ec7095 financial statement analysis 1 2012-13

7/31/2019 EC7095 Financial Statement Analysis 1 2012-13

1/26

Semester 1 2012/13


2/26

Jim OHare Principal Teaching Fellow

Astley Clarke Room 106

[email protected] Office Hours Thursday 4p.m. 6p.m.
mailto:[email protected]:[email protected]


3/26

Learning Outcomes Functioning of the financial reporting system

Components of financial statements and how they are

related Relevance of information in company financial

statements

Use of financial ratios

How to value a business Ethics and professional standards for financial analysts


4/26

Principles UK GAAP or IAS

Objective of financial statements

Qualitative characteristics Definition, recognition and measurement


5/26

Objective

The objective of financial statements is to

provide information about the financial position,performance and changes in financial position ofan entity that is useful to a wide range of users inmaking economic decisions

IASB Framework


6/26

Underlying assumptionsAccruals basis

Going concern


7/26

Qualitative characteristics Understandability

Relevance Materiality

Reliability Faithful representationSubstance over form

Neutrality

Prudence

Completeness

Comparability- Time

Other entities


8/26

Elements of Financial statements To measure financial position in the balance sheet

Assets

LiabilitiesEquity

To measure financial performance in the incomestatement (profit and loss account)

Income

Expenses


9/26

Assets Resources controlled by an entity as a result of past

events and from which future economic benefits areexpected to flow to the entity

Controlled, not necessarily owned

Future economic benefit = the potential to contributedirectly or indirectly to the flow of cash to the entity


10/26

Liabilities Present obligations of the entity arising from past

events, the settlement of which is expected to result inan outflow from the entity embodying economicbenefits

Obligation = a duty or responsibility to act or performin a certain way

Settlement will involve giving up resources to satisfythe claim of the other party


11/26

Equity The residual interest in the assets of the entity after

deducting all its liabilities

Assets Liabilities = Equity


12/26

Income and expenses Income = increases in economic benefits during an

accounting period in the form of inflows orenhancement of assets or decreases of liabilities thatresult in increases in equity, other than those relatingto contributions from equity participants

Expenses = decreases in economic benefits during anaccounting period in the form of outflows ordepletions of assets or incurrences of liabilities thatresult in decreases in equity, other than those relatingto distributions to equity participants


13/26


14/26

Non-current Assets fixed assets

Tangible - Property, Plant and Equipment

Goodwill Other Intangible Assets

Available-for-sale investments


15/26

Depreciation Is a technique used by accountants to spread the cost

of a fixed asset over its useful life

Not an attempt to reflect value Different company accounting policies will give

different amounts for the same asset!


16/26

Depreciation exampleStraight Linep.a.

Straight line(full year)

Reducingbalance p.a.

Reducingbalance (full

year)

Cost 1.7.10 100,000

31.12.10 Depn 10,000

31.12.11 Depn 20,000

31.12.12 Depn 20,000

Book value at

31.12.12

50,000

Assumes a life of 5 years for the asset and a reducing balancerate of 25%


17/26





year)

Cost 1.7.10 100,000 100,000

31.12.10 Depn 10,000 20,000

31.12.11 Depn 20,000 20,000

31.12.12 Depn 20,000 20,000

Book value at

31.12.12

50,000 40,000



18/26





year)

Cost 1.7.10 100,000 100,000 100,000

31.12.10 Depn 10,000 20,000 12,500

31.12.11 Depn 20,000 20,000 21,875

31.12.12 Depn 20,000 20,000 16,406

Book value at

31.12.12

50,000 40,000 49,219



19/26





year)

Cost 1.7.10 100,000 100,000 100,000 100,000

31.12.10 Depn 10,000 20,000 12,500 25,000

31.12.11 Depn 20,000 20,000 21,875 18,750

31.12.12 Depn 20,000 20,000 16,406 14,063

Book value at

31.12.12

50,000 40,000 49,219 42,187



20/26

Current Assets Inventories (stock)

Trade Receivables (debtors)

Other Current Assets Cash and cash equivalents


21/26

Equity Share Capital

Retained earnings

Other reserves


22/26

Liabilities > 12 months = non current

Borrowings

Trade and other payables (creditors) Tax payable/deferred tax

Provisions

Contingencies


23/26

Next plc Balance Sheet as at 28 January 2012

ASSETS AND LIABILITIESNon-current assets notes 2012 2011

m mProperty, plant & equipment 11 581.9 592.4Intangible assets 12 45.6 46.5Interests in associates 13 6.1 5.1Other investments 14 1.0 1.0

Defined benefit pension surplus 23 35.1 55.7Other financial assets 17 44.6 24.3714.3 725.0

Current assetsInventories 15 371.9 368.3Trade and other receivables 16 699.1 645.6

Other financial assets 17 12.5 4.1Cash and short term deposits 18 56.4 49.3

1,139.9 1,067.3Total assets 1,854.2 1,792.3


24/26

Current liabilitiesBank loans and overdrafts 19 (7.6) (125.2)

Trade and other payables 20 (545.0) (544.6)Other financial liabilities 21 (87.0) (54.7)Current tax liabilities (102.8) (108.4)

(742.4) (832.9)Non-current liabilitiesCorporate bonds 22 (652.1) (471.2)

Provisions 24 (12.0) (13.3)Deferred tax liabilities 8 (15.4) (23.4)Other financial liabilities 21 (4.4) (2.6)Other liabilities 25 (205.2) (216.5)

(889.1) (727.0)Total liabilities (1,631.5) (1,559.9)

Net assets 222.7 232.4


25/26

EQUITYShare capital 26 16.9 18.1Share premium account 0.8 0.8Capital redemption reserve 13.0 11.8ESOT reserve (141.1) (138.6)Fair value reserve 11.5 (3.2)

Foreign currency translation reserve 2.0 4.6Other reserves 27 (1,443.8) (1,443.8)Retained earnings 1,763.4 1,782.6Shareholders equity 222.7 232.3Non-controlling interest _- 0.1Total equity 222.7 232.4

Next plc Income Statement for the year


26/26

Next plc Income Statement for the year

ended 28 January 2012

2012 2011Notes m m

Revenue 3,4 3,441.1 3,297.7Cost of sales (2,395.8) (2,332.6)Gross profit 1,045.3 965.1Distribution costs (245.7) (223.2)

Administrative expenses (201.3) (179.1)Other gains 5 2.0 2.2Trading profit 600.3 565.0Share of results of associates 13 1.5 1.8Operating profit 5 601.8 566.8Finance income 7 6.6 0.9

Finance costs 7 (28.9) (24.3)Profit before taxation 579.5 543.4Taxation 8 (145.3) (150.3)Profit from continuing operations 434.2 393.1Profit from discontinued operations 2 40.6 7.8Profit for the year 474.8 400.9

ec7095 financial statement analysis 1 2012-13

Documents