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Financial Report PPX.pptx
- 1. Financial Statements: Exploring the BalanceSheet, Income Statement, and Statement of Cash Flows
- 2. Agenda We will bediscussing the purpose and features of each financial statment 01 About Balance sheet 02 About Income statement 03 About statement of cash flows
- 3. Introduction Financial Statements Financial statements arecrucial tools for assessing the financial health and performance of a company. • In this presentation, we will explore the three main financial statements: the balance sheet, income statement, and statement of cash flows. • By understanding these statements, you will gain valuable insights into a company's financial position, profitability, and cash flow management. Let's delve into each financial statement and discover their purpose and significance in evaluating a company's financial health and performance
- 4. What is BalanceSheet? The term balance sheet refers to a financial statement that reports a company's assets, liabilities, and shareholder equity at a specific point in time. Balance sheets provide the basis for computing rates of return for investors and evaluating a company's capital structure. • It provides a snapshot of a company's finances (what it owns and owes) as of the date of publication. Assets Share Holder’s Equity Liabilities 01 Components
- 5. 02 Purpose of BalanceSheet Capital Security Balance sheets are crucial for securing business loans and private equity funding by showcasing financial health and creditworthiness. Financial Analysis Managers can use balance sheet data to calculate financial ratios, providing insights into liquidity, profitability, solvency, and efficiency. Risk Assessment They help evaluate borrowing levels, asset liquidity, and cash reserves, ensuring the company can meet its obligations.
- 6. 03 What are Assets Assetsrepresent what a company possesses and can help determine its financial health and ability to generate cash. Current Assets Non - Current Assets These are items that can be converted into cash within a year or less, such as cash, accounts receivable, inventory, and short-term investments. These are resources that are not easily converted into cash within a year, such as property, plant, and equipment, long-term investments, and intangible assets like patents or trademarks
- 7. 04 What are Liabilities Liabilitiesrepresent the company's financial responsibilities and the amounts it owes to others. They are important for assessing the company's financial obligations and ability to meet its short-term and long-term debts. Current Liabilities Debts that need to be paid within one year or less, including accounts payable, short- term loans, and accrued expenses. Non - Current Liabilities These are obligations that are due beyond one year, such as long-term loans, bonds payable, and deferred tax liabilities.
- 8. 05 What are NetAssets Net Assets also known as Shareholders' equity reflects the shareholders' ownership interest in the company and their potential claims on the company's assets. It represents the residual interest in a company's assets after deducting liabilities. Capital surplus The amount shareholders have invested above the par value of common or preferred stock. Retained earnings Company's profits that are either reinvested in the business or used to pay off debt. Treasury stock Shares that a company has repurchased. They can be sold later to raise cash or kept to prevent a hostile takeover. Preferred stock A separate type of stock issued by some companies. It has a par value that doesn't affect its market value.
- 9. 06 Income Statements The income statement,also called the profit and loss (P&L) statement or the statement of revenue and expense, is a financial statement that highlights a company's revenue, expenses, gains, and losses over a specific period. It offers important information about the company's operations, management efficiency, areas that may not be performing well, and how it compares to other companies in the industry. Components • revenue • expenses • gains • losses.
- 10. 07 Purpose of IncomeStatement Evaluating Business Operations By examining the income statement, stakeholders can gain insights into the efficiency and effectiveness of a company's operations. It helps identify areas that are performing well and those that may need improvement. Facilitating Decision-Making The income statement assists management in making informed decisions about various aspects of the business, such as resource allocation, cost management, pricing strategies, and investment opportunities. Assessing Profitability The income statement helps determine whether a company has generated a profit or incurred a loss during the specified period. It provides insights into the company's ability to generate revenue and control expenses.
- 11. 08 Revenue Revenue is thetotal amount of money a company earns from its primary activities during a specific period. It reflects income generated from selling goods or services. Revenue is a key indicator of financial performance, growth, and sustainability. Operating revenue Operating revenue refers to the income generated from a company's core business activities. It includes revenue earned from selling goods or services directly related to its primary operations. Non - operating revenue Non-operating revenue refers to income generated by a company from activities that are not directly related to its core business operations. It includes revenue earned from sources such as investments etc
- 12. 09 Expenses Expenses are thecosts incurred by a company in its operations, such as salaries, rent, and materials. They are subtracted from revenue to calculate profit. Managing expenses is vital for financial health and profitability. Primary - activity expense These are all expenses incurred for earning the average operating revenue linked to the primary activity of the business. They include; the cost of goods sold (COGS), selling, general, and administrative (SG&A) expenses; depreciation or amortization and research and development (R&D) expenses. Secondary expense activity Secondary-activity expenses refer to costs incurred by a company that are not directly related to its core business operations. Examples of secondary- activity expenses include administrative costs, IT expenses, legal fees, maintenance and repair costs, and other overhead expenses.
- 13. 10 Gains Also called otherincome, gains indicate the net money made from other activities, like the sale of long-term assets. These include the net income realized from one-time non- business activities, such as a company selling its old transportation van, unused land, or a subsidiary company.
- 14. 11 Losses Losses as expensesencompass various types of costs incurred by a company that result in financial losses. These expenses can arise from factors such as the sale of long- term assets at a loss, one-time or unusual costs, or expenses related to legal disputes.
- 15. 12 Statement of Cash Flows Thecash flow statement (CFS), is a financial statement that summarizes the movement of cash and cash equivalents (CCE) that come in and go out of a company. The CFS measures how well a company manages its cash position, meaning how well the company generates cash to pay its debt obligations and fund its operating expenses. Components • Operating activities • investing activities • financing activities
- 16. 13 Purpose of CashFlow Statements Transparency and Accountability The statement of cash flows enhances transparency by providing a detailed breakdown of cash inflows and outflows. It allows stakeholders, including investors and regulatory authorities, to evaluate the company's cash management practices and ensure accountability in financial reporting. Cash Flow Forecasting By analyzing historical cash flows, stakeholders can make projections and forecasts for future cash flows. This helps in financial planning, budgeting, and making strategic decisions. Cash Flow Assessment It helps assess the ability of a company to generate and manage cash. By analyzing cash inflows from operating activities, investing activities, and financing activities, stakeholders can evaluate the cash- generating capacity and liquidity of the company.
- 17. 14 Operating Activities The operatingactivities on the Cash Flow Statements include any sources and uses of cash from business activities. In other words, it reflects how much cash is generated from a company’s products or services. These operating activities might include: • Payments made to suppliers of goods and services used in production • Receipts from sales of goods and services • Salary and wage payments to employees • Interest payments • Income tax payments • Rent payments
- 18. 15 Investing Activities Investing activitiesinclude any sources and uses of cash from a company’s investments. Purchases or sales of assets, loans made to vendors or received from customers, or any payments related to mergers and acquisitions (M&A) are included in this category. In short, changes in equipment, assets, or investments relate to cash from investing.
- 19. 16 Financing Activities Cash fromfinancing activities includes the sources of cash from investors and banks, as well as the way cash is paid to shareholders. This includes any dividends, payments for stock repurchases, and repayment of debt principal (loans) that are made by the company.
- 20. 17 Ways to CalculateCash Flow Direct Method The direct method adds up all of the cash payments and receipts, including cash paid to suppliers, cash receipts from customers, and cash paid out in salaries. This method of CFS is easier for very small businesses that use the cash basis accounting method. Indirect Method Cash flow is calculated by adjusting net income by adding or subtracting differences resulting from non- cash transactions. Non-cash items show up in the changes to a company’s assets and liabilities on the balance sheet from one period to the next.
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