A86045 Accoun,ng and Financial Repor,ng (2017/2018)my.liuc.it/MatSup/2017/A86045/Session 2 Slides .pdf · 2018-02-22 · A 86045 Accoun,ng and Financial Repor,ng 1. Financial repor,ng

A86045Accoun,ngandFinancialRepor,ng(2017/2018)

Session2FinancialAnalysis:Ra,oAnalysis

PaulG.SmithB.A.,F.C.A.

SESSION2SESSIONOBJECTIVES&OVERVIEW

A86045Accoun,ngandFinancialRepor,ng 2

Session2Overview

Mins

Sessionobjec,vesandoverview 5

Reviewofpre-workandsession1recap 15

Financialandra,oanalysis 30

Marketmeasures,analystsfocusandotherconsidera,ons 15

Ra,oanalysis,trendanalysisandcommonsizeanalysis 15

Requiredreadingandassignmentfornextsession 5

Summaryandvalida,onandoverviewSession3 5

90

3A86045Accoun,ngandFinancialRepor,ng

CourseObjec,ves


Attheendofthiscoursestudentswillbeableto:•  Readandperformahighlevelinterpreta2onofthefinancialstatementsofcompaniesapplyinginterna9onalaccoun9ngstandards

•  Iden2fyandevaluatetheimpactonacompaniesaccountsofalterna9veaccoun9ngmethods

•  Carryoutahighlevelassessmentofthetheeconomic-financialposi9onofacompanyrepor9ngunderIAS/IFRS.

CourseOverview

A86045Accoun,ngandFinancialRepor,ng

1.Financialrepor,ngunderIFRS 14.Construc,oncontracts

2.Financialanalysis:Ra,oanalysis 15.OtherNon-financialliabili,es

3.Financialanalysis:SegmentsandEPS 16.Reviewsession

4.Reviewsession 17.Midtermtest

5.Revenues 18.FinancialInstruments1

6.Costsandexpenses 19.FinancialInstruments2

7.Taxa,on-DirectandIndirect 20.Reviewsession

8.Non-currentassets-Intangibleassets 21.CashFlowStatement

9.Non-currentassets-Tangibleassets 22.Groupaccounts/Businesscomb

10.Financialleases 23.Reviewsession

11.Impairmentofassets 24.Reviewsession

12.Reviewsession 25.Finaltest

13.Inventories

PGS

PT

PT

PGS

PGS

5

Objec,vesofSession2&3


Attheendofthesetwosessions,andthefollowingreviewsession,studentswillbeableto:•  Applythebasictechniquesoffinancialanalysis

•  Ra,oanalysis•  Trendanalysis•  Commonsizeanalysis

•  Performahighlevelassessmentofacompany’s:•  Profitability•  Liquidity•  Efficiency•  Investmentrisk

SESSION1RECAPANDPRE-WORK


Session1recap•  Introduc,ons•  Courseobjec,ves,overview,referencematerials,teachingmethods

•  Evolu,onofaccoun,ng,stakeholders,IASsandIFRSs

•  The5ComponentsofFinancialstatementsandlinkagesbetweenthem

•  Basicbookkeepingrecap•  Reading,researchandassignmentfornextsession


•  UnderstandingtheFinancialStatementsRequiredbyIAS1–  Profitorlossandothercomprehensiveincome(oneortwo

statements,bynatureordes,na,on)–  Financialposi,on(classifiedorunclassified)–  Changesinequity–  Cashflows(Directorindirectmethod)–  Notes

•  CurrentsAssets•  CurrentLiabili,es•  TheLinkagesamongthe4FinancialStatements


Session1recap-Cont’d

RequiredReadingandresearchassignment

•  Reading–  Melville

•  Chapter1–TheRegulatoryFramework(14pages)•  Chapter2–TheIASBConceptualFramework(19pages)•  Chapter3–Presenta@onofFinancialStatements(30pages)•  Chapter4–Accoun,ngpolicies,accoun,nges,matesanderrors(5pages)•  Chapter21–RelatedPar,esandChangesinforeignexchangerates(7pages)

–  IFRS•  IAS1Presenta@onofFinancialStatements(38pages)

•  Exercises–  MelvilleExercises3.1–3.6–  MelvilleOn-linemul,plechoiceques,onsfortheabovechapters–  ExerciseEX1FinancialStatements

•  Researchassignment–  EuropeancompaniesintheTopGlobal100companiesusingIFRS

•  Presenta,onop,ons•  RA1Datacollec,ontemplateforchosencompanies


•  ChooseacompanyfromthelistofEurope’sTopCompanies

•  Obtainthe2015AnnualReportand/orForm20F(forUSSECRegistrants)

•  LocatetheConsolidatedFinancialStatementspreparedunderIFRS

•  Completethetemplatefortheprofitandlossaccountandstatementoffinancialposi,on

•  Obtainanunderstandingofthecompany’sBusinessModel.

ResearchAssignment2Datacollec,on


ResearchAssignment1-FinancialStatementPresenta,onOp,ons


SingleStatement or TwoSeparateStatements

ExpensebyNature or Expensesbydes,na,onorFunc,on

StatementofProfitorLossandOtherComprehensiveIncome

StatementofFinancialPosi@on

Current/Non-currentdis,nc,on

or ByOrderofLiquidity

StatementofCashFlows

IndirectMethod or DirectMethod

☐☐

☐

☐

☐

☐

☐

☐

Company_________________

RA1FinancialStatementPresenta,onOp,ons 12

RA1FinancialStatementPresenta,on


StatementofProfitorLossandOtherComprehensive

Income

StatementofFinancialPosi@on

CashFlowStatement

P&LandOCIOneorTwoStatements

P&LbyNatureorFunc@on

Current/Non-currentorLiquidity

DirectorIndirect

Barclays Two Func,on Liquidity* Indirect

L’Oreal Two Func,on Current/Non-current Indirect

Nestlé Two Func,on Current/Non-current Indirect

Siemens Two Func,on Current/Non-current Indirect

Vodafone Two Func,on Current/Non-current Indirect**

*Page221Contractualmaturityoffinancialassetsandliabili,es**Note19Reconcilia,onofnetcashflowfromopera,ngac,vi,es

BusinessModels

•  Howacompanyplanstomakemoney.•  Spreadsheetsmadeitpossibletomodelbusinesses–byaccidentmorethanbydesign.

•  Twopartmodel–  1.ac,vi,esassociatedwithmakingsomething:design,purchaseofrawmaterials,manufacturingetc.

–  2.ac,vi,esassociatedwithsellingsomething:findingandreachingcustomers,transac,ngasaleetc.

•  Nottobeconfusedwithstrategy–i.e.offeringabelerbusinessmodelortoadifferentmarket


RATIOANALYSIS


Ra,oanalysis

•  Profitability•  Liquidity•  Efficiency•  Investment


Facilitatestrendanalysis(comparisonover,me)andthecomparisonwithothercompaniesinthesameand/orother

industriesirrespec,veofthecompany’ssizeorcurrencyusedtopreparethe

financialstatements(Commonsizeanalysis)

Profitabilityra,os


Grossprofitmargin%*(Netsales–costofsales)

Sales=

Opera,ngprofitmargin%**(GrossProfit–opera,ngexpenses) Sales

=

Netprofitmargin%Netincome

Sales=

X100

X100

X100

GrossProfit*

Opera,ngProfit**

Sales=netsales/salesexcludingVAT/salesrevenues/consolidatedsalesrevenues/revenue(s)/totalrevenues/grouprevenues/turnoverGrossprofit=grossmarginOpera,ngprofit=opera,ngincome/incomefromopera,onsNetincome=incomefortheperiod/consolidatednetincome/netprofit/netprofitfortheyear/profitaoertax/profitfortheperiod(year)(financialyear)

Rela,vetosales

Profitabilityra,osCont’d


18

Returnoncapitalemployed(ROCE)%**

ProfitbeforeInterestexpenseandtax(PBIT/EBIT)

Shareholdersequity*+Long-termdebt*=

Returnonequity(ROE)%

Profitaoertax

Shareholder’sequity*=

X100

X100

Rela,vetoInvestment

*Technicallyshouldbebasedontheaverageofbeginningandendingamounts**MelvilleusesNon-currentliabili,esasopposedtoLong-termdebt

Shareholders’equity=Netassets,Capitalemployed,Equity,Totalequity,stockholders’equity

Liquidityra,os


Currentra,oCurrentassets

Currentliabili,es=

Quickra,o(acidtest)

= Currentassets–inventories*

Currentliabili,es

*Inventories=Inventoriesandwork-in-progress,stock-in-trade

X:1

X:1

Efficiencyra,os


Assetturnover** Sales

Non-currentassets*=

Inventoryturnover = Costofsales

Inventory*

Inventoryholdingperiod(DOI)

= Inventory*

CostofsalesX365

*Technicallyshouldbebasedonaverageofbeginningandendingamounts**Melvilleusesnetassetsorcapitalemployed

Costofsales=CostofrevenuesInventories=Inventoriesandwork-in-progress,stock-in-trade

Times

Times

Days

Efficiencyra,osCont’d


Accountsreceivablecollec,onperiod(DSO)

= *Accountsreceivable(lessVAT)

CreditSalesX365

Accountspayablecollec,onperiod(DPO)

= *Accountspayable(lessVAT)

CreditpurchasesX365

*Technicallyshouldbebasedonaverageofbeginningandendingamounts

Accountsreceivable=tradeaccountsreceivable,receivables,tradereceivablesAccountspayable=tradeaccountspayable,accountspayabletrade,currenttradeandotherpayables

Days

Days

Investmentra,os


DividendcoverNetincome

Dividends=

Earningspershare(IAS33)

Netincome

Weightedaveragenumberofordinarysharesoutstandingduringtheyear

=

Price/Earnings(P/E) Sharemarketprice

Earningpershare(EPS)=

DividendYield%Dividendpershare

Sharemarketprice= X100

DividendpershareOR Earningpershare(EPS)

Investmentra,oscont’d


CapitalGearingLong-termdebt

*Equity=

Interestcover Profitbeforeinterestexpenseandtax(PBIT/EBIT)

Interestexpense=

Long-termdebt=financialliabili,es,long-termborrowings,financialdebts,interestbearingloansandborrowings,debt,financialdebt,non-currentfinancialdebt,non-currentborrowingsanddebt,borrowingsandotherfinancialliabili,esInterestexpense=financecosts,financingcosts,financialexpenses,financeexpense,financialinterestondebt,costofnetfinancialdebt,financecostsongrossdebt

*MelvilleusesEquity+Non-currentliabili,es

MARKETMEASURES,ANALYSTSFOCUSANDOTHERCONSIDERATIONS


MeasuresthatMaler1.  Execu,onofcorporatestrategy2.  Managementcredibility3.  Qualityofcorporatestrategy4.  Innova,veness5.  Abilitytoalractandretaintalentedpeople6.  Marketshare7.  Managementexperience8.  Alignmentofcompensa,onwithshareholder

interests9.  Researchleadership10. Qualityofmajorbusinessprocesses

A86012ManagementandPrinciplesofAccoun,ng 25Source:Ernst&YoungLLPMeasuresthatmaler

AnalystsFocus

•  EBITDARM•  EBITDAR•  EBITDA•  EBIT•  EBT


Earningsbeforetax,interest,deprecia,on,amor,za,on,rentsandrestructuring,managementfees

Otherusefulra,os/informa,on

•  Effec,vetaxrate(Incometaxesasa%ofPre-taxincome)

•  Intangiblesasa%totalassets•  Intangiblesasa%ofequity•  Debtmaturi,es/covenants•  MarketCapitaliza,onvs.Netequity•  R&Dasa%ofrevenues•  Con,ngencies


Expectedrela,onshipsamongdata–someexamples

Observa@on Consequence

Salesincrease AccountsreceivableincreasebutDSOshouldremainsthesame.Inventoriesmaydecreaseunlessproduc,onhasincreased

Grossmarginincreases Salespriceshaveincreased,pricesofrawmaterialshavedecreasedorachangeinmixofsalestomoreprofitableproducts/services

Workingcapitalincreases Improvedcollec,onofaccountsreceivables,delayedpaymentofcreditors,posi,vecashflowsfrominves,ngandfinancingac,vi,es

Effec,vetaxrateislowerthatstatutorytaxrate

Useofprioryeartaxlosses,propor,onofprofitfromcountrieswithlowertaxrates,existenceofnon-taxableincome

Inventorydecreases SalesincreaseA86045Accoun,ngandFinancialRepor,ng 28

RATIO,TREND&COMMONSIZEANALYSIS


Ra,oAnalysis


ProfitabilityGrossmargin(Grossprofit/Revenues) % #DIV/0!Opera,ngmargin(Opera,ngprofit/Revenues) % #DIV/0!Netprofitmargin(Netprofit/Revenues) % #DIV/0!Returnonequity(Netprofit/Shareholders'equity) % #DIV/0!ReturnonCapitalemployed(PBIT/Shareholders'equity+Long-termdebt) % #DIV/0!

LiquidityCurrentra,o(Currentassets/Currentliabili,es) Ra,o:1 #DIV/0!Quickra,o(Currentassets-inventory/Currentliabili,es) Ra,o:1 #DIV/0!

Efficiencyra@osAssetTurnover(Sales/Non-currentassets) Times #DIV/0!Inventoryholdingperiod(DOI)(Costofsales/inventoryx365) Days #DIV/0!Inventoryturnover(Costofsales/inventory) Times #DIV/0!Tradereceivablescollec,onperiod(DSO) Days #DIV/0!Tradepayablepaymentperiod(DPO) Days #DIV/0!

Investmentra@osEarningspershare(EPS) USD #DIV/0!PriceEarningsra,o(P/E)(Shareprice/EPSxCHFXrate) Times #DIV/0!Dividendcover Times #DIV/0!Dividendyield % #DIV/0!Debt/Equityra,o(Gearing) Ra,o #DIV/0!Interestcover Times #DIV/0!

OtherEffec,vetaxrate % #DIV/0!R&Dasa%ofrevenues % #DIV/0!Intangiblesasa%oftotalassets % #DIV/0!Intangiblesasa%ofequity % #DIV/0!

Comparison

samon

gstd

ata

TrendAnalysis


Profitability Year1 Year2 Year3Grossmargin(Grossprofit/Revenues) % #DIV/0! #DIV/0! #DIV/0!Opera,ngmargin(Opera,ngprofit/Revenues) % #DIV/0! #DIV/0! #DIV/0!Netprofitmargin(Netprofit/Revenues) % #DIV/0! #DIV/0! #DIV/0!Returnonequity(Netprofit/Shareholders'equity) % #DIV/0! #DIV/0! #DIV/0!ReturnonCapitalemployed(PBIT/Shareholders'equity+Long-termdebt) % #DIV/0! #DIV/0! #DIV/0!

LiquidityCurrentra,o(Currentassets/Currentliabili,es) Ra,o:1 #DIV/0! #DIV/0! #DIV/0!Quickra,o(Currentassets-inventory/Currentliabili,es) Ra,o:1 #DIV/0! #DIV/0! #DIV/0!

Efficiencyra@osAssetTurnover(Sales/Non-currentassets) Times #DIV/0! #DIV/0! #DIV/0!Inventoryholdingperiod(DOI)(Costofsales/inventoryx365) Days #DIV/0! #DIV/0! #DIV/0!Inventoryturnover(Costofsales/inventory) Times #DIV/0! #DIV/0! #DIV/0!Tradereceivablescollec,onperiod(DSO) Days #DIV/0! #DIV/0! #DIV/0!Tradepayablepaymentperiod(DPO) Days #DIV/0! #DIV/0! #DIV/0!

Investmentra@osEarningspershare(EPS) USD #DIV/0! #DIV/0! #DIV/0!PriceEarningsra,o(P/E)(Shareprice/EPSxCHFXrate) Times #DIV/0! #DIV/0! #DIV/0!Dividendcover Times #DIV/0! #DIV/0! #DIV/0!Dividendyield % #DIV/0! #DIV/0! #DIV/0!Debt/Equityra,o(Gearing) Ra,o #DIV/0! #DIV/0! #DIV/0!Interestcover Times #DIV/0! #DIV/0! #DIV/0!

OtherEffec,vetaxrate % #DIV/0! #DIV/0! #DIV/0!R&Dasa%ofrevenues % #DIV/0! #DIV/0! #DIV/0!Intangiblesasa%oftotalassets % #DIV/0! #DIV/0! #DIV/0!Intangiblesasa%ofequity % #DIV/0! #DIV/0! #DIV/0!

Comparisonover,me

CommonSizeAnalysis


Profitability CoA CoB CoCGrossmargin(Grossprofit/Revenues) % #DIV/0! #DIV/0! #DIV/0!Opera,ngmargin(Opera,ngprofit/Revenues) % #DIV/0! #DIV/0! #DIV/0!Netprofitmargin(Netprofit/Revenues) % #DIV/0! #DIV/0! #DIV/0!Returnonequity(Netprofit/Shareholders'equity) % #DIV/0! #DIV/0! #DIV/0!ReturnonCapitalemployed(PBIT/Shareholders'equity+Long-termdebt) % #DIV/0! #DIV/0! #DIV/0!

LiquidityCurrentra,o(Currentassets/Currentliabili,es) Ra,o:1 #DIV/0! #DIV/0! #DIV/0!Quickra,o(Currentassets-inventory/Currentliabili,es) Ra,o:1 #DIV/0! #DIV/0! #DIV/0!

Efficiencyra@osAssetTurnover(Sales/Non-currentassets) Times #DIV/0! #DIV/0! #DIV/0!Inventoryholdingperiod(DOI)(Costofsales/inventoryx365) Days #DIV/0! #DIV/0! #DIV/0!Inventoryturnover(Costofsales/inventory) Times #DIV/0! #DIV/0! #DIV/0!Tradereceivablescollec,onperiod(DSO) Days #DIV/0! #DIV/0! #DIV/0!Tradepayablepaymentperiod(DPO) Days #DIV/0! #DIV/0! #DIV/0!

Investmentra@osEarningspershare(EPS) USD #DIV/0! #DIV/0! #DIV/0!PriceEarningsra,o(P/E)(Shareprice/EPSxCHFXrate) Times #DIV/0! #DIV/0! #DIV/0!Dividendcover Times #DIV/0! #DIV/0! #DIV/0!Dividendyield % #DIV/0! #DIV/0! #DIV/0!Debt/Equityra,o(Gearing) Ra,o #DIV/0! #DIV/0! #DIV/0!Interestcover Times #DIV/0! #DIV/0! #DIV/0!

OtherEffec,vetaxrate % #DIV/0! #DIV/0! #DIV/0!R&Dasa%ofrevenues % #DIV/0! #DIV/0! #DIV/0!Intangiblesasa%oftotalassets % #DIV/0! #DIV/0! #DIV/0!Intangiblesasa%ofequity % #DIV/0! #DIV/0! #DIV/0!

ComparisonwithothercompaniesIrrespec,veofsizeorrepor,ngcurrency

REQUIREDREADINGANDRESEARCHASSIGNMENT


RequiredReadingandresearchassignment

•  Reading–  Melville

•  Chapter22–Ra,oAnalysis(26pages)–  IFRS

•  None•  Exercises

–  MelvilleExercises22.1–22.6–  MelvilleOn-linemul,plechoiceques,onsfortheabovechapter–  ExerciseEX2FinancialAnalysisExercises

•  Researchassignment–  EuropeancompaniesintheTopGlobal100companiesusingIFRS

•  RA2Datacollec,ontemplateforchosencompanies–  Calculatetheprofitability,liquidity,efficiencyandinvestmentra,os–  PerformathreeyeartrendanalysisoftheProfitandlossaccounts–  Performatwoyearcomparisonofthestatementoffinancialposi,on–  Iden,fyreasonsforsignificantfluctua,onsfromtheCompany’sAnnualReport


RA1Researchassignmenttemplate

A86045AccountingandFinanciaklReporting PaulG.Smith

ResearchassignmenttemplateCompany

2016 2015 2014 2016 2015IncomeStatement Statementoffinancialposition €millions €millions

€millions €millions €millions Non-currentassetsNetsales GoodwillOtherrevenues Intangibleassets

Totalrevenues 0 0 0 Property,plant&equipmentCostofsales Investments

Grossprofit 0 0 0 DeferredtaxesOperatingexpenses OtherResearch&development 0 0Selling,generalandadministrativeexpenses CurrentassetsDepreciation,ammortizationandprovisions Inventories/Long-termcontractsOtherincome(expense) Tradereceivables

Operatingprofit 0 0 0 OthercurrentassetsFinanceincome(expense) Short-terminvestmentsShareofresultofassociatedcompanies Cashandcashequivalents

Pre-taxprofit 0 0 0 AssetsheldfordisposalIncometax 0 0

Netprofitcontinuingoperations 0 0 0Discontinuedoperations Totalassets 0 0

Netprofit 0 0 0

CurrentliabilitiesShort-termBorrowingsTradepayablesIncometaxesProvisionsOthercurrentliabilitiesLiabilitiesheldfordisposal

0 0

Non-currentliabilitiesLong-termBorrowingsProvisionsDeferredtaxliabilitiesPensionsandemployeebenefitsOther

0 0Shareholders'equityTotalequityandliabilities 0 0

WeightedAveragenumberofsharesoutstandingSharepriceMarketcapitalization 0 0Dividendpershare

NBIntheincomestatementinsertnega?venumberswithaminussign

RA2ResearchAssignmentTemplate


RA2Researchassignmenttemplate

Ifthecompanyclassifiesexpensesbynatureputallexpensesintoopera,ng

expenses

35

Session2summary

•  RecapSession1andthe4basicfinancialstatements

•  Financialanalysis•  Ra,oanalysis(profitability,liquidity,efficiencyandinvestment)

•  Ra,o,trendandcommonsizeanalysis•  Reading,researchandassignmentfornextsession


OverviewofSession3

•  SegmentAnalysis–(IFRS8)•  Earningspershare–(IAS33)•  Handsonapplica,onanddiscussionoffinancialanalysistechniquesusingthecompaniesresearched– Commonsizeanalysis– Trendanalysis– Ra,oanalysis–  Industrycomparisons


SessionValida,on

•  Namethekeyra,o(s)usedtoassessliquidity•  Whattypeofanalysisdoweperformtocomparecompaniesofdifferentsizesandacrossdifferentindustries?

•  Whatra,owouldyouusetoassessacompany’sabilitytocon,nuetopaytheinterestonitsloansasitbecomesdue?

•  Howmanyyearsdatadoweneedtoperformameaningfultrendanalysis?


Documents

A86045 Accoun,ng and Financial Repor,ng (2017/2018)my.liuc.it/MatSup/2017/A86045/Session 2 Slides .pdf · 2018-02-22 · A 86045 Accoun,ng and Financial Repor,ng 1. Financial repor,ng