Eds fm bkk 1012

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Eds fm bkk 1012

  1. 1. FINANCIALMANAGEMENT2012EDS – Dr Harvey Gill 1012
  2. 2. Welcome Financial Analysis of variouscorporate exercises with intelligentuse of customized FinancialModels. Conducting analysis of financialinformation as a basis of businessdecisions Financial decisions to supportbusiness strategy and controlHarvey Gill 20122EDS
  3. 3. Learning Outcomes evaluate the strength of thecorporate finance function within alisted company as a basis forassessment of financial strength,business strategy and complianceframework scan for key financial parametersand success factors for a businessentity or project compute key trends and marginsHarvey Gill 20123EDS
  4. 4. Learning Outcomes compute sufficiently comprehensiveratios to determine the financialhealth, project evaluation andbusiness valuation build a financial template forcomplete financial analysisHarvey Gill 20124EDS
  5. 5. Harvey Gill 20125EDS
  6. 6. Harvey Gill 2012EDS6STOCKSON THEHO CHIMINH CITYSTOCKEXCHANGEARECURRENTLYSLIGHTLYBELOWTHEIRLEVEL ONEYEARAGO…
  7. 7. PROLOGUE :What is the profile of a GOODBUSINESSHarvey Gill 20127EDS
  8. 8.  Quick catch up session on latest financial reportingdevelopments based on IFRS Key financial information available from AnnualReports Financing policies and strategies from the Balance Sheet Financial Leverage Asset Financing Asset composition Cost structures and margins from the Income Statement Cost Margins Profit Margins Business Profiling Linking key financial criteria to related financialanalysis Harvey Gill 20128EDS
  9. 9. Background to FRS Reporting prior to Published Standards SSAP International Accounting Stds - IAS Implemented through local accounting bodies Vietnam Association of Certified Public Accountants Malaysian Institute of Chartered Public Accountants The Philippine Institute of Certified Accountants Institute of Public Accountants Australia NO FORCE OF LAW Very localized, international comparison difficultHarvey Gill 20129EDS
  10. 10. International FinancialReporting Asian standards based largely on IAS fromUK and AAS from Australia As of 2012, we are fully converged withInternational FRS so that : Global investors can better understand Asianfinancial reports Allow Asian businesses to go global Better practices in corporate Asia Support the drive to internationalizationHarvey Gill 201210EDS
  11. 11. IMPACT of Convergence Business Process – getting qualified staff Risk management Internal Audit External Auditor - cannot contribute notes tothe accounts anymore Tax Issues - the gap widens ! Private Companies normally have a differentFrameworkHarvey Gill 201211EDS
  12. 12. IFRS :Components of FinancialStatements Statement of Financial Position (SFP) Statement of Comprehensive Income (SCI) Statement of Changes in Equity (SCE) Statement of Cash Flows (SCF) Notes to the Financial StatementsHarvey Gill 201212EDS
  13. 13.  Quick catch up session on latest financial reportingdevelopments based on IFRS Key financial information available from AnnualReports Financing policies and strategies from the Balance Sheet Financial Leverage Asset Financing Asset composition Cost structures and margins from the Income Statement Cost Margins Profit Margins Business Profiling Linking key financial criteria to related financialanalysis Harvey Gill 201213EDS
  14. 14. Statement of Financial PositionUSE IT TO : Evaluating capital structure Analyzing liquidity, solvency and financialflexibility Basis of computing rates of return Subject to the usual accounting infolimitationsHarvey Gill 201214EDS
  15. 15. What is NEW Assets classified as Current / Non Current SFP totals at TA = TF Assets held for Sale (AFS) shown separately- These are investment in Funds, Derivativesetc. Liabilities directly associated with AFS to bedisclosed Bonds available for sale to be shownseparately Harvey Gill 201215EDS
  16. 16. SFP Minimum Disclosure Items PPE Investment Property Intangible Assets Financial Assets (exceptthose categorizedelsewhere) Investments (accounted forunder equity method) Biological assets Inventories Trade and otherreceivables Cash & Cash Equivalents Held for Sale Assets(IFRS 5) Trade & other payables Provisions Financial liabilities (exceptthose categorizedelsewhere) Liabilities or Assets forTax (IFRS 112) Disposal groups ofLiabilities ‘held for sale’ -IFRS 5 Non controlling interestpresented within equity Issued capital andreserves attributable toparent’s equity holdersHarvey Gill 201216EDS
  17. 17. SCI disclosures Unrealized profits from valuation of Investmentproperties Fair value changes in Investments Results from discontinued operations to beshown separately Changes in value of cash flows from hedges Income tax for Income Statement andComprehensive Income shown separately Distinguish Profit for the year andComprehensive Income - indicating portionattributable to shareholdersHarvey Gill 201217EDS
  18. 18. Recognition of Revenue andCost IFRS Framework calls for recognition ofelements when: It is probable that any future economic benefitsassociated with the item will flow to or from theentity; and The item as a cost or value that can bemeasured reliableHarvey Gill 201218EDS
  19. 19. ANALYSIS Financial LeverageTotal Borrowings / Equity Asset FinancingTotal Borrowings / Total Assets Asset compositionPercentile Analysis of ItemsCase Study : TransmileHarvey Gill 201219EDS
  20. 20. The SCI matches Revenue withcosts incurred to generate that RSERVICE INDUSTRIES Identification of Facilities Costing the Facilities Classification of the CostsTRADING / MANUFACTURING INDUSTRIES Costs of Creating / Getting Your product Costs of ensuring delivery to consumers Back-End Costs Finance CostsHarvey Gill 201220EDS
  21. 21. Cost Management is a keycomponent of Good FinancialManagementCOSTS : DIRECT COSTS INDIRECT COSTS FIXED COSTS VARIABLE COSTSHarvey Gill 201221EDS
  22. 22. Financial Performance ismeasured at many levelsPer Product or in Total GROSS PROFIT = GP OPERATING PROFIT = OP EARNINGS BEFOREINTEREST, TAX, DEPRECIATION &AMORTIZATION = EBITDA EARNINGS BEFORE INTEREST & TAX = EBIT PROFIT BEFORE TAX = PBT OR EBT NET PROFIT AFTER TAX = NET INCOME = NPATHarvey Gill 201222EDS
  23. 23. Fixed vs Variable Costs Identification of mainly fixed costs Variable Costs per service unit Breakeven throughput for various airportservices Impact of fixed costs on bottom line Sensitizing bottom line to business volumeHarvey Gill 201223EDS
  24. 24. Mainly Fixed Costs Staff Basic Remuneration Contractual Payments Fee Payments Others from you… ?Harvey Gill 201224EDS
  25. 25. Mainly Variable Costs Costs linked to usage rates Costs for outsourced services on per unit basis Time rated claims Volume related claims Others from you…?Harvey Gill 201225EDS
  26. 26.  Quick catch up session on latest financial reportingdevelopments based on IFRS Key financial information available from AnnualReports Financing policies and strategies from the Balance Sheet Financial Leverage Asset Financing Asset composition Cost structures and margins from the Income Statement Cost Margins Profit Margins Business Profiling Linking key financial criteria to related financialanalysis Harvey Gill 201226EDS
  27. 27. RATE OF PROFITS -MARGINSCOSTS OF SALES MARGINOPERATING COST MARGINOPERATING PROFIT MARGINNET PROFIT AFTER TAX MARGININVENTORIES MARGINACCOUNTS RECEIVABLE MARGINCASH RESERVES MARGINHarvey Gill 201227EDS
  28. 28. RATE OF PROFITS -RETURNSOPERATING ROI = OP / TOANET ROI = NPAT / TASELLING EFFICIENCY = R / TAHarvey Gill 201228EDS
  29. 29. BUSINESS PROFILING completesthe Financial AnalysisHarvey Gill 201229EDS
  30. 30. ISSUES WITH ANNUAL REPORTS Subject to Accounting Standards that areevolving all the time Information getting more complex - thereforeeasier to hide critical decision making facts! Some level of window dressing remainsprevalent Requires comparison with industry & externaleconomic data to be more meaningful Accuracy depends on level of Internal Controlson Financial Reporting (ICFR) Harvey Gill 201230EDS
  31. 31. WINDOW DRESSING Double stating revenues - Transmile Depreciation Rates - Enron Capitalisation of Expenditure Policies Stock write – off and valuation policies Debt write off and provision Off Balance Sheet Items Fictitious Assets Stocks with dubious value Investment in Shelf companies Debtors without credit worthinessHarvey Gill 201231EDS
  32. 32. BUSINESS PROFILINGDASHBOARD – Part 1 & 2N CORE AREA Data Items Details1 BASE LINE 1. Name2. Industry3. Sector4. Key Players5. Relative Position2 OPERATINGENVIRONMENT1. Principal Activities ; Product /Service2. People – Culture - Skill3. Organisational Structure4. Regulatory & QualityFrameworkHarvey Gill 201232EDS
  33. 33. Harvey Gill 201233EDS
  34. 34. FMCG - TELCO -PROPERTYHarvey Gill 201234EDS
  35. 35. ENVIRONMENTAL ANALYSISThis usually involves Identification of key environmental economic driversaffecting capital markets and corporate performance Scoring the impact of these key drivers by applicationof impact scores and expected probabilities Environmental Economic Factors can be: Social Technology Related Financial or Economic Sustainability, Governance, Compliance related Politically relatedHarvey Gill 201235EDS
  36. 36. Harvey Gill 201236EDS
  37. 37. EDSData from the SCI TURNOVER Cost Build Up Seven Levels of Profits GROSS OPERATING EBITDA EBIT NPBT NPAT = PAT = PATMI RETAINEDUSED FOR RATIO ANALYSISHarvey Gill 201237
  38. 38. Operating Costs - DIGI - SCI 2011Harvey Gill 201238EDS
  39. 39. EDSData from the SFP Financial Organization Assets vs Funding Asset Base Unexpired Values Shareholder Fund The changing form of Liabilities Hidden Reserves Contingent LiabilitiesHarvey Gill 201239
  40. 40. SETTING UP YOUR EXCELTEMPLATE - Income StatementNo. ITEM Current Year Last Year1 REVENUE2 COST OF SALES3 OPERATINGPROFIT4 NET PROFIT AFTERTAX5 INTEREST (FinanceCharges)6 DIVIDENDSHarvey Gill 201240EDS
  41. 41. SFP TemplateNo ITEM Current Year Last Year1 Total Fixed Operating Assets2 Total Other Fixed Assets3 TOTAL FIXED ASSETS4 TOTAL CURRENT ASSETS5 TOTAL ASSETS6 TOTAL OPERATING ASSETS (1 + 4 )7 Inventories8 Accounts Receivable9 Cash & Cash EquivalentsHarvey Gill 201241EDS
  42. 42. SFP TemplateNo ITEM Current Year Last Year1 Current Liabilities2 Long Term Liabilities3 Deferred & Other Liabilities4 TOTAL LIABILITIES5 TOTAL EQUITY6 Balancing Item = TA - TL –TE7 Total BorrowingsHarvey Gill 201242EDS
  43. 43. TARGET SECTORS &COMPANIES Identification of selected listed companies forcreating financial template Agreement on format of template for corefinancial analysis Capturing the information from the financialstatementsHarvey Gill 201243EDS
  44. 44. Harvey Gill 201244EDS
  45. 45. Business Value Fair market Value of Net Assets= (TA @ FMV - TL ) / No. of shares Capitalization of Sustainable Earnings= EPS x Applicable PE RatioHarvey Gill 201245EDS
  46. 46. DEFINING SHAREHOLDERVALUE ENHANCINGFUTURE CASHFLOWS REDUCING RISK SUSTAINABILITYHarvey Gill 2012EDSTWO CORE DRIVERS : THIRD OVERLAY46
  47. 47. SHAREHOLDER VALUEDRIVERSHarvey Gill 2012EDS MAXIMISE PROJECTED CASH FLOWS MAINTAIN POSITIVE NPV ON PROJECTEDEARNINGS REDUCE RISK47
  48. 48. MAXIMISE FUTURE CASHFLOWSHarvey Gill 2012EDS MAY BE MEASURED AS FREE CASHFLOW = CASH FLOW AVAILABLE FROMOPERATING THE BUSINESS BEFORECONSIDERING HOW IT IS FINANCED (I.E.FREE OF FINANCING CASH FLOWS) EBIT – TAX + CHANGES IN WC +CHANGES IN FIXED ASSET INVESTMENT DATA AVAILABLE FROM CASH FLOWSTATEMENT48
  49. 49. MAINTAIN POSITIVE NPVHarvey Gill 2012EDS FEASIBILITY OF PROJECTED CASHFLOWS FROM A SPECIFIC CORPORATEEXERCISE EG: ISSUE OF BONDS BIDDING FOR PROJECTS CAPEX DECISIONS TAKE-OVER & MERGERS49
  50. 50. REDUCE RISKHarvey Gill 2012EDSFOUR WAY RISK MANAGEMENTFRAMEWORK AVOID TRANSFER ELIMINATE MANAGE & MITIGATE50
  51. 51. QUESTIONS & REVIEWharwindar@gmail.com

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