Financial accounting and capital markets from edX

What's inside

Learning objectives

Apply and explain accruals and accruals accounting
Model and explain financial sensitivities
Appreciate the role of markets, and our place in them

Understand and apply sustainable finance
Integrate your learning and identify your next steps

Apply and explain accruals and accruals accounting
Model and explain financial sensitivities
Appreciate the role of markets, and our place in them
Understand and apply sustainable finance
Integrate your learning and identify your next steps

Syllabus

**1. Cash flow versus Profit, Accruals & Accruals accounting **

An organisation’s sustainable cash flows and its accounting profits (or losses) are both supremely important, but they can be very different. For this reason, all larger organisations must publish both a cash flow statement and an income statement.

The reason for the difference is the accruals accounting principle. The accruals accounting principle is sometimes known as the matching principle. It means matching reported revenues, and the expenses incurred to earn those revenues, in the same accounting period. Even if the related cash flows took place in different accounting periods. Accordingly, financial reporting includes certain non-cash items and adjustments, in order to achieve the required matching. Examples include accruals for expenses incurred and committed, but not yet invoiced or paid. Changes in accruals are one example of a difference between cash flows and profits.

Applying accruals accounting is one of the more judgemental areas of financial reporting. The financial statements of larger organisations are externally audited, adding to their credibility. The organisation prepares the financial statements, and the auditors express an audit opinion on the fiancial statements, for an audit fee payable by the organisation.

**2. Capitalisation, Depreciation, Amortisation & Revaluation **

Other examples of differences between cash flows and profits include capitalisation, depreciation, amortisation and revaluation. Capital expenditure, or capitalised expenses, relate to an organisation’s larger assets that are expected to have a useful economic life of longer than a year. Examples include purchased plant and machinery, and transfer fees paid for professional sports team stars.

Accounting for this kind of expenditure spreads the accounting recognition of the total expense over the whole of the useful economic life of the asset. The accounting expense relating to tangible capital assets is known as deprecation. For intangible assets, it is known as amortisation. Accounting depreciation and amortisation are non-cash expenses.

The revaluation of long-term assets and liabilities is another example of a non-cash item in financial reporting. Depending on the nature of the revalued item, the revaluation may be reported as other comprehensive income or expense, rather than part of the profit or loss for the period.

**3. Financial modelling & Financial sensitivities **

A financial model is a simplified representation of a financial situation, using selected assumptions. Financial models are widely used in practice for valuation, and to support financial decisions and risk management. A model presents a financial calculation – or series of calculations – in a way that enables the user to understand it and to challenge it, especially about its assumptions. Well designed models also facilitate sensitivity analysis.

We will use Excel to illustrate financial modelling principles, but they apply generally, whatever modelling platform you or your colleagues are using. Key modelling principles include identifying and stating purposes, zoning workbooks into appropriate modules, workflow, visualisation and commentary. You will also appreciate the important differences between navigation, selection and editing.

Case study modelling applications will include the financial reporting and capital market concepts investigated throughout this course.

**4. Debt capital markets & Loan markets **

Capital is a source of finance for business operations, and also an investment for the capital provider. Borrowings and loans are liabilities for the borrower, and investment assets for the lender-investor. Creditworthy organisations can borrow money by issuing bonds. The bond is a promise by the issuer to repay the amount borrowed, plus interest, over a designated period of time. Issuers of bonds include a wide range of corporate and public sector entities, including central governments. Debt capital markets are the markets where bonds are traded.

The prices of bonds are inversely related to their current market yields. The yield is driven, in turn, by a number of factors including general market interest rates, and perceptions of the credit risk of the issuer. Credit rating agencies issue opinions on the credit risk of particular issues of bonds, as well as the general credit strength of certain issuers.

Loan markets relate to lending and borrowing documented in a loan agreement between a borrower and a lender, or a syndicate of lenders. Lenders include banks and other financial services organisations. Interest and capital repayments of loans and bonds are a legal contractual commitment of the borrower. Failure by the borrower to meet its obligations will generally be an event of default, giving additional enforcement rights to the lender. These lenders’ rights are a source of risk for borrowers, and a reason why adding debt to a financing structure increases risk for the borrower, at worst potentially leading to corporate failure for the over-borrowed company.

**5. Equity capital markets & Private equity **

The simplest, and most common, form of equity is ordinary shares, also known as common stock. Ordinary shares are a proportionate ownership interest in a company. Dividends on ordinary shares are a discretionary payment by the company, out of its profits (if any). This is key difference between equity capital and debt capital, debt servicing payments being contractual obligations. Shares and bonds are known collectively as securities. Other forms of security include intermediate ‘hybrid’ securities, which have some features of equity, and some features of debt instruments.

Equity is generally safer for the issuer compared with debt, but more expensive. Part of the cost of equity capital is the expectation, or requirement, of the equity investors for the company to grow its capital value. Equity capital markets are the markets where equity is issued and traded. Public companies, also known as listed companies, are those whose shares are quoted on a stock exchange, and which members of the public can invest in, generally through a broker.

Private equity deals with companies whose shares are not listed on exchange. Flotation, or an initial public offering, results in shares becoming listed on an exchange. Privatisation, or taking private, is the opposite process. Private companies have relatively fewer reporting obligations, but more limited access to new capital. Here as elsewhere, there is a trade off – and a strategic decision to make – to balance flexibility and cost. The balance point is likely to change over the life cycle of the business.

Good to know

Know what's good

, what to watch for

, and possible dealbreakers

Teaches financial modeling, which is highly relevant in finance

Examines capital markets, which is standard in finance

Taught by Doug Williamson, who is recognized for their work in finance

Builds a strong foundation in financial accounting and capital markets

Requires access to Excel for financial modeling exercises

Covers a wide range of topics in finance, which may be overwhelming for beginners

Activities

Be better prepared before your course. Deepen your understanding during and after it. Supplement your coursework and achieve mastery of the topics covered in Financial accounting and capital markets with these activities:

Form a study group with classmates

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Collaborating with peers can enhance understanding, provide diverse perspectives, and boost motivation.

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Identify classmates with similar interests or schedules
Set regular meeting times and establish a study plan
Take turns leading discussions and sharing insights

Learn Excel basics for financial modelling

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Excel is widely used in financial modelling. Getting familiar with basic functions and formulas will open doors to practical application of course concepts.

Browse courses on Financial Modeling

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Follow a tutorial on Excel basics for financial modelling
Practice using Excel's financial functions
Create a simple financial model in Excel

Practice accruals and accruals accounting

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Apply accruals and accruals accounting principles to improve understanding

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Review lecture materials on accruals and accruals accounting
Solve practice problems on accruals and accruals accounting
Complete online quizzes on accruals and accruals accounting

Seven other activities

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Review: Financial Accounting and Reporting

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Get familiar with core financial accounting concepts and the role of accruals accounting within the reporting process.

View INTERMEDIATE ACCOUNTING IFRS, INTERNATIONAL... on Amazon

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Read Chapter 5: Recording Transactions
Identify concepts of accruals and deferrals
Solve end-of-chapter practice exercises

Solve financial accounting practice problems

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Regular practice of financial accounting problems will build problem-solving skills and reinforce key concepts.

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Find practice problems from textbooks or online resources
Set a timer and solve problems within the time limit
Review solutions and identify areas for improvement

Review: Capital Markets and Investment Banking

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Gain insights into the functioning of capital markets and the role of investment banks in the financial system.

View Investment Banking Workbook: 500+ Problem... on Amazon

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Read Chapters 3 and 4: The Basics of Bonds and The Basics of Stocks
Identify concepts of capital markets and investment banking
Solve end-of-chapter practice exercises

Create a financial model using Excel

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Develop and demonstrate financial modeling skills

Browse courses on Financial Modeling

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Identify a financial modeling problem to solve
Gather and analyze data
Develop a financial model in Excel
Test and validate the financial model

Build a financial model for a business scenario

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Applying financial modelling concepts to evaluate investments will help you further develop your understanding of valuation techniques.

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Identify a specific business scenario or investment opportunity
Gather relevant financial data and assumptions
Build a financial model in Excel or another suitable tool
Analyze the model's results and make recommendations

Attend a financial industry networking event

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Networking events offer opportunities to connect with professionals in the field and gain insights into the industry.

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Find a relevant financial industry networking event
Prepare an elevator pitch and research potential attendees
Attend the event and actively engage with others

Volunteer at a non-profit organization involved in finance

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Hands-on experience in a financial setting can provide practical insights and supplement classroom learning.

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Identify non-profit organizations involved in financial literacy or microfinance
Inquire about volunteer opportunities and responsibilities
Commit to a regular volunteering schedule

Career center

Learners who complete Financial accounting and capital markets will develop knowledge and skills that may be useful to these careers:

Controller

Controllers are responsible for the day-to-day financial operations of organizations. This course can help you become a Controller by building your understanding of financial accounting, capital markets, and the relationships between them. You will learn how to apply and explain accruals and accruals accounting, model and explain financial sensitivities, appreciate the role of markets, understand and apply sustainable finance, and integrate your learning and identify your next steps. This knowledge will be essential for success in this role.

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Investment Banker

Investment Bankers help companies raise capital and advise them on mergers and acquisitions. This course can help you become an Investment Banker by building your understanding of financial accounting, capital markets, and the relationships between them. You will learn how to apply and explain accruals and accruals accounting, model and explain financial sensitivities, appreciate the role of markets, understand and apply sustainable finance, and integrate your learning and identify your next steps. This knowledge will be essential for success in this role.

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Portfolio Manager

Portfolio Managers manage investment portfolios for clients. This course can help you become a Portfolio Manager by building your understanding of financial accounting, capital markets, and the relationships between them. You will learn how to apply and explain accruals and accruals accounting, model and explain financial sensitivities, appreciate the role of markets, understand and apply sustainable finance, and integrate your learning and identify your next steps. This knowledge will be essential for success in this role.

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Chief Financial Officer (CFO)

CFOs are responsible for the financial health of organizations. This course can help you become a CFO by building your understanding of financial accounting, capital markets, and the relationships between them. You will learn how to apply and explain accruals and accruals accounting, model and explain financial sensitivities, appreciate the role of markets, understand and apply sustainable finance, and integrate your learning and identify your next steps. This knowledge will be essential for success in this role.

See salaries and explore the career path for Chief Financial Officer (CFO)

Equity Research Analyst

Equity Research Analysts research and make recommendations on stocks. This course can help you become an Equity Research Analyst by building your understanding of financial accounting, capital markets, and the relationships between them. You will learn how to apply and explain accruals and accruals accounting, model and explain financial sensitivities, appreciate the role of markets, understand and apply sustainable finance, and integrate your learning and identify your next steps. This knowledge will be essential for success in this role.

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Financial Analyst

Financial Analysts help companies and investors make strategic decisions about their money by using financial modeling, data analysis, and forecasting tools to predict the future performance of companies. This course can help you become a Financial Analyst by building your understanding of financial accounting, capital markets, and the relationships between them. You will learn how to apply and explain accruals and accruals accounting, model and explain financial sensitivities, appreciate the role of markets, understand and apply sustainable finance, and integrate your learning and identify your next steps. This knowledge will be essential for success in this role.

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Auditor

Auditors examine financial records to ensure accuracy. This course can help you become an Auditor by building your understanding of financial accounting, capital markets, and the relationships between them. You will learn how to apply and explain accruals and accruals accounting, model and explain financial sensitivities, appreciate the role of markets, understand and apply sustainable finance, and integrate your learning and identify your next steps. This knowledge will be essential for success in this role.

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Commercial Banker

Commercial Bankers help businesses obtain loans and other financing. This course can help you become a Commercial Banker by building your understanding of financial accounting, capital markets, and the relationships between them. You will learn how to apply and explain accruals and accruals accounting, model and explain financial sensitivities, appreciate the role of markets, understand and apply sustainable finance, and integrate your learning and identify your next steps. This knowledge will be essential for success in this role.

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Budget Analyst

Budget Analysts help organizations plan and manage their budgets. This course can help you become a Budget Analyst by building your understanding of financial accounting, capital markets, and the relationships between them. You will learn how to apply and explain accruals and accruals accounting, model and explain financial sensitivities, appreciate the role of markets, understand and apply sustainable finance, and integrate your learning and identify your next steps. This knowledge will be essential for success in this role.

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Credit Analyst

Credit Analysts assess the creditworthiness of borrowers. This course can help you become a Credit Analyst by building your understanding of financial accounting, capital markets, and the relationships between them. You will learn how to apply and explain accruals and accruals accounting, model and explain financial sensitivities, appreciate the role of markets, understand and apply sustainable finance, and integrate your learning and identify your next steps. This knowledge will be essential for success in this role.

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Tax Accountant

Tax Accountants help individuals and businesses comply with tax laws. This course can help you become a Tax Accountant by building your understanding of financial accounting, capital markets, and the relationships between them. You will learn how to apply and explain accruals and accruals accounting, model and explain financial sensitivities, appreciate the role of markets, understand and apply sustainable finance, and integrate your learning and identify your next steps. This knowledge will be essential for success in this role.

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Financial Risk Manager

Financial Risk Managers help organizations identify and manage financial risks. This course can help you become a Financial Risk Manager by building your understanding of financial accounting, capital markets, and the relationships between them. You will learn how to apply and explain accruals and accruals accounting, model and explain financial sensitivities, appreciate the role of markets, understand and apply sustainable finance, and integrate your learning and identify your next steps. This knowledge will be essential for success in this role.

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Corporate Treasurer

Corporate Treasurers manage the financial resources of corporations. This course can help you become a Corporate Treasurer by building your understanding of financial accounting, capital markets, and the relationships between them. You will learn how to apply and explain accruals and accruals accounting, model and explain financial sensitivities, appreciate the role of markets, understand and apply sustainable finance, and integrate your learning and identify your next steps. This knowledge will be essential for success in this role.

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Forensic Accountant

Forensic Accountants investigate financial fraud. This course can help you become a Forensic Accountant by building your understanding of financial accounting, capital markets, and the relationships between them. You will learn how to apply and explain accruals and accruals accounting, model and explain financial sensitivities, appreciate the role of markets, understand and apply sustainable finance, and integrate your learning and identify your next steps. This knowledge will be essential for success in this role.

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Financial Planner

Financial Planners help individuals and families plan for their financial future. This course can help you become a Financial Planner by building your understanding of financial accounting, capital markets, and the relationships between them. You will learn how to apply and explain accruals and accruals accounting, model and explain financial sensitivities, appreciate the role of markets, understand and apply sustainable finance, and integrate your learning and identify your next steps. This knowledge will be essential for success in this role.

See salaries and explore the career path for Financial Planner