Financial Management Report
Renaaz
MBA4032021Week1.pdf
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COMMONWEALTH OF AUSTRALIA COPYRIGHT REGULATIONS 1969
WARNING THIS MATERIAL HAS BEEN REPRODUCED AND COMMUNICATED TO YOU BY OR ON BEHALF OF KAPLAN BUSINESS SCHOOL PURSUANT TO PART VB OF THE COPYRIGHT ACT 1968 (THE ACT).
THE MATERIAL IN THIS COMMUNICATION MAY BE SUBJECT TO COPYRIGHT UNDER THE ACT. ANY FURTHER REPRODUCTION OR COMMUNICATION OF THIS MATERIAL BY YOU MAY BE THE SUBJECT
OF COPYRIGHT PROTECTION UNDER THE ACT.
DO NOT REMOVE THIS NOTICE.
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MBA403 FINANCIAL AND ECONOMIC
INTERPRETATION AND COMMUNICATION
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Interpret and communicate a wide range of actual financial metrics to a diverse group of stakeholders such that their understanding is then assured.
Apply accounting information to a variety of corporate decision making processes by sourcing and identifying the data of most relevance.
Analyse ethical issues in finance and economics and how these influence business strategy in diverse business environments.
Integrate concepts of regional, national and global economic behaviour to aid business decision making.
Apply macroeconomic theory to assess global economies and the subsequent impact on business strategy.
MBA403 LEARNING OUTCOMES
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MBA403 OVERVIEW
Study requirements: compulsory 3 hour Workshop per week plus additional self study.
Week 6 Industry Guest: attendance at ‘live’ Industry Guest presentation in Week 6 is expected, where possible.
MBA403 site: for Subject Outline, Assessment information and Subject Resources, including Workshop slides. View Announcements frequently for lecturer updates.
Resources: optional readings reinforce the Workshop content. You will also be required to source your own references such as company annual reports or independent research reports. Use of the Kaplan Library is encouraged.
Participation: Active Workshop participation is expected from all students. ‘Cameras on’ when online. Assessable Workshop quizzes will be conducted.
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MBA403 ASSESSMENTMBA403 ASSESSMENT OVERVIEW
(Additional detail provided in Subject Outline)
Assessment Details Weighting Mode of
Submission Submission
Date
Group Case Study Calculations and
short answers 20%
On campus or Online
Week 5
Financial Management
Report & Video
2000 word report plus 5 minute video
30% Via Turnitin Week 9
Class Test Multiple choice and
short answers 35%
On campus or Online
Week 12
Participation Knowledge check
quizzes 15%
On campus or Online
Weeks 8, 10 and 11
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Week 1:
MEASURING FINANCIAL PERFORMANCE
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Week 1:
MEASURING FINANCIAL
PERFORMANCE
• Purpose of Financial Statements
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Notes to the Financial Statements
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ANALYSIS
INTERPRETATION
INSIGHTS
COMMUNICATION
PURPOSE OF FINANCIAL STATEMENTS
“Knowing your numbers can help you transform all of your business relationships and give you a significant competitive advantage”
(Bill Gates)
FINANCIAL STATEMENTS
SUSTAINABILTY REPORTS
EXTERNAL SOURCES OF
INFORMATION
BUSINESS STRATEGY
DECISION MAKING
STAKEHOLDER ENGAGEMENT
NON-FINANCIAL DATA
ECONOMIC & BUSINESS
ENVIRONMENT
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WHO ARE OUR STAKEHOLDERS?
External Internal Q1: IDENTIFY A
COMPANY’S EXTERNAL AND
INTERNAL STAKEHOLDERS?
Q2: WHY ARE THESE GROUPS
INTERESTED IN OUR FINANCIAL
STATEMENTS?
DISCUSSION ACTIVITY
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Who are our stakeholders?
External Internal
• Customers
• Suppliers
• Competitors
• Government
• Authorities
• Regulators
• Unions
• Community
• Interest Groups
• Media
• Potential Investors
• Lenders
• Analysts
• Board
• Shareholders
• Management
• Staff
DISCUSSION ACTIVITY:
Answers
Q1: IDENTIFY A COMPANY’S
EXTERNAL AND INTERNAL
STAKEHOLDERS?
Q2: WHY ARE THESE GROUPS
INTERESTED IN OUR FINANCIAL
STATEMENTS?
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WHAT DO THE FINANCIAL STATEMENTS TELL US?
• What is the company’s current financial position?
• To what extent have the owners benefited over the past year?
• How did the business perform over the period?
• Is the company generating adequate cash flow?
Financial Statements Explained in One MinuteVIDEO:
Balance Sheet
Income Statement
Cash Flow
Statement
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• A snapshot of a company’s financial position at a point in time
• Tables the Assets of the business and the claims against those assets, namely Liabilities and Equity (also known as Capital or Net Assets)
• Records a company’s sources of funds from Creditors and Shareholders
• Must always balance, as per the identity:
ASSETS = LIABITIES + EQUITY
MEASURING FINANCIAL
PERFORMANCE
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Notes to the Financial Statements
VIDEO: The Balance Sheet Explained
BALANCE SHEET
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MEASURING FINANCIAL
PERFORMANCE
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Notes to the Financial Statements
VIDEO:
BALANCE SHEET
ASSETS
• The resources ‘owned’ by the business in order to generate sales
• Examples: cash, inventory, buildings, plant & equipment, investments
LIABILITIES
• The financial obligations the business has incurred
• Examples: loans, creditors (suppliers), tax payable, accrued employee entitlements
EQUITY (aka NET ASSETS or CAPITAL)
• Includes: initial shareholder capital & retained earnings
• Net assets are the BALANCING ITEM
• Equals the accounting value of the company should it be wound up
The Balance Sheet Explained
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DETERMINE WHERE EACH OF THESE
ITEMS WOULD BE CLASSIFIED IN THE
THREE MAIN SECTIONS OF THE BALANCE SHEET
ACTIVITY
Goodwill
Creditors Unearned Revenues
Customer Deposits
Debtors
Prepaid Insurance
Doubtful Debt Provision
Reserves Retained Profits
Contributed Equity
Inventories
ASSETS LIABILITIES NET ASSETS
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ACTIVITY: Answers
ASSETS LIABILITIES NET ASSETS
Contributed Equity
Unearned Revenues
Customer Deposits
Doubtful Debt Provision
Retained Profits
ReservesCreditors
DETERMINE WHERE EACH OF THESE
ITEMS WOULD BE CLASSIFIED IN THE
THREE MAIN SECTIONS OF THE BALANCE SHEET
Goodwill
Debtors
Prepaid Insurance
Inventories
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VIEW HARVEY NORMAN’S
BALANCE SHEET IN THE FOLLOWING
SLIDES AND ANSWER THESE
QUESTIONS
LIABILITIES
• Is there anything unexpected on the balance sheet for a business we know as an appliance and household goods retailer?
• Are you able to able to determine from the balance sheet whether Harvey Norman has been profitable in previous years?
• Go to bloomberg.com (ASX code: HVN). Compare the market value of HVN to the net assets on the Balance Sheet (HINT: market capitalisation = market value). What do you notice?
CASE STUDY
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MEASURING FINANCIAL
PERFORMANCE
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Notes to the Financial Statements
VIDEO: The Balance Sheet Explained?
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MEASURING FINANCIAL
PERFORMANCE
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Notes to the Financial Statements
VIDEO: The Balance Sheet Explained?
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MEASURING FINANCIAL
PERFORMANCE
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Notes to the Financial Statements
VIDEO:
BALANCE SHEET
ADDITIONAL FEATURES
• The Balance Sheet distinguishes between current & long-term assets and current & long-term liabilities
• Items are recorded on an accrual rather than cash basis
LIMITATIONS
• Assets are often recorded at historical valuations (this particularly applies to inventories)
• Certain intangible assets or those unable to have a valuation attached are omitted from the balance sheet
• While the Balance Sheet provides an estimate of the Net Assets of the business, this will often be quite different from its market value
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MEASURING FINANCIAL
PERFORMANCE
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Notes to the Financial Statements
VIDEO: The Balance Sheet Explained
INCOME STATEMENT
• Also known as the Profit and Loss Statement
• Presents the results of a company’s operations, namely its profitability over a period of time
• Tables the Revenues and Expenses of the business to provide a Net Profit (also known as Net Income or Earnings) figure
• A public company will also usually report Earnings Per Share (a measure used in valuing shares)
• Items are recorded on an accrual basis rather than a cash basis
What is an Income Statement?VIDEO:
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MEASURING FINANCIAL
PERFORMANCE
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Notes to the Financial Statements
What is an Income Statement?
INCOME STATEMENT
REVENUES
• The value of goods or services sold
• Other revenues received
• May be received as cash or as accounts receivable
Less: EXPENSES
• Costs incurred to generate the revenues
• Cost of Goods Sold (the direct costs attributed to the provision of the good or service) are often separated from other expenses
Equals: NET PROFIT (aka NET INCOME or EARNINGS)
• This is the company’s profit or loss for the period
• Gross Profit (Sales less Cost of Goods Sold) may be shown separately
The Balance Sheet Explained
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VIDEO:
MEASURING FINANCIAL
PERFORMANCE
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Notes to the Financial Statements
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• High debt levels
• Negative retained earnings
DEVELOPING BUSINESS INSIGHTS 1
MATCH THE BUSINESS OUTLOOK
TO THE INSIGHTS GAINED FROM THE
BALANCE SHEET, INCOME
STATEMENT & BUSINESS
ENVIRONMENT
ACTIVITY
Balance Sheet position
Profitability Business outlook
• Candidate for business failure
• Recent sales decline due to recession
• Increased competition has eroded profitability
• Ample working capital (current assets less current liabilities)
• Debt levels are high & interest rates are rising
• Now trading profitably after early start up phase
• Has the resources to weather the downturn
• Debt levels likely to reduce going forward
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• Ample working capital (current assets less current liabilities)
DEVELOPING BUSINESS INSIGHTS 1ACTIVITY: Answers
Balance Sheet position
Profitability
• Debt levels are high & interest rates are rising
• Recent sales decline due to recession
• Increased competition has eroded profitability
• High debt levels
• Negative retained earnings
• Now trading profitably after early start up phase
• Debt levels likely to reduce going forward
• Candidate for business failure
• Has the resources to weather the downturn
Business outlook
MATCH THE BUSINESS OUTLOOK
TO THE INSIGHTS GAINED FROM THE
BALANCE SHEET, INCOME
STATEMENT & BUSINESS
ENVIRONMENT
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MEASURING FINANCIAL
PERFORMANCE
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Notes to the Financial Statements
VIDEO: The Balance Sheet Explained
CASH FLOW STATEMENT
• Reports all of a company’s cash inflows (positive) and cash outflows (negative) over a period of time
• Records the company’s sources and uses of cash
• Reconciles with the opening and closing cash balance in the Balance Sheet
• Cash flows are classified as Operating, Investing or Financing
• An important tool in understanding cash flows which are critical for business survival
• Items are recorded on a cash basis rather than an accrual basis
What is a Cash Flow Statement?VIDEO:
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MEASURING FINANCIAL
PERFORMANCE
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Notes to the Financial Statements
VIDEO: What is an Income Statement?
CASH FLOW STATEMENT
OPERATING
• Cash flows related to Net Income
• Examples: cash sales, wages paid, interest paid on borrowings
INVESTING
• The purchase or sale of investment items: securities, property, plant & equipment
• Loans made and repayments received
FINANCING
• Transactions related to financing the business – borrowings and repayments, shares issued, dividends paid
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MEASURING FINANCIAL
PERFORMANCE
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Notes to the Financial Statements
VIDEO:
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MEASURING FINANCIAL
PERFORMANCE
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Notes to the Financial Statements
VIDEO: The Balance Sheet Explained?
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MEASURING FINANCIAL
PERFORMANCE
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Notes to the Financial Statements
VIDEO: The Balance Sheet Explained?
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DEVELOPING INSIGHTS 2
WITH LIMITED CASH FLOW
INFORMATION WHAT INSIGHTS CAN
YOU DERIVE REGARDING THE
FINANCIAL POSITION AND STRATEGIC
DIRECTION OF THIS BUSINESS?
GROUP ACTIVITY
Positive
Operating Financial / Strategic
Position Investing Financing
Positive Positive
Negative
Negative
Negative
Positive
Positive
Positive
Company 1
Company 2
Company 3
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DEVELOPING INSIGHTS 2GROUP ACTIVITY
Positive
Operating Financial / Strategic
Position Investing Financing
Negative Positive
Positive
Positive
Positive
Negative
Negative
Negative
Company 4
Company 5
Company 6
WITH LIMITED CASH FLOW
INFORMATION WHAT INSIGHTS CAN
YOU DERIVE REGARDING THE
FINANCIAL POSITION AND STRATEGIC
DIRECTION OF THIS BUSINESS?
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DEVELOPING INSIGHTS 2GROUP ACTIVITY
Negative
Operating Financial / Strategic
Position Investing Financing
Positive Negative
NegativeNegativeNegative
Company 7
Company 8
WITH LIMITED CASH FLOW
INFORMATION WHAT INSIGHTS CAN
YOU DERIVE REGARDING THE
FINANCIAL POSITION AND STRATEGIC
DIRECTION OF THIS BUSINESS?
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DEVELOPING INSIGHTS 2 GROUP
ACTIVITY: Answers
Positive
Operating Financial / Strategic
Position Investing Financing
Positive Positive
Negative
Negative
Negative
Positive
Positive
Positive
Co. 1 has operating cash inflow yet is raising funds – possibly for an acquisition?
Co. 2’s operating cash inflow is funding loan repayments / dividends and expansion via new investment
Co. 3 may be over leveraged, with operating cash inflow and asset sales directed towards lowering debt
WITH LIMITED CASH FLOW
INFORMATION WHAT INSIGHTS CAN
YOU DERIVE REGARDING THE
FINANCIAL POSITION AND STRATEGIC
DIRECTION OF THIS BUSINESS?
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DEVELOPING INSIGHTS 2 GROUP
ACTIVITY: Answers
Positive
Operating Financial / Strategic
Position Investing Financing
Negative Positive
Positive
Positive
Positive
Negative
Negative
Negative
Co. 4’s operating cash inflow plus borrowing / capital raising may be funding expansion
Co. 5 is raising cash via divesting and borrowing / new capital. It may be anticipating an upturn in business
Co. 6 has operating cash outflow yet new capital / borrowing is funding investment. Co. 6 may be a startup
WITH LIMITED CASH FLOW
INFORMATION WHAT INSIGHTS CAN
YOU DERIVE REGARDING THE
FINANCIAL POSITION AND STRATEGIC
DIRECTION OF THIS BUSINESS?
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DEVELOPING INSIGHTS 2 GROUP
ACTIVITY: Answers
Negative
Operating Financial / Strategic
Position Investing Financing
Positive Negative
NegativeNegativeNegative
Co. 7 is divesting to fund operating cash outflow and loan repayments. A recovery is needed to avoid failure
Co. 8 is investing despite operating cash outflow and loan obligations. The investment will need to succeed
WITH LIMITED CASH FLOW
INFORMATION WHAT INSIGHTS CAN
YOU DERIVE REGARDING THE
FINANCIAL POSITION AND STRATEGIC
DIRECTION OF THIS BUSINESS?
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MEASURING FINANCIAL
PERFORMANCE
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Notes to the Financial Statements
VIDEO:
NOTES TO THE FINANCIAL STATEMENTS
• Additional information about the totals from the financial statements
for example, revenues by division or geography, age of debtors and details of borrowing facilities
• Significant events after balance date such as material transactions or changes in conditions since the date of the financial statements
“COVID-19, as well as measures to slow the spread of the virus, have since had a significant impact on global economies and equity, debt and commodity markets.”
(Macquarie Group Annual Report, Year ended 31 March 2020)
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MEASURING FINANCIAL
PERFORMANCE
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Notes to the Financial Statements
VIDEO: The Balance Sheet Explained
NOTES TO THE FINANCIAL STATEMENTS
• Summary of significant accounting policies
includes judgements, estimates and assumptions. For example, how assets are valued or foreign currency items are treated
• Disclosure of relevant information not included in the accounts
• Supplementary information required by the regulators
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Next Workshop:
ANALYSING FINANCIAL STATEMENTS
