Weeks 7–12 · outside the business, looking in
In preparation. This page describes what is coming; the pages themselves open in week 7.
Everything changes at week seven except the subject. In the finca you were inside the business and built the record yourself, so when a number looked wrong you could go and see what had been done to it. Here you are handed a set of statements for a mining company and nothing else, which is the position almost everybody who reads accounts is actually in.
There are no journal entries in this universe. The work is making the given numbers useful: rebuilding what the statements do not show you directly, asking what the reported figures are a proxy for, and deciding what you would pay for the thing. The tabs will run left to right in the order you work them, as they do in the finca, and the Toolkit, Quiz practice and Ask tabs will sit outside that order in the same way.
One company, followed from the outside.
Where to start when nobody tells you
A full set of statements and no narrative. What you look at first, what you compare it against, and which questions the statements can answer before you have asked anybody anything.
The cash flow statement
Income and cash are different years' worth of different things. Building the cash picture from two balance sheets and an income statement, and seeing how far apart earnings and cash can get while nothing dishonest has happened.
Infrastructure, revenue and the expense stream
What a mine spent on being a mine, and what that spending was supposed to do to the revenue and the costs. The link between what sits on the balance sheet and what is meant to come off the income statement later.
Accounting figures as a proxy for expected future cash
Why a share price moves on an earnings announcement at all, given that the earnings describe a period already over. What the market is pricing, and what the accounting number is standing in for when it does.
What the system cannot see
The people living beside the mine have a view of it, and almost none of that view reaches the accounts. Where it does reach them it arrives as a cost, which is a particular way of describing it. The same question the neighbours' well asked in Year 3 of the finca, at a scale where it is harder to settle.
Rework it
What is left after the reinvestment the business needs to stay the business, and how much of the reported income is the sort that happens again. Stripping out what will not recur and deciding what the company is actually earning.
Nothing here is open yet. The finca is, and the six weeks of it come first for a reason: it is much harder to argue about what a number leaves out until you have built one yourself.
Start with the finca →