ACCT13017 ASS#2 Step 2 General Feedback

In this step, we completed Key Concepts and Questions (KCQs) on Chapters 7 and 8.

Chapter 7

Quite a number of people commented about some of the issues about forecasting when analysing and valuing a firm.

Guesswork

Some people discussed the need for guessing or estimating and the need to be able to make sound judgements when forecasting:

This chapter reiterated the fact that our forecasting for the future includes some guessing or estimating of values, but that if we are better at guessing or making judgements than other investors, we will most likely be better than average.

And some people commented that knowing we needed to guess or estimate and that our estimates would almost certainly be wrong to some extent helped to give them confidence to forecast for their firm:

“The first part of this chapter … confirmed that doing a forecast is a guess and that it will inevitably be wrong. That one sentence gave me a little more confidence. Reading a whole section in the study guide dedicated to confirming that yes, it is a guess and yes, you will probably get it wrong, was reassuring.”

And people commented on how using a framework, such as the DCF and economic profit frameworks, help us to focus our analysis of our firms and to determine what we need to forecast:

“The DCF and economic profit frameworks helps us to identify the important factors that influences the value of our firms, which in turn helps us to make predictions about the future.”

Risk

People discussed what risk is and their attitude to risk. They discussed how risk is an unavoidable aspect of uncertainty:

“I have always thought of risk as a negative, as something to be avoided at all cost. I never really thought about risk in the terms it is described in the study guide, as being an unavoidable aspect of uncertainty. As we can never be certain about the future, we can also never be completely rid of all risk factors … When I invest in a business, I am on a “risk” journey with the firm.”

And people also noted that there are psychological and emotional elements to making judgements. Indeed, these can be just as important (or even more important) than having intelligence and an ability to analyse numbers:

“I now realise how our feelings can influence our judgements, and may influence how we view reality. It is really difficult to be objective and not be influenced by your feelings, biases or circumstances.”

Chapter 8

People commented that this Chapter completed our learning in our unit, and reviewed some of the important concepts. These included the role of a framework in financial statement analysis and a summary of some of the key skills we need:

“Chapter 8 is a very good summary of some of the learning in this Unit and helped me review some of the important concepts I learned.

I was reminded that a framework is a map in my head where I learn how to organise what I have learned, how it all fits together. The summary of the key skills needed to conduct financial statement analysis in Chapter 8 is a helpful reminder of what we need to do for the assignments.”

And the ability to focus on key aspects of a firm, helped people to feel that maybe forecasting for their firm might be more achievable:

“The concept of breaking things into bits to be able to analyse it has helped me to feel less overwhelmed about analysing my firm. Breaking things into bits, and doing the analysis one step at a time has really helped me to feel that the work is manageable and I can get it done.”

Some reflected on the value of a framework to move beyond simply calculating a few ratios:

“Chapter 8 reminded me why we learned about the two frameworks: so that I don’t just calculate a number of ratios, but so that I can use these ratios to understand what drives the value of a firm. The benefit of these two frameworks is that they help me to form my own opinion and judgements, rather than relying on the judgements of others.”

And quite a few have a good grip on the concept of a Margin of Safety:

“I was reminded of the uncertain nature of judgments about the future and the need for a safety margin between my view of value and what I am willing to pay.”

Forming opinions

And some people experienced how learning that is practical and for personal meaning, can support our ability to form our own opinions and judgements:

“This Unit has certainly encouraged me to form my own opinions, and though challenging at times, I am sure this type of learning will have more practical benefit for me in the future than rote learning.”

And it is only just the beginning…

Some have a strong sense that our unit is just a start, a first step in developing skills in analysing firms and being able to use accounting information (along with other information) to meaningfully engage with businesses and with ‘what is really going on”:

“I was also reminded that I haven’t learned everything about financial statement analysis, that the learning in this unit is only the start of learning skills that I can develop further.”

Do not be a ‘bean counter’

And as we reach the end of our Accounting degree, it is great to be reminded that accounting is not about ‘the numbers’; but rather is about what the numbers can tell us about the business:

“I think the key concept that I will remember from this unit about financial statement analysis is that because I have an accounting background, I have to be careful not to focus on the financial statements themselves (as I have done in the past). Instead I can use the financial statements to help me understand what drives the value of my firm, so that I can make better predictions about what will add value to firms I might consider investing in in the future.”

And if that one thing is what you have gained from studying our unit, you will come away with a critical lesson for success in the future.

Regards,

Martin