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Advanced PM financial mgmt_ financial statements

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Advanced PM financial mgmt_ financial statements



Part of a series of advanced project management training courses developed by Saunders Learning Group. This module focuses on learning more about business financial statements to understand the ...

Part of a series of advanced project management training courses developed by Saunders Learning Group. This module focuses on learning more about business financial statements to understand the connection between projects and a companies earnings. Contact Floyd Saunders at floyd.saunders@yahoo.com to obtain copies of these presentations or to learn more about our training programs.



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  • While we present several concepts used in financial management, the objectives of this module is help you understand how financial decisions are structured, so you can provide the data needed to influnce those decisions. Across the spectrum of financial decisions is the concept of uncertainty, you goal is remove as much of that as possible for your clients and your management team
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  • As it is shown here, the level of profitability and the expected growth of the business analysed could be decompose in two different directions. The first one is identified with the product market strategy and the second one represents the financial market strategy of the firm. We want to point out that even if this analysis could be investigated in any contest and for any firm, nevertheless it has a specific meaning if it is applied to public company for a lot of reasons. First of all, the quality and quantity of information is different. Public companies have to give more information, because this is required by the law, but also they want it in order to raise capital from the market for planned investments. Anyway, managers achieve their targets using these four levers. In particular, for the product strategy, they need to be able to manage revenue and expenses, and this is what we name Operating Management. At the same time, they must manage working capital expenditure and future investments because the growth of a business is strictly connected to the high level of investments in tangible or intangible assets. Furthermore, managers cannot work just from the asset side of the balance sheet but they need to plan the financing policy of the firm in terms of Financing strategy, for instance find a good relationship between investments and financial position, and Dividend policy. The financial Market strategy is important because investors who gave money to the firm are going to expect to receive more money from the company. Under this view managers are evaluated principally for the level of dividend they could give to shareholders and also in order to eliminate the risk of hostile takeover. For any of these aspect we need to find ratios that are able to explain the profitability and the growth of the firm. Before going to calculate ratios, the financial statement, such as published by companies, is not useful for ratio and cash flow analysis. The analyst recasts the financial statement in order to find an easy way to represent balance sheet, income statement and cash flow statement.
  • ----- Meeting Notes (3/7/11 16:02) ----- Ask the participants to complete the post workshop action plan with any key learnings or action items they cah apply back on the job.

Advanced PM financial mgmt_ financial statements Presentation Transcript

  • 1. Advanced Project ManagementFinancial Statement Analysis Saunders Learning Group Andover, KS
  • 2. Module ObjectivesFloyd Saunders, Andover, KS 2
  • 3. Financial Statements Financial Statement that Required Disclosure Satisfies Requirement Financial position at the Balance Sheet end of the period Earnings for the period Income Statement Cash flows during the Statement of Cash Flows period Investments by and Statement of Changes in distributions to owners Owners Equity during the period In addition to the financial statements, the annual report willinclude several accompanying footnotes or explanations of the accounting policies and detailed information about many of the amounts shown on the financial statements. Floyd Saunders, Andover, KS
  • 4. Balance SheetFloyd Saunders, Andover, KS
  • 5. Balance Sheet ASSETS: (Top, or left of balance sheet) LIABILITIES (Below Assets or on the 1. Current Assets: right of Balance Sheet)  Firm’s short term assets. 1. Current Liabilities: -Cash and Marketable Securities,  Short term liabilities -Accounts Receivable,  Typically, current liabilities are: -Inventories -Accounts payable 2. Fixed Assets: -Notes payable - Assets that have long life, like plant and equipment -Accruals 3. Net Fixed Assets: 2. Long-term Liabilities: -You deduct the accumulated depreciation of the fixed assets Bonds, bank loans, etc.. from the value of fixed assets to find Net Fixed Assets 3. Total Liabilities: Net Fixed Assets=Fixed Assets - Current Liabilities + Long-term Accumulated Depreciation LiabilitiesFloyd Saunders, Andover, KS
  • 6. Balance SheetAssets represent the amount of resourcesAssets represent the amount of resources owned by the entity. owned by the entity. Liabilities are Liabilities are amounts owed to amounts owed to other entities. other entities. Equity is the Equity is the ownership right of ownership right of the owner(s) of the the owner(s) of the entity in the assets entity in the assets that remain after that remain after deducting the deducting the liabilities. liabilities. Floyd Saunders, Andover, KS
  • 7. Balance Sheet Current assets are those assets that are Current assets are those assets that are Current liabilities Current liabilitieslikely to be converted into cash or used to likely to be converted into cash or used to are those are those benefit the entity within one year. benefit the entity within one year. liabilities that are liabilities that are likely to be paid likely to be paid with cash within with cash within one year of the one year of the balance sheet balance sheet date. date. Floyd Saunders, Andover, KS
  • 8. Balance Sheet Account DefinitionCash Cash on hand and in the bankAccounts receivable Amounts due from customersMerchandise inventory Cost of merchandise acquired and not yet soldEquipment Cost of equipment purchased and used in businessAccumulated depreciation Portion of the cost of equipment that is estimated to have been used up in the process of operating the businessShort-term debt Amounts borrowed that will be repaid within one year of the balance sheet dateAccounts payable Amounts due to suppliersOther accrued liabililites Amounts owed to various creditorsLong-term debt Amounts borrowed from banks or other creditors that will not be repaid within one year from the balance sheet dateOwners equity Explained in more detail later in this chapter Floyd Saunders, Andover, KS
  • 9. Income StatementFloyd Saunders, Andover, KS
  • 10. Income StatementThe income statement shows the profit for the period of timeThe income statement shows the profit for the period of time under consideration. under consideration. Revenues result Revenues result Main Street Store, Inc. Income Statement from the entity’s from the entity’s For the Year Ended August 31, 2004operating activities operating activities (e.g., selling (e.g., selling Net sales $ 1,200,000 Cost of goods sold 850,000 merchandise). merchandise). Gross profit $ 350,000 Selling, general, and admin. expenses 311,000 Income from operations $ 39,000 Costs and expenses Costs and expenses Interest expense 9,000 are incurred in Income before taxes $ 30,000 are incurred in Income taxes 12,000 generating generating Net income $ 18,000 revenues and revenues and operating the operating the Net income per share of common stock outstanding $ 1.80 entity. entity. Floyd Saunders, Andover, KS
  • 11. Income Statement Captions ExplanationNet sales Amount of sales of merchandise to customers, less the amount of customer returns of merchandiseCost of goods sold Represents the total cost of merchandise removed from inventory and delivered to customers as a result of salesGross profit Difference between net sales and cost of goods sold; Represents the sellers maximum amount of "cushion" from which all other expenses of the business must be deducted before it is possible to have net incomeSelling, general, and Represent the operating expenses of the entityadministrative expensesIncome from operations Represents one of the most important measures of the firms activitiesInterest expense Represents the cost of using borrowed fundsIncome taxes Shown after all of the other income statement items have been reported because income taxes are a function of the firms income before taxesNet income per share of A significant item in evaluating the market value of a sharecommon stock of common stock; Often referred to as "earnings per Floyd Saunders, Andover, KSoutstanding share" or EPS
  • 12. Statement of Cash FlowsFloyd Saunders, Andover, KS
  • 13. Statement of Cash Flows Main Street Store, Inc. Statement of Cash Flows For the Year Ended August 31, 2004Cash Flows from Operating Activities: The purpose of this Net income Add (deduct) items not affecting cash: $ 18,000 financial statement Depreciation expense 4,000 Increase in accounts receivable (80,000) is to identify the Increase in merchandise inventory (170,000) Increase in current liabilities Net cash used by operating activities 67,000 (161,000) sources and uses ofCash Flows from Investing Activities: Cash paid for equipment $ (40,000) cash during theCash Flows from Financing Activities: Cash received from issue of long-term debt 50,000 year. Cash received from sale of common stock 190,000 Payment of cash dividend on common stock (5,000) Net cash provided by financing activities $ 235,000Net increase in cash for the year $ 34,000 Floyd Saunders, Andover, KS
  • 14. Statement of Cash Flows Captions ExplanationCash flows from operating Shown first; Net income is the starting point for thisactivities measure of cash generationDepreciation expense Added back to net income because it is subtracted to arrive at net income but does not require the use of cashIncrease in accounts Deducted because it reflects sales revenues, included inreceivable net income, but not yet received in cashIncrease in merchandise Deducted because cash was spent to acquire theinventory increase in inventoryIncrease in current Added because cash has not yet been paid for theliabilities products and services that have been received during the current fiscal periodCash flows from investing Shows the cash sources and uses related to long-livedactivities assetsCash flows from financing Shows the cash sources and uses related to transactionsactivities with creditors and stockholders Floyd Saunders, Andover, KS
  • 15. Statement of Cash Flows  Statement of Cash Flows: -Summarizes changes in firm’s cash balance Ending Cash Balance = Beginning Cash Balance + Cash Inflow (Sources) - Cash outflow (Uses)Floyd Saunders, Andover, KS
  • 16. Statement of Cash Flows  Increase and Decrease in Cash Flows: - Uses of funds decrease cash flows: Increase in assets, Decrease in liabilities - Sources of funds increase cash flows: Decrease in assets, Increase in liabilities  Therefore, for uses of funds, we should use a - sign in the Excel sheet.Floyd Saunders, Andover, KS
  • 17. Statement of Cash Flows  Statement of Cash Flows separates firm activities into three parts: 1. Operating Activities 2. Investing Activities 3. Financing ActivitiesFloyd Saunders, Andover, KS
  • 18. Cash Flows for OperationsFloyd Saunders, Andover, KS
  • 19. Cash Flows From Investing Typically these are change in fixed assets like change in plant and equipment investment in these assets or sale of these assets Or cash flows from investing in other companies, financial markets, currency hedges etc. Floyd Saunders, Andover, KS
  • 20. Cash Flows from Financing the business Typically these are:  Dividends paid to shareholders, and  Changes in  Debt  stock Floyd Saunders, Andover, KS
  • 21. Statement of Changes in Owners’ Equity Main Street Store, Inc. Statement of Changes in Owners Equity For the Year Ended August 31, 2004 Paid-In Capital: Beginning balance $ - Common stock, par value $10; 50,000 shares authorized, 10,000 shares issued and outstanding 100,000 Additional paid-in capital 90,000 Balance, August 31, 2004 $ 190,000 Retained Earnings: Beginning balance $ - Net income for the year 18,000 Less: Cash dividends of $.50 per share (5,000) Balance, August 31, 2004 $ 13,000 Total owners equity $ 203,000 This financial statement shows the detail of owners’ equity and explains the changes that occurred in the components of owners’ equity during the year. Floyd Saunders, Andover, KS
  • 22. Statement of Changes in Owners’ Equity Captions ExplanationPaid-in capital Represents the total amount invested in the entity by the ownersCommon stock Reflects the number of shares authorized by the corporations charter, the number of shares issued to stockholders, and the number of shares that are still held by the stockholdersAdditional paid-in capital Difference between the total amount invested by the owners and the par value or stated value of the stockRetained earnings Represents the cumulative net income of the entity that has been retained for use in the businessDividends Are distributions of earnings to the owners Floyd Saunders, Andover, KS
  • 23. Limitations of Financial Statements Financial statements report only quantitative economic data. They do not reflect qualitative economic variables, such as the value of the management team or the employees’ morale. The balance sheet does Many estimates are used,not report market values such as warranty costs, or replacement cost of depreciation, and the assets. pension expense.Floyd Saunders, Andover, KS
  • 24. The Corporation’s Annual Report The annual report isdistributed to shareholders (and others). It contains the financial statements, together with the report of the externalauditor’s examination of the financial statements. It may also contain Management’s Discussion and Analysis (MD&A). Floyd Saunders, Andover, KS
  • 25. Ratio AnalysisFloyd Saunders, Andover, KS
  • 26. Financial Ratio AnalysisFloyd Saunders, Andover, KS
  • 27. Financial RatiosRatios are tools that enable management to: Measure and compare information within a business over several periods Compare similar businesses in the same industry Include: Floyd Saunders, Andover, KS
  • 28. Why Ratio Analysis? The value of a firm is based upon its profitability and growth The value of a firm is based upon its profitability and growth Product Financial market strategy market strategy Operating Investment Financing Financing Dividend DividendManagement Management strategy strategy policies policies Floyd Saunders, Andover, KS
  • 29. Current Ratio = Total current assets ÷ Total current liabilities = Total current assets ÷ Total current liabilitiesFloyd Saunders, Andover, KS
  • 30. Profitability Ratios Gross profitGross profit ratio = × 100% Net sales Net profitNet profit ratio = × 100% Net sales Net profitReturn on equity = × 100% Average owner s equity Net profitReturn on assets = × 100% Average total assets Floyd Saunders, Andover, KS
  • 31. Gross Profit Ratio Analysis Floyd Saunders, Andover, KS
  • 32. Net Profit Ratio AnalysisFloyd Saunders, Andover, KS
  • 33. ROE & ROAFloyd Saunders, Andover, KS
  • 34. Financial Stability Current assetsWorking capital ratio = Current liabilities Current assets - inventories - prepaymentsQuick asset ratio = Current liabilities - bank overdraft Total owner s equity Equity ratio = × 100% Total assets Floyd Saunders, Andover, KS
  • 35. Working capital ratio Floyd Saunders, Andover, KS
  • 36. Quick Ratio Floyd Saunders, Andover, KS
  • 37. Equity Ratio Floyd Saunders, Andover, KS
  • 38. Financial RatiosFloyd Saunders, Andover, KS
  • 39. Debt RatioFloyd Saunders, Andover, KS
  • 40. Debt-to-Equity RatioFloyd Saunders, Andover, KS
  • 41. Earnings per Share (EPS) Net incomeEPS = Average number of shares outstanding Floyd Saunders, Andover, KS
  • 42. Price-Earnings (P-E) Ratio Market price per share P - E Ratio = Earnings per shareFloyd Saunders, Andover, KS
  • 43. LIMITATIONS OF RATIOS Ratio analysis and interpretation can be influenced by factors such as: — poor or inadequate accounting methods — incomplete financial reports — changes in accounting methods — existence of unusual items during a financial year e.g. losses by fire — management changes — changes to the economy, such as an industry recession Floyd Saunders, Andover, KS
  • 44. Getting a Picture of A Client’s Forecasting the Future Future Performance From Current FinancialsSaunders Learning Group
  • 45. Case Study Overview You will be provided with financial statements and instructions to perform a trend analysis on the companies. Form into teams of 3-4 people and work as a team to come up with the answers. Present results to classmates. HIPAA Compliance Floyd Saunders, Andover, KS 46
  • 46. QuestionsFloyd Saunders, Andover, KS
  • 47. Module SummaryIn this module we covered the following concepts and principles Floyd Saunders, Andover, KS
  • 48. Post Workshop Action Plan Complete the Post Workshop Action Plan Floyd Saunders, Andover, KS 49
  • 49. Service Offerings From Floyd SaundersInnovation Management Innovation Management Innovation Coaching Innovation Promotion & Campaign plans  Creative Thinking – SLG uses a variety of techniques to Innovation Kick Start Programs stimulate your teams in creative thinking, critical to developing Innovation Coaching an innovative mindset Management of Innovation Labs  Guided Facilitation – using techniques learned from contextual Innovation Program Management design, six sigma and agile methods, our coaches guide the development of innovation ideas from concept to market launch  Product Design - Our coaching techniques guide the design Innovation Labs development process with a range of tools and techniques to spur moving innovation forward quickly Independently creates product prototypes and proof of concepts allowing for focused development efforts Reduces time to market for new product development Project Management  Structured use of project management lifecyclesInnovation Kick Start Workshops  Project planning, tracking, controlling and implementation services Designed to spur creative thinking, collaboration and  Project Management Training innovation Increases the organizational awareness of the value of innovation and innovative thinking Program Management Provides a set of skills and tools for managers to deploy as they expand innovative ideas into products ready for market.  Creating and Management of the Project/Program Office Expands the organizational culture to be a team of  PMO Maturity Assessments innovative thinkers.  Project status reporting and metrics programs Spurs Innovation and reduces Time to Market  Project Manager Development Programs Intended to result in creation of new products and  Knowledge Management or services with revenue targets Floyd Saunders, Andover, KS Proprietary, all rights reserved
  • 50. Getting Started Floyd Saunders, Andover, KS Proprietary, all rights reserved
  • 51. Thank you Saunders Learning Group