FM561 FAR.pdf

FINANCIAL ANALYSIS AND REPORTING FM561 YEAR 2 TERM 1 position or statement of retained earnings. 1: FINANCIAL STATEMENTS REVIEW...

FINANCIAL ANALYSIS AND REPORTING FM561 YEAR 2 TERM 1 position or statement of retained earnings. 1: FINANCIAL STATEMENTS REVIEW B USERS OF FINANCIAL STATEMENTS A Set of Financial Statements INVESTORS Statement of Financial Position (Balance use financial statements to assess a Sheet) company's financial health and make serves as a snapshot, providing the most informed decisions. comprehensive picture of an organization's financial situation. LENDERS outlines a glimpse into the financial assess a company's creditworthiness and circumstances of a business over a ability to repay loans specific time period VENDORS Statement of Comprehensive Income evaluate the financial stability and a broad financial metric that includes all creditworthiness of their customers incomes and expenses that affect a company's financial standing over a CUSTOMERS period assess the stability and reliability of a comprehensive understanding of a company before making purchasing company's financial health. decisions or entering into long-term contracts Statement of Changes in Equity a business' financial statement that COMPETITORS measures the changes in owners' equity to gain insights into a company's throughout a specific accounting period. performance, strategy, and market Also referred to as the statement of position retained earnings reports the changes to the value of the ANALYSTS owner's stake in a business over a period to evaluate a company's performance, of time assess investment potential, and provide recommendations to clients or Statement of Cash Flows stakeholders summarizes the amount of cash and cash equivalents entering and leaving a GOVERNMENT company use financial statements for various highlights a company's cash purposes related to regulation, oversight, management, including how well it and economic policy generates cash complements the balance sheet and the GENERAL PUBLIC income statement. uses financial statements for various purposes, primarily to make informed Notes to Financial Statements decisions as consumers and investors disclose the detailed assumptions made by accountants when preparing a SHAREHOLDERS company's: income statement, balance use financial statements to evaluate a sheet, statement of changes of financial company's performance, assess their 1 S. MOLINO 2FM2  FINANCIAL ANALYSIS AND REPORTING FM561 YEAR 2 TERM 1 investment’s value, and make informed RELIABILITY (FAITHFUL REPRESENTATION) decisions regarding their shares refers to the degree to which the information presented can be trusted to MANAGEMENT represent the economic reality of the uses financial statements for various organization strategic and operational purposes to ○ Faithful Representation guide decision-making and ensure the ○ Substance over form company’s overall health. ○ Neutrality ○ Prudence EMPLOYEES ○ Completeness use financial statements to understand ○ Consistency the company’s financial health and how it might impact their roles, job security, COMPARABILITY and growth opportunities refers to the ability of users to compare the financial information of an UNIONS organization with other entities and use financial statements to advocate for across different time periods workers' rights and negotiate better ensures that financial statements provide conditions for their members information that can be easily compared across time and with other entities, enhancing users' ability to analyze and C QUALITATIVE CHARACTERISTICS OF interpret financial data effectively. FINANCIAL STATEMENTS ○ Consistent application of accounting policies UNDERSTANDABILITY ○ Standardization: GAAP & IFRS refers to the clarity and ○ Clear Disclosure comprehensibility of the information ○ Benchmarking presented, making it accessible to users ○ Trend analysis who may not have extensive financial ○ Facilitating investment decisions expertise ○ Clear presentation TIMELINESS ○ Plain language refers to the provision of information ○ Detailed explanations promptly, ensuring that it is available to ○ Visual aids users when it is most useful for ○ Relevance decision-making. ○ Consistent terminology ○ Relevance of information ○ Decision-making support RELEVANCE ○ Regular reporting refers to the capacity of the information ○ Interim reports to influence the decisions of users by ○ Real-time data helping them assess past, present, or ○ Balance with reliability future events ○ Decision-making utility VERIFIABILITY ○ Predictive value refers to the ability of users to confirm ○ Confirmatory value the accuracy and reliability of the ○ Materiality information presented ○ Timeliness nsures that the information in financial ○ Focus on users’ needs statements can be confirmed and validated, promoting transparency and building confidence among users 2 S. MOLINO 2FM2  FINANCIAL ANALYSIS AND REPORTING FM561 YEAR 2 TERM 1 regarding the accuracy of the reported this section provides insights into how a financial position and performance company invests its resources to grow ○ Supportive evidence and generate future cash flows ○ Independent verification: external ○ Cash inflows: audits Sale of PPE/Investments ○ Consistency in measurement Collections of loans made ○ Transparency in disclosures (repayment of loans) ○ Reducing subjectivity ○ Cash outflows: ○ Facilitating trust Purchase of PPE/investments (stocks, bonds) 2: PREPARATION OF THE Loans made to others STATEMENT OF CASH FLOWS (cash lent to other entities) ○ Common accounts: Fixed assets (PPE) A STATEMENT OF CASHFLOWS Investment securities intangible assets OPERATING ACTIVITIES (patents/trademarks) refer to the core business activities that generate cash inflows and outflows. FINANCING ACTIVITIES this section provides insights into how refer to transactions that involve much cash is generated from the obtaining or repaying capital. company's primary operations, reflecting this section provides insights into how a the day-to-day business activities company finances its operations and ○ Cash inflow: growth through debt and equity. Receipt from customers ○ Cash inflows: Interest and dividends Issuance of stock received Issuance of debt ○ Cash outflow: ○ Cash outflows: Payments to suppliers, Repayment of debt employees Dividends paid to Interest payments shareholders Taxes paid Purchase of treasury stock ○ Common accounts: ○ Common accounts: Accounts receivable Long-term debt Inventory Common stock Accounts payable Retained earnings Accrued expenses Treasury Shares Deferred revenue ○ Methods of reporting Direct: list of actual inflow and outflow Indirect: start with the net income and adjust non-cash transactions INVESTING ACTIVITIES refer to transactions that involve the acquisition and disposal of long-term assets and investments. 3 S. MOLINO 2FM2  FINANCIAL ANALYSIS AND REPORTING FM561 YEAR 2 TERM 1 PROFORMA (direct relationship) Adjustments + - Depreciation ✅ Amortization ✅ (Gains) ✅ Losses ✅ Doubtful Accounts ✅ 1. Statement of Comprehensive Income Net Profit/(Loss) 2. Adjustments Depreciation (+) Amortization (+) Doubtful Accounts (+) Gains (-) Losses (+) 3. Statement of Financial Position B1 OPERATING ACTIVITIES Current Assets (Inverse) Increase (-) Decrease (+) Current Liabilities (Direct) Increase (+) Decrease (-) B2 INVESTING ACTIVITIES - Most of the time, Current Asset and Current Liabilities are in the operating activities of the firm - Depreciation, amortization, bad debts, (gains), and losses are considered - Most of the accounts are NONCURRENT non-cash movements ASSETS ** any increase in the current assets = minus 5. Statement of Financial Position (inverse relationship) Non-current Assets (Inverse) Increase (-) *** any increase in the current liabilities = plus Decrease (+) 4 S. MOLINO 2FM2  FINANCIAL ANALYSIS AND REPORTING FM561 YEAR 2 TERM 1 B3 FINANCING ACTIVITIES IFRS US & PH GAAP Interest O or I O Received Interest Paid O or F O Dividends O or I O Received Dividends O or F F Paid 6. Statement of Financial Position Non Current Liabilities Bank Considered Not Increase (+) Overdrafts part of cash considered Decrease (-) equivalents part of cash and cash 7. Statement of Changes in Equity equivalents and classified (all account titles except Retained Earnings & as financing Treasury Shares) – Common Equity Increase (+) Taxes Paid Generally O Decrease (-) operating but a portion can Retained Earnings (except Net Profit) be allocated Increase (+) to investing Decrease (-) or financing if it can be Treasury Shares specifically Increase (-) identifies Decrease (+) with these categories NON-CASH TRANSACTIONS - Acquisition of asset either by assuming directly related liability or by means of a finance lease - Acquisition of asset by means of issuing share capital or bonds payable - Conversion of debt equity, for example conversion of bonds payable to share capital - Conversion of preference share to ordinary share recorded lectures: REC LEC 5 S. MOLINO 2FM2  FINANCIAL ANALYSIS AND REPORTING FM561 YEAR 2 TERM 1 4. Prepayments → we consume/use this 3A: CASH AND CASH EQUIVALENTS type of asset rather than selling it. A STATEMENT OF FINANCIAL POSITION A CASH AND CASH EQUIVALENTS - Gives us the information regarding the CASH liquidity and solvency of the firm - Includes monet and any other - Assets, liabilities, and equity negotiable instrument that is payable in money and acceptable by the bank for deposit and immediate credit A CURRENT VS NON CURRENT ASSET - It must be unrestricted in use CURRENT Includes: - Within one year or one operating cycle of 1. Cash on hand the business, whichever is greater 2. Cash on bank a. Deposit NON CURRENT b. Savings - Not expected to be sold or used up c. Checking within one year or one operating cycle of 3. Cash fund (petty cash) the business, whichever is greater a. For emergency purposes b. For immediate expenses OPERATING CYCLE - The time we acquire item until CASH EQUIVALENTS the time we are able to sell and - Short term highly liquid investments that collect money. are readily convertible into cash. It must Example: be acquired three months before maturity Operating Includes Cycle 1. Three-month BSP treasury bill 2. Three-year BSP treasury bill Supermarket 1 month 1 year current purchased three months before asset the date of maturity Real Estate 5 years 5 years 3. Three-month time deposit current asset 4. Three-month money market or commercial paper A LIQUIDITY PRESENTATION Inclusion - How we arrange accounts in the financial Cash Must be unrestricted in use position especially in the asset accounts - Basis to identify which account would Cash Must be acquired three come first in the SFP Equivalents months before the maturity - Nearness to cash date 1. Cash 2. Receivables 3. Inventories 6 S. MOLINO 2FM2  FINANCIAL ANALYSIS AND REPORTING FM561 YEAR 2 TERM 1 Valuation / Measurement Cash Face value Foreign At current exchange rate Currency Cash Fund for Certain Purpose Use in current Current asset under Cash operations and Cash Equivalents Payment of current obligations Set aside for Non-current asset under non-current Investments purpose Payment of non-current obligations 7 S. MOLINO 2FM2