Professional Documents
Culture Documents
1
Learning objectives
2
Elements of financial reports
Beginning Flows Ending
stocks stocks
Statement of Cash Flows
Cash from operations
Beginning Ending
Cash from investing
Balance Sheet Balance Sheet
Cash from financing
Cash = Net change in cash Cash
Income Statement
Revenues
- Expenses
= Net income
3
Understanding accrual accounting
• Accrual accounting decouples measured earnings (net
income) from the amount of cash generated from
operations
• Accrual accounting revenues generally do not
correspond to cash receipts for the period, nor do
accrual expenses always correspond to cash outlays for
the period
• Accrual accounting can produce large discrepancies
between measured earnings and the amount of cash
generated from operations
• Accrual earnings is a more accurate measure of the
value creation during the period than is operating cash
flow
4
Income statement
• Income statement reports the accumulation of costs and
revenues during the fiscal year
• Must contain as minimum information (IAS 1.82)
– Revenues (Sales)
– Finance costs
– Share of the profit or loss of associates and joint ventures
– Tax expense
– Total of discontinuing operations
• Statement of profit or loss and other comprehensive
income
• Income attributable to controlling and non-controlling
owners
5
Case (cont.): Statement of income, Kone
2013
Case (cont.): Statement of comprehensive
income, Kone 2013
Some firms report IFRS and non-IFRS
numbers: Nokia 2015/Q2
Some firms report IFRS and non-IFRS
numbers: Nokia 2015/Q2
“2. Non-IFRS to reported reconciliation (unaudited)
521 - 508 = 13
Balance sheet information
11
Case: Balance sheet of Kone (Consolidated
statement of financial position)
12
Case: Balance sheet of Kone (Consolidated
statement of financial position)
13
Case: Balance sheet of Kone (Consolidated
statement of financial position)
14
Statement of cash flows
Cash inflows and outflows from
Operating Activities transactions and events that affect
operating income
Δ Cash
15
Case: Statement of cash flows of Kone
16
Case: Statement of cash flows of Kone
17
Case: Statement of cash flows of Kone
18
Statement of the changes in equity
19
Case: Statement of the changes in equity
of Kone
20
Footnotes and other small-printed facts
21
Analytical income statement and balance
sheet
22
Analytical income statement and balance
sheet
• We need to reformate I/S and B/S to separate operating
activities from financing activities
• This distinction is not always easy to make due to several
factors
– The definition of operations is not clear-cut
– The specifications in the income statement and the balance sheet
do not clearly distinguish between operating and financing activities
– The notes are not sufficiently informative
• Reformation depends on the business model and the
characteristics of the firm
– Items that are sometimes categorised as belonging to ‘operations’
may at other times be classified as belonging to ‘financing’
23
Analytical income statement
• Adjust non-operating items, if needed
– Do these adjustements consistenty for all firms you are
analyzing
• Focus on Net Operating Profit After Taxes (NOPAT)
– Distinguish between profit from operations and financial income
• Taxes are deducted from EBIT
– Taxes are calculated using the corporate tax rate or the effective
tax rate of a given company
24
Reported vs. analytical income statement
25
Case: Analytical income statement of
Kone, 2013
SALES 6 932,6
+ Other income of business 55,9 See next slide
- Materials and services -3 416,4 See next slide: 2839 + 577,4
- Wages and salaries -1 983,8 See next slide
- Other expences -584,8 See next slide: 95,5 + 489,3
+Share of associated companies' income 1,1 See I/S
+/- Increase / decrease of inventory 28,6 See next slide
EBITDA 1 033,2
- Depreciation and amortization -78,5 See next slide
EBIT (OPERATING PROFIT) 954,7
- Taxes on operating profit -233,9 = 0.245×954,7
NOPAT 720,8
-/+ Net financial costs/income 5,9 See I/S: 36,8-42,7 = 5,9
-/+ Taxes on net financial costs/income -1,5 = 0.245×5,9
-/+ Net financial costs/income after taxes 4,4 = 5,9 -1,5 = 4,4
NET INCOME 725,2 Note: corporate and effective
tax rates are different
26
Case: Analytical income statement of
Kone, 2013
27
Reported balance sheet
28
Reported balance sheet
1st step: Remove non-operating items
Assets Liabilities and Equity
Non-current (fixed) assets Equity
Intangible assets
Tangible assets Non-current liabilities
Financial assets, long maturity Debt, interest-bearing
Non-interest bearing
Current assets
Inventories Current liabilities
Receivables Non-interest bearing
Financial assets, short maturity • Financial liabilities
Cash, operating and excess • Accounts payable
• Tax liabilities
Interest-bearing
29
Reformatted balance sheet
1st step: Remove non-operating items
Assets Liabilities and Equity
Non-current (fixed) assets Equity
Intangible assets
Tangible assets Non-current liabilities
Debt, interest-bearing
Non-interest bearing
Current assets
Inventories Current liabilities
Receivables Interest-bearing
Cash, operating
30
Reformatted balance sheet
2nd step: Deduct items from the other side
Net Operating Assets Invested Capital
Non-current assets: Equity
• Tangible and intangible
+ Current assets: – Interesting bearing net debt:
• Inventories + Non-current liabilities, interest-
bearing
• Receivables
+ Current liabilities, interest-bearing
• Cash, operating – Financial assets, all maturities
– Current liabilities, non-interest – Cash, excess
bearing
– Non-current liabilities, non- = Invested capital
interest-bearing = Net Operating Assets
= Net Operating Assets
= Invested capital Working capital (net)
32
Case: Creating the analytical balance
sheet of Kone
Analytical Balance
Sheet:
Intangible assets 1332,5
Tangible assets 269,6
Investments in associated
companies 4,3
Deferred tax asset 218,9
NON-CURRENT ASSETS 1825,2
Analytical Balance
Sheet:
Inventories 1103,9
Receivables 1410,6
CURRENT ASSETS 2514,5
33
Case: Creating the analytical balance
sheet of Kone
Analytical Balance
Sheet:
EQUITY 1724,6
34
Case: Creating the analytical balance
sheet of Kone
Analytical Balance
Sheet:
Deferred tax liabilities 191,3
Accounts payable 511,2
Provisions 139,4
Advanced payments 1397,5
Other non-interest-
bearing liabilities 1105,5
NON-INTEREST-
BEARING DEBT 3344,9
Analytical Balance
Sheet:
Long-term liabilities 155,8
Current liabilities 118,1
INTEREST-BEARING
DEBT 273,9
35
Case: Analytical balance sheet of Kone
36
Case: Analytical balance sheet of Kone
37
Summary
38