Bocconi Business Planning and Control PDF

Business Planning and Control (cod. 30694) CLEACC Session 1 From Financial to Managerial Accounting Basic Financial Statements Structures The Components of the Administration and Control System Fianancial Accounting Management accou...

Business Planning and Control (cod. 30694) CLEACC Session 1 From Financial to Managerial Accounting Basic Financial Statements Structures The Components of the Administration and Control System Fianancial Accounting Management accounting provides information to collects and processes managers, engaged in the information from transactions management of activities within with third economies the organisation Information to shareholders, Calculation of product cost, creditors and third parties definition of objectives for external to the organisation. organisational units, analysis of internal performance. The Premise ❑ There are 2 accounting systems in place within companies: ✓ Financial accounting aims to represent the economic and financial position of the company ✓ Managerial accounting processes information useful in supporting managerial evaluations and choices ❑ Assessing performance through financial statements is the starting point for management Notes to the Income Statement financial and Balance Sheet statements — structure IAS 1 - IAS 1 Cash Flow Statement – IAS 7 Documents CF Notes IS BS Statement 3 The Balance sheet They represent the set of conditions (property and rights) that the firm owns and uses in carrying TA - Total out its activities. They define the capital invested in the firm. Assets are typically classified into assets current (short term), which are expected to turn into cash within twelve months, and non-current (fixed), consisting of tangible and intangible investments intended to remain in the company for a long period. Set of items representing liabilities, which are the rights that third parties have against the company. Similarly to assets, liabilities are classified based on the timing of payment into current (short term) TL - Total and non-current (consolidated or long term). Another classification criterion distinguishes them into liabilities operating (arising as a result of business operations, such as accounts payables) and financial, expressive of financing transaction undertaken by the company to meet its needs. Liabilities are often defined simply as debt. Set of items representing capital contribution by Current Liabilities shareholders, funds they put/leave within the company to finance its activities, and thus Current Assets E - Equity representing the company’s debt to its Non Current shareholders. From a different perspective, it Liabilities represents the company’s wealth, defined as the difference between assets and liabilities. Non Current Assets Equity Accounting Equation TA - TL = E The Income statement It is difference between revenues and operating costs. Earnings before interests and taxes (EBIT) Operating measures the income generated from the typical business activity and is intended to remunerate Profit (EBIT) lenders (through borrowing costs), the government (through taxes) and shareholders (through net income). Disclosed in many reclassified income statement structures, it expresses the difference between Gross Margin revenues and manufacturing costs, excluding general overhead costs. It is therefore a component of EBIT. Accounting Equation Revenues Revenues Operating Manufacturing BS t TA - TL = E Operating costs costs (Cost of goods sold) + Operating Profit Gross Margin IS t+1 R - C = NProfit Financial Costs Operating non = Profit before taxes manufacturing Taxes (administrative, selling, BS t+1 TA – TL = E+R-C general costs) = Net Profit Operating Profit BS t+1 TA– TL +C -R = E The Statement of cash flow CFO - Cash flow It represents the cash flow generated by operational management (defined as income from operating management that excludes investment/disinvestment operations). It is obtained indirectly activities adjusting the net profit CFI - Cash flow Cash flow absorbed by investment operations or generated by divestment operations. CFO must from investing be positive in order to sustain at least partially investment projects, as CFI is usually negative. activities CFF - Cash flow Cash flow generated or absorbed by financing operations (raising funds, repayments, interest from financing payments when excluded from CFO) and equity operations (new issues, dividend distribution). activities Beginning Cash & Cash Equivalent Net profit Cash flow from Operating +/- Adj 1: non monetary income statement’s components Cash flow from Investing +/- Adj 2: Monetary items pertaining to CFI or CFF Cash flow from Financing +/- Adj 3: Change in working capital Ending Cash & Cash Cash Flow from Operating Equivalent Application: example in the reference book Fundanalysis Case (§1,6) Assignment: Examine and make sure you have understood: - Balance Sheet - Income statement - Statement of cash flow