that we use is the income statement.
In the investment banking industry, cash flows are critical. We want to evaluate a potential investment’s ability to generate future revenues and return on investment for the shareholders involved in the fund. The income statement provides essential detail on the source of revenues and expenses that produce these returns. The first step is to look at the company in isolation. We begin by taking historical revenue and expense data for the company. We then combine this data with management expectations and develop projections for estimated future revenues. By using historical ratios and industry metrics, we can make assumptions that help us estimate key operating expenses. Once we have this information, we can work out the potential cash flows that we expect to be generated by the asset. This allows us to develop key metrics such as Return on Equity and Earnings per Share. These are the types of value that a shareholder is interested in. One of the most significant is the Internal Rate of Return (IRR). This metric shows us, in greatly simplified terms, our risk adjusted discount rate for the estimated cash flows. We can compare this rate of return to market rates to determine whether or not the investment is truly worth pursuing. In conjunction with the balance sheet, we can develop a variety of useful indicators to measure the health and growth potential of a company or asset’s future revenue stream. We also use year-to-year comparative analysis to observe trends in the company’s revenue.
That information in isolation, however, is not particularly useful. The key is to compare this data to market trends and performance. This data helps us develop penetration analysis for our company. Penetration analysis is observing how our company performs in relation to its competitive set. This group consists of the main competitors in our company’s industry. We use financial statements from these companies’ financial statements to develop similar metrics that we can compare to our prospective investment. This is where the true art of financial statement analysis occurs. We try to look past the numbers and see the overall trends of the market. It is time tested and experience-fueled judgments such as these that separate truly great analysts from average ones. These judgments help us determine whether the company is over-performing or under-performing when compared to the market as a whole.
Once we have determined that we will pursue an investment, we must determine the value of the asset. Once again, we turn to the income statement. The income statement allows us to develop projections for future operating income. We use this data in conjunction with market capitalization rates to help us determine how much we should pay for the asset.
This entire process is saturated with information from the income statement. Income statements contain the information that is most important to the shareholder, because it contains several keys to determining the potential future returns of a prospective investment. This process, and this job, could not be done without the valuable information contained in a company’s financial statements.
