This document provides an overview of financial management and analysis concepts. It discusses learning outcomes related to evaluating corporate finance functions, key financial parameters, and linking financial criteria to analysis. It also outlines components of financial statements under IFRS standards and minimum disclosure requirements. Tools for analysis such as ratios, margins and returns are introduced. The document emphasizes using financial statements to understand financing strategies, cost structures, and business profiling.

1. FINANCIAL
MANAGEMENT
2012
EDS – Dr Harvey Gill 1012

2. Welcome
 Financial Analysis of various
corporate exercises with intelligent
use of customized Financial
Models.
 Conducting analysis of financial
information as a basis of business
decisions
 Financial decisions to support
business strategy and control
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3. Learning Outcomes
 evaluate the strength of the
corporate finance function within a
listed company as a basis for
assessment of financial strength,
business strategy and compliance
framework
 scan for key financial parameters
and success factors for a business
entity or project
 compute key trends and marginsHarvey Gill 2012
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4. Learning Outcomes
 compute sufficiently comprehensive
ratios to determine the financial
health, project evaluation and
business valuation
 build a financial template for
complete financial analysis
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5. Harvey Gill 2012
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6. Harvey Gill 2012EDS
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STOCKS
ON THE
HO CHI
MINH CITY
STOCK
EXCHANGE
ARE
CURRENTLY
SLIGHTLY
BELOW
THEIR
LEVEL ONE
YEAR
AGO…

7. PROLOGUE :
What is the profile of a GOOD
BUSINESS
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8.  Quick catch up session on latest financial reporting
developments based on IFRS
 Key financial information available from Annual
Reports
 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 financial
analysis Harvey Gill 2012
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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 difficult
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10. International Financial
Reporting
 Asian standards based largely on IAS from
UK and AAS from Australia
 As of 2012, we are fully converged with
International FRS so that :
 Global investors can better understand Asian
financial reports
 Allow Asian businesses to go global
 Better practices in corporate Asia
 Support the drive to internationalization
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11. IMPACT of Convergence
 Business Process – getting qualified staff
 Risk management
 Internal Audit
 External Auditor - cannot contribute notes to
the accounts anymore
 Tax Issues - the gap widens !
 Private Companies normally have a different
Framework
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12. IFRS :
Components of Financial
Statements
 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 Statements
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13.  Quick catch up session on latest financial reporting
developments based on IFRS
 Key financial information available from Annual
Reports
 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 financial
analysis Harvey Gill 2012
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14. Statement of Financial Position
USE IT TO :
 Evaluating capital structure
 Analyzing liquidity, solvency and financial
flexibility
 Basis of computing rates of return
 Subject to the usual accounting info
limitations
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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, Derivatives
etc.
 Liabilities directly associated with AFS to be
disclosed
 Bonds available for sale to be shown
separately Harvey Gill 2012
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16. SFP Minimum Disclosure Items
 PPE
 Investment Property
 Intangible Assets
 Financial Assets (except
those categorized
elsewhere)
 Investments (accounted for
under equity method)
 Biological assets
 Inventories
 Trade and other
receivables
 Cash & Cash Equivalents
 Held for Sale Assets
(IFRS 5)
 Trade & other payables
 Provisions
 Financial liabilities (except
those categorized
elsewhere)
 Liabilities or Assets for
Tax (IFRS 112)
 Disposal groups of
Liabilities ‘held for sale’ -
IFRS 5
 Non controlling interest
presented within equity
 Issued capital and
reserves attributable to
parent’s equity holders
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17. SCI disclosures
 Unrealized profits from valuation of Investment
properties
 Fair value changes in Investments
 Results from discontinued operations to be
shown separately
 Changes in value of cash flows from hedges
 Income tax for Income Statement and
Comprehensive Income shown separately
 Distinguish Profit for the year and
Comprehensive Income - indicating portion
attributable to shareholders
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18. Recognition of Revenue and
Cost
 IFRS Framework calls for recognition of
elements when:
 It is probable that any future economic benefits
associated with the item will flow to or from the
entity; and
 The item as a cost or value that can be
measured reliable
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19. ANALYSIS
 Financial Leverage
Total Borrowings / Equity
 Asset Financing
Total Borrowings / Total Assets
 Asset composition
Percentile Analysis of Items
Case Study : Transmile
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20. The SCI matches Revenue with
costs incurred to generate that R
SERVICE INDUSTRIES
 Identification of Facilities
 Costing the Facilities
 Classification of the Costs
TRADING / MANUFACTURING INDUSTRIES
 Costs of Creating / Getting Your product
 Costs of ensuring delivery to consumers
 Back-End Costs
 Finance Costs
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21. Cost Management is a key
component of Good Financial
Management
COSTS :
 DIRECT COSTS
 INDIRECT COSTS
 FIXED COSTS
 VARIABLE COSTS
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22. Financial Performance is
measured at many levels
Per Product or in Total
 GROSS PROFIT = GP
 OPERATING PROFIT = OP
 EARNINGS BEFORE
INTEREST, TAX, DEPRECIATION &
AMORTIZATION = EBITDA
 EARNINGS BEFORE INTEREST & TAX = EBIT
 PROFIT BEFORE TAX = PBT OR EBT
 NET PROFIT AFTER TAX = NET INCOME = NPAT
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23. Fixed vs Variable Costs
 Identification of mainly fixed costs
 Variable Costs per service unit
 Breakeven throughput for various airport
services
 Impact of fixed costs on bottom line
 Sensitizing bottom line to business volume
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24. Mainly Fixed Costs
 Staff Basic Remuneration
 Contractual Payments
 Fee Payments
 Others from you… ?
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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…?
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26.  Quick catch up session on latest financial reporting
developments based on IFRS
 Key financial information available from Annual
Reports
 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 financial
analysis Harvey Gill 2012
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27. RATE OF PROFITS -
MARGINS
COSTS OF SALES MARGIN
OPERATING COST MARGIN
OPERATING PROFIT MARGIN
NET PROFIT AFTER TAX MARGIN
INVENTORIES MARGIN
ACCOUNTS RECEIVABLE MARGIN
CASH RESERVES MARGIN
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28. RATE OF PROFITS -
RETURNS
OPERATING ROI = OP / TOA
NET ROI = NPAT / TA
SELLING EFFICIENCY = R / TA
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29. BUSINESS PROFILING completes
the Financial Analysis
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30. ISSUES WITH ANNUAL REPORTS
 Subject to Accounting Standards that are
evolving all the time
 Information getting more complex - therefore
easier to hide critical decision making facts!
 Some level of window dressing remains
prevalent
 Requires comparison with industry & external
economic data to be more meaningful
 Accuracy depends on level of Internal Controls
on Financial Reporting (ICFR) Harvey Gill 2012
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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 worthiness
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32. BUSINESS PROFILING
DASHBOARD – Part 1 & 2
N CORE AREA Data Items Details
1 BASE LINE 1. Name
2. Industry
3. Sector
4. Key Players
5. Relative Position
2 OPERATING
ENVIRONMENT
1. Principal Activities ; Product /
Service
2. People – Culture - Skill
3. Organisational Structure
4. Regulatory & Quality
Framework
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33. Harvey Gill 2012
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34. FMCG - TELCO -
PROPERTY
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35. ENVIRONMENTAL ANALYSIS
This usually involves
 Identification of key environmental economic drivers
affecting capital markets and corporate performance
 Scoring the impact of these key drivers by application
of impact scores and expected probabilities
 Environmental Economic Factors can be:
 Social
 Technology Related
 Financial or Economic
 Sustainability, Governance, Compliance related
 Politically related
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37. EDS
Data from the SCI
 TURNOVER
 Cost Build Up
 Seven Levels of Profits
 GROSS
 OPERATING
 EBITDA
 EBIT
 NPBT
 NPAT = PAT = PATMI
 RETAINED
USED FOR RATIO ANALYSIS
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38. Operating Costs - DIGI - SCI 2011
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39. EDS
Data from the SFP
 Financial Organization
 Assets vs Funding
 Asset Base
 Unexpired Values
 Shareholder Fund
 The changing form of Liabilities
 Hidden Reserves
 Contingent Liabilities
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40. SETTING UP YOUR EXCEL
TEMPLATE - Income Statement
No. ITEM Current Year Last Year
1 REVENUE
2 COST OF SALES
3 OPERATING
PROFIT
4 NET PROFIT AFTER
TAX
5 INTEREST (Finance
Charges)
6 DIVIDENDS
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41. SFP Template
No ITEM Current Year Last Year
1 Total Fixed Operating Assets
2 Total Other Fixed Assets
3 TOTAL FIXED ASSETS
4 TOTAL CURRENT ASSETS
5 TOTAL ASSETS
6 TOTAL OPERATING ASSETS (1 + 4 )
7 Inventories
8 Accounts Receivable
9 Cash & Cash Equivalents
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42. SFP Template
No ITEM Current Year Last Year
1 Current Liabilities
2 Long Term Liabilities
3 Deferred & Other Liabilities
4 TOTAL LIABILITIES
5 TOTAL EQUITY
6 Balancing Item = TA - TL –
TE
7 Total Borrowings
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43. TARGET SECTORS &
COMPANIES
 Identification of selected listed companies for
creating financial template
 Agreement on format of template for core
financial analysis
 Capturing the information from the financial
statements
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45. Business Value
 Fair market Value of Net Assets
= (TA @ FMV - TL ) / No. of shares
 Capitalization of Sustainable Earnings
= EPS x Applicable PE Ratio
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46. DEFINING SHAREHOLDER
VALUE
 ENHANCING
FUTURE CASH
FLOWS
 REDUCING RISK
 SUSTAINABILITY
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TWO CORE DRIVERS : THIRD OVERLAY
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47. SHAREHOLDER VALUE
DRIVERS
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 MAXIMISE PROJECTED CASH FLOWS
 MAINTAIN POSITIVE NPV ON PROJECTED
EARNINGS
 REDUCE RISK
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48. MAXIMISE FUTURE CASH
FLOWS
Harvey Gill 2012EDS
 MAY BE MEASURED AS FREE CASH
FLOW = CASH FLOW AVAILABLE FROM
OPERATING THE BUSINESS BEFORE
CONSIDERING 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 FLOW
STATEMENT
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49. MAINTAIN POSITIVE NPV
Harvey Gill 2012EDS
 FEASIBILITY OF PROJECTED CASH
FLOWS FROM A SPECIFIC CORPORATE
EXERCISE EG:
 ISSUE OF BONDS
 BIDDING FOR PROJECTS
 CAPEX DECISIONS
 TAKE-OVER & MERGERS
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50. REDUCE RISK
Harvey Gill 2012EDS
FOUR WAY RISK MANAGEMENT
FRAMEWORK
 AVOID
 TRANSFER
 ELIMINATE
 MANAGE & MITIGATE
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51. QUESTIONS & REVIEW
harwindar@gmail.com