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Financial Analysis For Everyone

Financial Analysis For Everyone

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Financial Analysis For Everyone

305 pages
7 heures
May 20, 2018


This books targets not only the specialists, but anyone interested in understanding the philosophy behind the financial analysis. Written in a language accesible to everyone, the book offers more than 50 examples and case studies inspired from reality, based on the personal experience of the author.

The Author takes the opportunity to describe uncompromisingly not only the financial banking activity, but also entreprenorial behavioral patterns, in order to educate and develop the Reader.

For the young university graduates, for bank employees and also for entrepreneurs, this unique book is incredibly useful, in a market dominated by theoretical writings.

Cosmin BAIU has worked for over 20 years for top banks at European level, being nominated for top executive positions, also taking part in multiple Credit Committees. He has an experience which combines the retail and corporate financial analysis with many years of Executive Sales & Customer care positions, which allows him to have a complete and unique view over the financial banking world.

May 20, 2018

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Financial Analysis For Everyone - Cosmin Baiu


(C) 2018 Copyrights for text and illustrations are reserved in favor of Cosmin BAIU. Any partial or full reproduction is prohibited, unless authorized by the owner.



Chapter 1: Wealth (Assets)

Chapter 2: Debts (Liabilities)

Chapter 3: Profit and Loss Account Analysis

Chapter 4: Financing Products: Description, Analysis, Examples

Chapter 5: Financial Analysis according to the Type of Performed Activity

Chapter 6: Advice for Financiers and Entrepreneurs



I decided to write this book as a general and accessible guide comprising the generic principles of the financial analysis of commercial companies. I have tried to avoid as much as possible the actual nomination of accounting terms of Assets and Liabilities, since I wanted to show the general and universal philosophy underlying financial analysis, and not a classic didactic manual. This material is destined both to entrepreneurs and business men, economic studies graduates, as well as B2B sales professionals, regardless of the activity domain.

At the beginning of my activity in the world of finances, I desperately needed such an introduction guide, in at least two situations, both related to employment interviews. In 2002, at the onset of my career, I had to pass a series of successive employment interviews for a sales position – Key Account Manager for a well-known financial leasing company. There were dozens of candidates for that position, some entry level, just like me, but others with over 10 years of experience in sales. I took a written examination, which was an elimination test and contained sets of 8-10 questions and exercises, starting from simple ones and ending with the presentation of a case study – the description of a company, its simplified Balance-Sheet and the financing application. The question? Do you approve the financing or not? The examination score was constructed so that, if I didn’t correctly solve this problem, I was disqualified. I passed the exam, I got the job, but I was impressed by the fact that, after the subjects were handed over to us, three quarters of the candidates, some much more experienced than me, left the room. After 3 minutes only!

The second example I will offer is related to an employment interview for a large multinational bank, within the Commercial Department, in 2005. It all began with a general introductory discussion, to get to know each other better, but after a few minutes, my interlocutor took out from under his desk a printed document describing the financial situations of company X for the last 3 years – Assets, Liabilities and Profit and Loss Account. The manager informed me that we would be playing a game, in which he was the representative of a commercial company performing in the domain of constructions, addressing me for accessing a Credit line in amount of 5 million EUR. I had 15 minutes to decide if I granted him the Line or not, and I had to motivate why, since I would get a complaint filed against me with the Department management for lack of professionalism! In the meantime, I had become fairly good at financial analysis for leasing/investment credit applications, but I was completely unprepared for a working capital credit application, especially for such a big amount. I admit, I wasn’t satisfied with the interview, the role play was uncomfortable, since my client became aggressive, asking for 7 million EUR when I offered him 5, but eventually, I obtained the position.

Economical bachelors and master’s degrees, completed in a hurry immediately after graduation, usually do no prepare students for such situations, everyone must get by on his/her own in real life, and exploit their own opportunities. The truth is regularly somewhere in the middle, oscillating between the lack of practical experience of teachers and lecturers, who levitate in the world of theoretical concepts and abstract definitions and the archetypal inclination of students, I might say, toward negligence and distraction.

Moreover, the economical domain has an even greater fault – it attracts many people who have no inclination or interest/passion, no entrepreneurial spirit, who are only eager to graduate in a certain field, which offers an above average income. If in medicine, religion, architecture, mathematics, philology, electronics, the choice of one’s future career is made starting from the high school graduate’s newly discovered passion to specialize in a domain that he finds irresistible, often times, economical sciences attract many imposters, young people who have not yet outlined their personalities or worse, suggestible young people, sent by their families to study something, no matter what. In my career in the financial-banking field, I have encountered nothing sadder than various colleagues, resigned in front of laptops, waiting for the end of the work schedule, without understanding what they were really doing there. Not only are they living an unhappy life, inhabiting an eternal Valley of Sorrow, but their passivity and lack of passion takes away any chance of being noticed and promoted, and most of the times, they end up either demoted or fired for lack of performance.

To these people – who are already in the abovementioned situation – I recommend that they urgently change their activity domain, while it’s not too late! For those who are about to make the mistake of following a career in a field for which they have no passion, stop while you still can! You will save yourselves and the financial institutions from a potential relation with a regrettable ending. The financial-banking world, the world of finances, may prove to be extremely boring and sterile, if you have no penchant for it! Just as it can turn out to be a wonderful, seductive and simple domain for those who discover their passion for numbers, logics, complex financing projects analysis and especially the desire to help!

NOTHING can be built in this world without financing backing it, and if the architect, the doctor, etc. have the satisfaction of designing a building or saving a life, the financier has the satisfaction of successfully financing a building, a production line, a bridge or, why not, a state-of-the-art hospital.

The following material will describe in detail, in the first 3 chapters, the notions of Assets, Liabilities and Profit and Loss Account for a commercial company, presenting universal terms such as patrimony, debts, income and expenses. Then comes their interpretation in a critical manner, their analysis by comparison with the type of performed activity, as well as the presentation of the main economical balances and imbalances, which may irretrievably affect the activity of a company. I have presented multiple practical examples from different economic domains, in order to understand the manner in which a financial analyst examines a financing project and decides whether it is approved or dismissed.

In the second part of the book, I presented the main financial-banking products existing on the market, when and how they are used by companies and especially how they are analyzed and approved by a financial-banking institution. I believe that this guide is very useful for entrepreneurs and economic agents, who are in a permanent symbiosis with credit institutions. It is very important for them to understand the manner in which these institutions analyze their credit application, their file, their story and their business plan and especially why their application is rejected. Why do certain banks accept it, and others dismiss it?

The book is also useful for Sales Managers in the financial-banking field. From my own experience, I know that – although they have a good knowledge of the financial products they offer to clients – most times, they have no idea regarding the interpretation of the financial situations of the client they are negotiating with – and, even worse, they cannot interpret the explanations that the respective client shares with them, in good faith. In this case, managers end up by practically throwing at Back-Office all the copied papers they can obtain and all the e-mails they have received from the client, in the hopes that some analyst will connect the dots and understand what is going on. Wrong! Not only that, by acting in this manner, they are not supporting their client in obtaining the financing, but they are also endangering their chances of obtaining an approval! And if the analyst is barely starting off his career, or is disinterested and/or unmotivated, then the decision will acquire a purely arbitrary character, with no relation to the credit file.

A good corporate financier is, in fact, a generalist, he knows more or less of each activity domain. He is also a good psychologist, since he must detect if the person who is presenting an investment project or asking for financing is lying or not. He is a good entrepreneur, since, together with the beneficiary of the investment, he analyzes the suitability of launching a project or opening a new business, in the respective socio-economic context. He is a good analyst, since he must be able to critically analyze and moderate the inherent optimism of the enthusiastic entrepreneur, who would like to permanently try something new. He is an expert in local and international economy, in the political environment, since external factors can arise anytime, to endanger and destroy an otherwise well-implemented project.  He is a man with a great experience in the field, because he must compare the project he is about to decide on with many other similar projects from the past and he must counsel the entrepreneur, explaining in detail the problems that other similar businesses were confronted with. Last but not least, he must be a logical person with common sense since, beyond budgets or sales targets, beyond formulas, indicators or market researches, when he grants a credit, he must always ask the question: "If, in the given situation, I had to grant the loan from my own personal money, would I do it or not?" If the answer is no, trust me, dismiss the project, because the chances are that you will lose all the money you loaned. But if the answer is yes, then support and defend your ideas before any Credit Committee or Risk Manager, because there is a great probability that the project will be a successful one, to which you contributed in a personal manner.

To conclude, I wish you a pleasant and, moreover, instructive reading! At the end of this book, you will become a good financial analyst, able to carry on a decent conversation with any professional in the field. You will become a better entrepreneur, able to successfully develop and finance new projects, or you will become and efficient sales manager, with a very high success rate in negotiations.


From the oldest times known to man and until the present day, people have fought to acquire. The motivation behind this may be extremely different, from demonstrating success to the vanity of associating success with wealth.

Wealth may take on multiple forms and has a relative character, depending on the subject who analyzes it. Therefore, a fir tree planted in the garden, on the day of someone’s child’s birth may constitute a spiritual wealth for that person, whereas for their neighbor, only an unwanted source of shadow. A farmer’s wealth may be the tractor in which he invested all his savings, but for a well-paid corporation employee from a large city, it will never be worth more than its weight in scrap iron or the opportunity cost of its forced and urgent sale.

I believe in and support man’s will to acquire wealth, which accompanies his entire existence, from his very first steps (have you noticed how children divide their toys and mark out their influence areas?!). The same vital force that sets the human body in motion and takes it out of its comfort zone and passivity, determining it to act in a manner that seems unbelievable even for the individual, is what sets the economy in motion, it is the engine that drives progress.

Of course, there is the ancient school of stoicism, there is the approach of life as suffering in the Buddhist philosophy or in Arthur Schopenhauer’s writings, but they don’t always offer consolation for the man searching for the meaning of life, since they deny the existence of a final creator of the universe and only urge the man to seek silence, isolation, contemplation, purification and the dignified waiting of the end. All these are suggestions completely opposed to human nature!

I would make a short remark here, related to this subject. Prince Siddhartha – who would later become known as Buddha, the Enlightened One, was born and grew up in a palace, as the son of a locally important king. He enjoyed every possible pleasure, derived from the wealth and power he held, he was married and had a son. Afterwards, around the age of 30, he renounced everything, leading the life of an itinerant hermit. Arthur Schopenhauer, who also supported the idea of life as suffering, didn’t have to work formally almost his entire life, because he came from a prosperous family. These are only two examples (there are many others) which prove that often times, in the modern world, melancholy and sadness, the desire to give up everything and everyone, social and metaphysical depression usually appear in the affluent society, in individuals who have or receive everything they ever wanted without fighting or working for it, becoming useless for society and, maybe, even for themselves.

Let us now concentrate our attention to the rural environment, where ever since childhood, the individual understands that even the most worthless object was obtained in difficult labor conditions, and its procurement was the result of multiple opportunity cost analyses from the family. What kind of vital force, what type of will does an individual raised under these conditions has, what sacrifices is he willing to make in order to complete himself as an individual, or in order to accumulate material or spiritual wealth?! Would such an individual easily accept to give up on everything and everyone and return to the initial state, to poverty and discomfort? Difficult to believe. Because in poverty seldom is there a rich spiritual experience, since it is erased, annihilated by the concern for tomorrow.

At the other extreme, there are, of course, individuals who are so obsessed with owning goods or power, that they end up completely identifying with them, losing their Self entirely and becoming objects with no human value. We sometimes happen to see such pathological examples around us – and even if they are wearing expensive suits or holding impressive jobs – it doesn’t make them less dangerous for the people around them. Behind these characters, there are usually weak, simplistic, traumatized personalities, to whom life has given the opportunity to climb the social hierarchy, high above their limited potential.

Therefore, can we condemn and stigmatize the fact that the modern world has simplified its definition of personal wealth or spiritual becoming to – for example – owning the last generation of iPhone? And they even do that through loans, financed for 1-2 years by the telephone company, with payment in installments? That the notion of wealth means, for more and more people, owning household assets, with a maximum life span of 2-3 years?

In part, yes, because the modern man has the opportunity to choose what to direct his inner focus on. Yes, he may concentrate his entire attention on a mix of objects (Ikea furniture, electronic tablets, ultra-flat TV sets, McDonalds hamburgers), repetitive and automatic activities, determined by going to work daily or he may try to continuously develop his personality and inner Self, to discover as much as possible of what time and space mean, as well as the history of humankind and of religions, philosophy or art. And I am not referring to personal pseudo-development books that constantly accompany the corporate world, which is in a permanent lack of time, but to a thorough and solidly built culture, as education key of the spiritual force and will that we are all endowed with, since birth.

Material wealth, unaccompanied by a proportional spiritual wealth, determines strong personality slippages, creating monstrosities that are not only dangerou

s for the subjects themselves, but also for those around them.

Let us take the example of an individual with no culture or intelligence whatsoever, but who either inherits a considerable fortune, or incidentally generates it, by buying and selling land in an aggressive period of price growth, for example. Do you believe that the respective person will quietly and anonymously go on with his life, spending his wealth in a narrow circle of friends and acquaintances? By no means! This person will immediately associate a spiritual and intellectual dimension at least at the level of the fortune he owns, if no higher, he will display a public image of opulence combined with pseudo-teachings and advice for the less fortunate, grotesquely miming the public image of a small king or spiritual guru, sent by the Creator on earth. I’ve met such people in periods of aggressive economic growth and trust me, you wouldn’t have wished to witness their downfall along with me, when they couldn’t understand anything of what was going on and they desperately and hopelessly tore up the papers through which the Bank was trying to give them a new chance, by restructuring the outstanding credits…

Coming back to the economical domain, economic science has received the difficult task of classifying and standardizing the manner in which wealth is interpreted and described for all the categories of individuals and companies, in order to simplify its analysis and interpretation, quickly, by each observer or analyst. By doing this in this manner, a financial analyst may understand and issue opinions almost immediately, with regard to any company’s wealth, regardless of the activity domain, from agriculture and commerce, to industry and services. In accounting, the notion of wealth has received the name ASSETS, becoming a component of companies’ Balance-Sheet.

The main components of the Assets, according to the accounting definition, are:

-      Fixed Assets, namely the patrimony that has a life span greater than 12 months;

-      Current Assets, namely the perishable patrimony, with a life span that is not anticipated to exceed 12 months from the moment of their entry in the patrimony.

-      Regularization and assimilated accounts.


The fixed assets contain the totality of patents, licenses, trademarks, lands, buildings, equipment and transportation means (vehicles), equity participations and long-term receivables that a company owns.

In short, the components of the fixed assets represent the means through which the company obtains added value, profit, managing to produce the goods and services that make it stand out on the market.

There are 3 main categories of Fixed Assets:

-      Intangible fixed assets (incorporation, concession, patents, licenses, trademarks expenses);

-      Tangible fixed assets (lands, buildings, production and transportation means)

-      Financial fixed assets (securities, participations to the capital of other companies, long-term receivables, etc.)

Since this book does not aim to be another didactic accounting volume, we shall see below the main categories of Fixed Assets, which we come across most frequently in practice.

1.1.       Lands and Buildings.

Through their mere designation, it is absolutely clear that we are talking about wealth in the strict and true sense of the word. Regardless of the activity domain, the general conception is that owning these objects inexorably translates to being an affluent person or company. However, in economical practice, things aren’t quite so. There are few activity domains in which owning lands and buildings truly brings added value to the company, and is not, in fact, a burden. Counter-intuitive, isn’t it?

The answer is the following: this category of assets is extremely costly (their acquisition, ownership and maintenance are very expensive) and, in most cases, it doesn’t yield any income. Most times, the entire company works hard in order to pay for their acquisition, for reimbursing credits that were contracted for buying them.

Example 1 (WRONG!)

Let us take, for example, the case of a road transportation company for internal and international merchandise. This company uses a fleet of 100 heavy trucks, which are in continuous movement. Let us assume their degree of wear is 50%, namely 3,5 years old, on average. Let us consider that each truck produces, on average, a monthly gross profit of 1.000 EUR, namely 100.000

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