12/28/2011  Understanding a Company’s       3 Vital Statistics         A Salesman’s Intro to Engineers            Interpre...
12/28/2011                             Agenda1.   Introduction2.   Analysing P&L Statement3.   Analysing Balance Sheet Sta...
12/28/2011            Acknowledgements• Material about Basware & Yell.Co.Uk obtained from the  published annual reports.• ...
12/28/2011 Understanding a Company’s      3 Vital Statistics      A Salesman’s Intro to Engineers        Interpreting Fina...
12/28/2011  Can You Understand Satyam Saga? •   Satyam inflated profits for many years! •   Accrued interest is non-existe...
12/28/2011       Let’s draw up his “income –      expenses” statement & “Net    Worth” statement BEFORE & AFTER           ...
12/28/2011      Ram’s Assets & Loans Statements           BEFORE (31 Dec 2009)• Assets                         • Liabiliti...
12/28/2011    Ram’s Assets & Loans Statements          AFTER (31 Dec 2010)• Assets                               • Liabili...
12/28/2011    Ram’s Income & Expense Statement –      AFTER buying car (31 Dec 2010)•   Gross Income                (A)   ...
12/28/2011Ram’s Assets & Loans Statements AFTER buying   car & using for one year (31 Dec 2010)• Assets                   ...
12/28/2011                      EXERCISE           Draw up his income statement           assets & loans statement now    ...
12/28/2011   Ram’s Assets & Loans Statements AFTER     selling house & car (31 Dec 2010)• Assets                          ...
12/28/2011 You have Successfully Constructed 3Main Financial Statements for Mr. Ram 1. The Income Statement (Profit & Loss...
12/28/2011     Understanding a Company’s          3 Vital Statistics           A Salesman’s Intro to Engineers            ...
12/28/2011               Revenues (“Topline”)• The amount of money the company makes by  selling its products or services•...
12/28/2011Sample P&L Sheet – Yell.co.uk                                        Revenues                                   ...
12/28/2011          Some Key Terms in P&L• Gross Profit                       • Gross Profit Margin   – Take Revenue & sub...
12/28/2011        Comparision Across Financial Periods (Ex. 1)YELL.CO.UKM GBP            2011      2010                   ...
12/28/2011      Comparision as % of base value (2/2) Ex 1YELL.CO.UKM GBP               2011         2010            Interp...
12/28/2011      Comparision as % of base value (1/2) Ex-2Basware.comM€          2010                 2009               In...
12/28/2011             Key Observations• Revenues increase IF  – We sell more• Profits increase IF  – We reduce our costs ...
12/28/2011     Understanding a Company’s          3 Vital Statistics            A Salesman’s Intro to Engineers           ...
12/28/2011        Assets (“What is owned?”)• Current Assets    1. Cash & Cash Equivalents    2. Inventories    3. Money cu...
12/28/2011    Owner Equity (“What the owners own!”)•    Money put in by owners (“share capital”)•    Cumulative excess mon...
12/28/2011Sample Balance Sheet – Yell.co.uk                                         Revenues                         Fixed...
12/28/2011   Comparing BS Across Time Periods –               Yell.co.uk                                      2011   2010C...
12/28/2011    How Strong Is the Balance Sheet?                                                                 2011       ...
12/28/2011 How is Basware & Yell.co.uk doing in AR?                            This Year   Previous                       ...
12/28/2011 4. The Cash Flow Statement Understanding a Company’s      3 Vital Statistics        A Salesman’s Intro to Engin...
12/28/2011      What Does Cash Flow Statement                 Show?1. Cash flow statement tells you how much cash went int...
12/28/2011   Sample CF Statement - Basware    Basware – Sample CF Statement –         Operational Activities              ...
12/28/2011      Basware – Sample CF Statement –            Investing Activities                                           ...
12/28/2011   Understanding a Company’s        3 Vital Statistics       A Salesman’s Intro to Engineers         Interpretin...
12/28/2011  Linking Balance Sheet & Income Statements  Answer These Six Questions & Learn About a        Company in Under ...
12/28/2011                    Feedback• Pl. send your feedback to me on email  – Rajesh dot sengamedu at gmail dot com• In...
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Salesman's Intro to Engineers - Analyzing Customer Financials

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This presentation aims at helping engineers, engineering managers and people in the delivery organization to understand how to interpret a customer's accounts, figure out the 'broad level' business drivers, create hypothesis about what might the customer value and then try to position ourselves accordingly.
This presentation was delivered as part of our internal training program.

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Salesman's Intro to Engineers - Analyzing Customer Financials

  1. 1. 12/28/2011 Understanding a Company’s 3 Vital Statistics A Salesman’s Intro to Engineers Interpreting Financial Statements Presentation Delivered at My Company for Engineering Managers 27 Dec 2011 © Rajesh Sengamedu Feedback from Participants Technical ManagerRating: 73 importance things I learnt:Understood the actual P & L of a company or a personal accountLearnt and understood new terminologies in finance which isimportant in my roleUnderstood the importance of AR and D/E ratio and how we canmake biz proposals with customer based on these figures. Technical Lead Thanks Rajesh for your valuable time spent to educate us on financial Technical Lead basics. Content was simple and precise. Presentation was excellent. 3 ways this presentation will help me: - Better understanding of our customers and their requirements. - Some more better analysis of shares, market and companies. - Partly better money management. Project Manager Thanks for the very informative session Rajesh 1
  2. 2. 12/28/2011 Agenda1. Introduction2. Analysing P&L Statement3. Analysing Balance Sheet Statement4. Analysing Cash Flow Statement5. Summary Background• I delivered this four hour training program to engineers & engineering managers at my company.• Objective of the training was to help the engineers understand how a business person looks at an account and makes certain decisions regarding how to engage with the account.• This is useful for: – Sales persons – Marketing persons – Engineering persons• The examples taken are from the market segment that my company supplies into.• The recorded webinar is unfortunately not available for public as it has discussions very relevant to my company, therefore confidential. 2
  3. 3. 12/28/2011 Acknowledgements• Material about Basware & Yell.Co.Uk obtained from the published annual reports.• Gratefully acknowledge material from “The Investing Work Book Series” by www.morningstar.com• Gratefully acknowledge material from “The Investors Guide to Understanding Accounts” by Robert Leach• Gratefully acknowledge the copyright owners of pictures, cliparts that I liberally used from the web directly.• Thanks to all my engineering colleagues for giving this opportunity to share. 1. Introduction 3
  4. 4. 12/28/2011 Understanding a Company’s 3 Vital Statistics A Salesman’s Intro to Engineers Interpreting Financial Statements Introduction What You Should Expect?1. UNDERSTAND A LOT about your customers by looking at publicly available documents (especially for listed company)2. CREATE HYPOTHESIS about key drivers for the company, and test them in your day-to-day dealings with customers3. BECOME SENSITIVE to costs, revenue, profits4. LEARN A NEW LANGUAGE – the language of numbers 4
  5. 5. 12/28/2011 Can You Understand Satyam Saga? • Satyam inflated profits for many years! • Accrued interest is non-existent • Liability is understated • Debtors position overstated How many of such statements have we read in the press? We need to understand Did we understand it all? the language!! Financial Story of Mr. Ram, Tech Lead (01 Jan 2010)• Ram is a Tech Lead at XYZ co. His annual CTC is 12 Lakhs. As he has already worked for several years and saved money, his total savings is Rs. 45 Lakhs.• Let us follow Ram’s finances in the year 2010 (Jan – Dec).• He spends about Rs.60K annually on petrol to commute to work.• He has a family – wife and two children and spends Rs. 4.8 Lakhs per year on his household expenses. Ram is in 30% tax bracket and pays tax on his CTC.• Rest is his savings• Ram falls in love with an apartment that costs him Rs.50 Lakhs. He approaches HDFC Bank to take a loan for Rs. 15 Lakhs. He decides to buy the house by putting Rs.35 Lakhs from his savings. The bank’s EMI per year is Rs. 2 lakhs a year. The government offers no tax benefits on home loans!! 5
  6. 6. 12/28/2011 Let’s draw up his “income – expenses” statement & “Net Worth” statement BEFORE & AFTER he buys the house!! (If something is not mentioned explicitly assume it is not relevant – some details are deliberately omitted to simplify this exercise) Ram’s Income & Expense Statement – BEFORE (on 31 Dec 2009)• Gross Income (A) 1200• Petrol Costs (B) 60• A-B (C) 1140• Household expenses (D) 480• C-D (E) 660• Tax (30% CTC) (F) 360• Savings (E-F) (G) 300 6
  7. 7. 12/28/2011 Ram’s Assets & Loans Statements BEFORE (31 Dec 2009)• Assets • Liabilities – Bank Balance(A) 4500 – No Liabilities 0 • Ram’s Net Worth 4500 Ram’s Income & Expense Statement – AFTER (31 Dec 2010)• Gross Income (A) 1200• Petrol Costs (B) 60• A-B (C) 1140• Household expenses (D) 480• Bank EMI (H) 200• (D) + (H) (I) 680• (C)-(I) (E) 460• Tax (30% CTC) (F) 360• Savings (E-F) (G) 100 7
  8. 8. 12/28/2011 Ram’s Assets & Loans Statements AFTER (31 Dec 2010)• Assets • Liabilities – Bank Balance(A) 1100 – Bank Loan 1300 – House 5000 • Ram’s Net Worth 4800 Remember he pays Rs.2 Lakhs from his salary income to the bank! Therefore his bank loan (15) reduces by that amount (2) at the end of the year and becomes (15-2 =13)!!! On 01 Jan 2010, Ram also buys a car for Rs. 3 Lakhs (and hopes to use this car for 3 years). Assume that if he sells the car after using it for a year, the car value is Rs. 2 Lakhs Draw up his income & expenses statement, assets & liabilities statement now 8
  9. 9. 12/28/2011 Ram’s Income & Expense Statement – AFTER buying car (31 Dec 2010)• Gross Income (A) 1200• Petrol Costs (B) 60• A-B (C) 1140• Household expenses (D) 480• Bank EMI (H) 200• One year cost of car (J) 100• (D) + (H) + (J) (I) 780• (C)-(I) (E) 360• Tax (30% CTC) (F) 360• Savings (E-F) (G) 0 Ram’s Assets & Loans Statements AFTER buying car (01 Jan 2010)• Assets • Liabilities – Bank Balance(A) 700 – Bank Loan 1500 – House 5000 – Car 300 • Ram’s Net Worth 4500 9
  10. 10. 12/28/2011Ram’s Assets & Loans Statements AFTER buying car & using for one year (31 Dec 2010)• Assets • Liabilities – Bank Balance(A) 800 – Bank Loan 1300 – House 5000 – Car 300 • Ram’s Net Worth 4700 • Depreciation 100 On 31 Dec 2010, exactly one year after Ram bought the house, he got an overseas offer and decides to leave India permanently. He has a buyer who buys his house, for Rs.60 Lakhs. He sells it and pays off the bank loan completely The buyer is ready to pay Rs. 2 Lakhs for the car Ram also needs to pay house sale gain tax of 30% 10
  11. 11. 12/28/2011 EXERCISE Draw up his income statement assets & loans statement now (If something is not mentioned explicitly assume it is not relevant – some details are deliberately omitted to simplify this exercise) Ram’s Income & Expense Statement – AFTER selling house (31 Dec 2010)• Gross Income (A) 1200• Income from selling house (K) 6000• Income from selling car (O) 200• Total Income (A) +(K)+(O) (L) 7400• Petrol Costs (B) 60• House cost (M) 5000• Cost of car (P) 200• Total Direct Expenses (B) +(M) +(P) (N) 5260• L-N (C) 2140• Household expenses (D) 480• Bank EMI (H) 200• One year cost of car (J) 100• (D) + (H) + (J) (I) 780• (C)-(I) (E) 1360• Tax (30% CTC + House gain) (F) 660• Savings (E-F) (G) 700 11
  12. 12. 12/28/2011 Ram’s Assets & Loans Statements AFTER selling house & car (31 Dec 2010)• Assets • Liabilities – Bank Balance(A) 5300 – Bank Loan 0 – House 0 – Car 0 • Ram’s Net Worth 5300 CALCULATIONS TO HELP YOU ARRIVE AT THE ABOVE NUMBERSCurrent Bank Balance: 7House: 57 (60 less 3 paid as tax)Car: 2Salary savings in 2010 0Total increase in bank balance 59Pending home loan liability -13New bank balance 7+59-13= 53 Ram’s Cash Flow Statement (31 Dec 2010)• Starting Cash Position 4500• Savings from Income Statement 700• Total cash flow in one year 5200• Add One year usage cost of car 100• Total Cash flow in one year 800• Ending Cash Position 5300 4500+700 = 5200. How does the Bank Balance in the Balance Sheet show 5300? Any guesses? 12
  13. 13. 12/28/2011 You have Successfully Constructed 3Main Financial Statements for Mr. Ram 1. The Income Statement (Profit & Loss) 2. The Balance Sheet 3. The Cash Flow Statement 2. The Profit & Loss Statement 13
  14. 14. 12/28/2011 Understanding a Company’s 3 Vital Statistics A Salesman’s Intro to Engineers Interpreting Financial Statements 1. The Income Statement (Profit & Loss) 2. The Balance 3. The Cash Sheet Flow Statement © Rajesh Sengamedu The Income Statement (Profit & Loss)1. Summarizes how the company’s operations performed during a given period2. Tells you how much money a company has brought in (as revenues), how much it has spent (as expenses) and the difference between the two (its profit)3. Revenues – Expenses = Profit (Loss) 14
  15. 15. 12/28/2011 Revenues (“Topline”)• The amount of money the company makes by selling its products or services• Remember this ! – Different businesses have different ways of ‘recognizing’ revenue Six Major Expenses1. Cost of Sales (Cost of goods sold – COGS) – Direct expenses incurred in creating the products or services2. Selling, General and Administrative Expenses (SG&A) – Sales & marketing costs, overhead costs like Finance, HR departments, office building rental etc.3. Depreciation and Amortization – Tangible assets are ‘expensed’ as depreciation – Intangible assets are ‘expensed’ as amortization, over a period of time4. Other Operating Expenses – Can be any other expense!5. Interest Income and Interest Expense – Interest received on company’s deposits or interest paid to lenders6. Taxes – What the company owes to the Government on the profits made 15
  16. 16. 12/28/2011Sample P&L Sheet – Yell.co.uk Revenues Revenues Revenues COGS Revenues Sales & Marketing Costs Revenues Administrative Costs Revenues Interest Costs Revenues Taxes Sample P&L Sheet – www.basware.com Revenues Revenues Revenues COGS Revenues Depreciation &Amortization Finance costs Revenues Tax Expenses Revenues 16
  17. 17. 12/28/2011 Some Key Terms in P&L• Gross Profit • Gross Profit Margin – Take Revenue & subtract – (Revenue –COGS)/ Revenue COGS • Operating Profit (or EBIT)• Operating Profit (or EBIT) Margin – Take Revenue & subtract ALL Costs, EXCEPT – (Revenue – All Costs except Interest & Taxes Interest & Taxes)/ Revenue• Net Profit (“Bottomline”) • Net Profit (“Bottomline”) – What’s left over for a Margin company after ALL – (Revenue – All Costs)/ expenses have been accounted for Revenue Remember to divide by REVENUES to arrive at margins, NOT costs 2 Ways Of Comparing Company Performance1. Across the financial periods2. As a %age of a base value, say - Revenues, across the financial periods 17
  18. 18. 12/28/2011 Comparision Across Financial Periods (Ex. 1)YELL.CO.UKM GBP 2011 2010 Increase Interpretation Revenue decreased; Is there a problem in theRevenue 1877.6 2122.7 -11.55% market situation? Competition? Downturn? But cost of sales decreased more! ManagingGross Profit 1056.9 1167.4 -9.47% their costs well, seems like!Operating Higher SG&A expenses for the revenueProfit 329.9 409.3 -19.40% earned! Too many ‘management guys’? Paid lower interest & taxes. OK! Atleast the management seems to be managing the interest, taxes. Somehow they are producing ‘similar’ bottomline results for lowerPAT 46.7 46.8 -0.21% revenue, by cutting costs aggressively!! Comparision as % of base value (1/2) Ex 1 YELL.CO.UK M GBP 2011 2010 Interpretation Revenues 1877.6 100.0% 2122.7 100.0% Company reduced their cost of COGS 820.7 43.7% 950.3 44.8% sales aggressively Distribution But could not manage to reduce Costs 76.6 4.1% 84.7 4.0% their sales costs Neither could they manage their admin costs!!!! They actually Admin Costs 650.4 34.6% 673.4 31.7% increased it!!! Hmm! The increased admin costs Finance seems to have benefitted the Costs 263.6 14.0% 339 16.0% company by reducing interest costs! Tax 19.6 1.0% 23.5 1.1%And decreased their tax expenses! 18
  19. 19. 12/28/2011 Comparision as % of base value (2/2) Ex 1YELL.CO.UKM GBP 2011 2010 InterpretationRevenue 1877.6 100% 2122.7 100%Gross Profit 1056.9 56.3% 1167.4 55.0% COGS decreased aggressively Could not reduce SG&A for theOperating Profit 329.9 17.6% 409.3 19.3% revenue earned Improved bottom line by managing their COGS, interest &PAT 46.7 2.5% 46.8 2.2% taxes. Comparision Across Financial Periods (Ex. 2) Basware.com M€ 2010 2009 Increase Interpretation Revenue 103283 92816 11.28% Revenue increased Gross Profit 39551 34329 15.21% But cost of sales increased faster! Lower depreciation, amortization & Operating also lower overheads contributed to Profit 13487 11825 14.05% higher operating profits PAT 10333 9074 13.87% Improved bottom-line!! 19
  20. 20. 12/28/2011 Comparision as % of base value (1/2) Ex-2Basware.comM€ 2010 2009 InterpretationRevenues 103283 100.0% 92816 100.0% Basware reduced their cost of goods sold & other directCOGS 63732 61.7% 58487 63.0% expenses!! Good for them! They even have lower depreciation & amortization expenses (i.e theyDepreciation & are getting more from existingAmortization 5117 5.0% 4456 4.8% assets than buying new assets)Other Hmm…they have some otherOperating operating expenses that areExpenses 20947 20.3% 18048 19.4% increasing…FinanceExpenses 160 0.2% 234 0.3% Good, they have less loans!Tax 2994 2.9% 2517 2.7% Reasonable level of taxes. Comparision as % of base value (2/2) Ex 2Basware.comM€ 2010 2009 InterpretationRevenue 103283 100% 98216 COGS and direct expenses are lower, leading to higher grossGross Profit 39551 38.3% 34329 35.0% margins Lower depreciation & amortizationOperating Profit 13487 13.1% 11825 12.0% leading to higher operating profits Well managed company! Improving sales and at the samePAT 10333 10.0% 9074 8.8% time improving profit margins!! 20
  21. 21. 12/28/2011 Key Observations• Revenues increase IF – We sell more• Profits increase IF – We reduce our costs (for same revenue level) – We sell more (for same cost levels) – We sell more & reduce costs 3. The Balance Sheet 21
  22. 22. 12/28/2011 Understanding a Company’s 3 Vital Statistics A Salesman’s Intro to Engineers Interpreting Financial Statements 2. The Balance Sheet 1. The Income 3. The Cash (Profit & Loss) Flow Statement Statement © Rajesh Sengamedu Assets, Liabilities, Owner Equity1. What are Assets? – That the company owns2. What are Liabilities? – That the company owes3. What is Owner Equity? – The money put in by shareholders4. Balance Sheet Equation – Assets = Liabilities + Owner Equity5. Snapshot of assets, liabilities, owner equity are “as of a specific date” 22
  23. 23. 12/28/2011 Assets (“What is owned?”)• Current Assets 1. Cash & Cash Equivalents 2. Inventories 3. Money customers owe (“Accounts Receivable)• Fixed Assets (Non-Current Assets) 1. Property, Plant & Equipment (“Tangible Assets”) 2. “Goodwill” & “Intangible Assets” 3. Investments made (“Financial Assets”) Liabilities (“What is owed?”)• Current Liabilities – Money owed to suppliers (“Accounts Payable”) – Short term Debt raised (from banks, issuing bonds etc)• Non-Current Liabilities (“Long term liabilities) – Long term debt – Advances paid by customers (“Unearned revenues”) – Tax liabilities 23
  24. 24. 12/28/2011 Owner Equity (“What the owners own!”)• Money put in by owners (“share capital”)• Cumulative excess money generated from operations (“Net Profits”) Less dividends paid Checklist for Balance Sheet1. Balance sheet provides a snapshot of how much a company owns (assets) and how much it owes (liabilities) at a specific point in time.2. The difference between what a firm owns and what it owes is known as equity, the amount of the company owned by shareholders.3. Current assets are any assets expected to be used up or converted into cash within one year.4. Current liabilities are obligations expected to be paid within a year. 24
  25. 25. 12/28/2011Sample Balance Sheet – Yell.co.uk Revenues Fixed (“Non-Current”) Assets Revenues Current Assets Revenues Current Liabilities Revenues Non-Current Liabilities Revenues Owner’s Money Sample Balance Sheet – www.basware.com 25
  26. 26. 12/28/2011 Comparing BS Across Time Periods – Yell.co.uk 2011 2010ChangeNon Current Assets 4499 4718 -4.6%Current Assets 1198 1319 -9.2%Current Liabilities 734 772 -4.9%Long Term liabilities 3450 3879 -11.1%Equity 1514 1386 9.2%Accounts & receivables 763 905 -15.7%Cash & Equivalents 200 160 25.0%Current Assets /Current Liabilities 1.63 1.71Debt / Equity Ratio 2.28 2.80 Comparing BS Across Time Periods – Basware.com 2010 2009ChangeNon Current Assets 53.5 54.6 -2.0%Current Assets 38 32.7 16.2%Current Liabilities 21 22.9 -8.3%Long Term liabilities 3.4 7.8 -56.4%Equity 67.1 56.6 18.6%Accounts & receivables 24 19.7 21.8%Cash & Equivalents 13.8 12.2 13.1%Current Assets /Current Liabilities 1.81 1.43Debt / Equity Ratio 0.05 0.14 26
  27. 27. 12/28/2011 How Strong Is the Balance Sheet? 2011 2010 Yell Current Assets /Current Liabilities 1.63 1.71 Debt / Equity Ratio 2.28 2.80 2010 2009Basware Current Assets /Current Liabilities 1.81 1.43 Debt / Equity Ratio 0.05 0.141. Both Basware & Yell have more current assets than current liabilities….so we can assume they will pay off their current liabilities with these current assets2. Basware has ‘almost’ no debt! Good for them. If the economy slows down, they still will survive3. Yell has more long-term debt than equity……so, if the lenders want their money back, the company is in trouble4. Good news is that Yell has reduced their debts from 2010 in 2011….they are managing the company well. Combining BS and P&L Statements 1. Check Account Receivables as a % of revenue – If % has significantly increased => Company offering better payment terms to customers – If % has significantly decreased => Company collecting money fast – If % is around the same => OK, business as usual! 2. If Depreciation & Amortization is increasing as a % of revenue – Are they buying companies? – Are they investing in property, plant & equipment? 27
  28. 28. 12/28/2011 How is Basware & Yell.co.uk doing in AR? This Year Previous year Good, AR isYell.co.uk AR / Revenue 40.6% 42.6% decreasing!! Around the same levels, seemsBasware AR / Revenue 23% 21% like marginal increase Key Observations• A cause of worry is – NOT too much debt in absolute terms – BUT high debt to equity ratio• A second cause of worry is – IF Accounts Receivable (AR) is increasing significantly compared to revenue growth 28
  29. 29. 12/28/2011 4. The Cash Flow Statement Understanding a Company’s 3 Vital Statistics A Salesman’s Intro to Engineers Interpreting Financial Statements 3. The Cash Flow Statement1. The Income 2. The Balance(Profit & Loss) SheetStatement © Rajesh Sengamedu 29
  30. 30. 12/28/2011 What Does Cash Flow Statement Show?1. Cash flow statement tells you how much cash went into and out of a company during a specific time frame2. It shows how much cash a company is generating from one period to next3. Three Elements of cash flow statement – Cash flows from operating activities • How much cash the company generated from its core business – Cash flows from investing activities • How much cash is spent in capex, acquisitions, market investments like shares, mutual funds, bonds etc. – Cash flows from financing activities • How much cash was spent /received from company’s shareholders or creditors (banks etc). • Example is repayment of debt, dividends paid etc., how much money was raised by issuing new shares etc. Sample CF Statement - Yell 30
  31. 31. 12/28/2011 Sample CF Statement - Basware Basware – Sample CF Statement – Operational Activities 2010 2009Profit for the period 10331 9074Total Adjustments 8508 7833 Following come from P&L Employee benefits 235 625 Statement Depreciation & Amortization 5117 4456 1. Profit OR the NET Profit Finance &Interest Expenses 189 234 2. Depreciation & Unrealized Profit & Loss -27 0 Amortization Income taxes 2994 2517 3. Income taxes Other Adj. 0 1Total Working Capital Changes -3157 -137 Changes in inventories -23 15 Short term receivables -4668 1758 Changes in short term liabiliites 1534 -1910Interest Paid -43 -192Interest received 66 104Other financial adjustments -98 -30Income tax paid -3084 -1920Net Cash Flow From OperatingActivities 12523 14732 31
  32. 32. 12/28/2011 Basware – Sample CF Statement – Investing Activities 2010 2009 Good that thePurchase of tangible/intangible assets -2722 -3135 company is investing in buying some assets.Sale of tangible /intangible assets 0 1 But they are actually paying lesser inAcquisition of subsidiaries -1732 -1835 2010…but generatingTotal Cash flow from Investing activities -4454 -4969 higher revenues…. 5. Summary 32
  33. 33. 12/28/2011 Understanding a Company’s 3 Vital Statistics A Salesman’s Intro to Engineers Interpreting Financial Statements © Rajesh Sengamedu Learnt That There are 3 Main Financial Statements1. The Income Statement (Profit & Loss) 2. The Balance Sheet 3. The Cash Flow Statement 33
  34. 34. 12/28/2011 Linking Balance Sheet & Income Statements Answer These Six Questions & Learn About a Company in Under 10 Minutes1. Are the revenues increasing year on year?2. Are the profits increasing year on year?3. Are the profits growing at a higher rate than the revenues? (CAGR)4. What is the % age of Capex to revenue? Is that increasing? Or decreasing? Or Constant?5. How much cash the company has in the bank?6. What is the debt /equity ratio? 34
  35. 35. 12/28/2011 Feedback• Pl. send your feedback to me on email – Rajesh dot sengamedu at gmail dot com• In your feedback, pl. include these: – On a scale of 1 to 10 (10=highly useful), • How much use was this training? – What are the 3 learnings you have? – What 3 things you would do to apply these learnings? 35

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