PROF.

JOHN CORE: Welcome to Financial accounting.

I'm John Core, the instructor for this course.
In addition to welcoming you, I want
to motivate this course by giving you two reasons why you
will benefit from taking it.
Accounting is the language of business.
It is how firms communicate their financial performance.
There are two major uses of accounting,
and these two uses involve two groups of users.
The first major use of accounting
is by managers inside firms to make decisions
and to determine compensation.
For example, firms use accounting information
to decide whether to invest in a new plant
or to buy another company.
In this case, accounting information
is an input into the capital budgeting decisions
you learn about in your finance classes.
A second example is the use of accounting information
to determine bonuses or compensation.
At some point in your career your bonus
will be based on an accounting number,
and you will want to know how this number is computed
and how you can affect it.
Because accounting information is so widely
used within companies, anyone whose career
is to work in companies, and ultimately
to help run these companies, needs familiarity
with accounting.
For this reason, a course like this
is required in most Master's of Business programs.
The second major use of accounting
is by people outside the firm.
Lenders and investors use accounting information
to evaluate whether they will get an acceptable return
if they provide debt or equity capital to a firm.
Lenders use accounting information
to assess whether a firm can repay a loan,
and use profitability and leverage
ratios to monitor the firm over the life of the loan.
Second, stock investors and investment bankers
use accounting information to value a firm
and to decide whether buying that firm's stock
will give an attractive return.
Using accounting information to assess
and value firms is widely done by finance professionals.
For this reason this course is required
in Master's of Finance programs such as this one.
Therefore, there are two major reasons
for taking this course and two groups of people who
will benefit from the course.
The first group is business professionals
who work inside companies.
The second group is finance professionals
who invest in companies.
If your immediate career goal is to be a finance professional,
the second reason will be your major motivation now.
But as you progress in your career,
you will become a manager and a decision maker.
Then the first reason will also become important.
You will need to know accounting to make decisions
within your organization and to understand your compensation
at that organization.
The bottom line is, to understand a company
from a finance perspective you must
be able to read financial statements.
This course teaches you to read and understand
financial statements.
We will start by understanding how the accounting
system records transactions.
For example, if a company buys equipment and pays cash,
how does the accounting system record this transaction.
Second, by understanding how these individual transactions
add up to become financial statements,
we will study the basic structure
of the three major financial statements, which
are the income statement, the balance sheet, and the cash
flow statement.
We will then focus on extracting information
from these financial statements to assess corporate performance
and to compare different firms.
This course will also teach you to use financial statements
to gather inputs to valuation models
and for corporate finance decisions.
To teach you to read real financial statements
throughout the course, we use real companies
financial statements.
We will analyze in detail Amazon, Apple, AT&T, and Tesla,
and over 40 other companies.
I received my PhD in accounting from Wharton, and before my PhD
I worked in investment banking and in consulting.
I've been teaching at MIT for over 10 years.
I primarily teach versions of this course
to Master's of Finance students and to Master's of Business
students.
I also teach in the PhD program, and in the executive education
program.
My research spans a range of topics
in accounting, CEO compensation, and in corporate governance.
I will be working with you throughout this course,
and I hope that you will enjoy it.