Budgeting & Odr

Budgeting & Odr

Understanding Business Drivers Taking the mystery out of Accounting ... And much more to come . Presented by John Petty, FCPA, FCA Client Director, Pitcher Partners 0417 367 951 [email protected] And Yvette Pietsch, FCA Partner, Taxation & Business Advisory Pitcher Partners (02) 9221 2099 [email protected] P&L Statement Balance Sheet Session outcomes List the three key financial reports Detail what the key financial reports do and do not tell you, limitations and when to use Latest Information reporting trends The Key Financial Reports

The Profit and Loss Statement (P & L) [Statement of Financial Performance] The Balance Sheet (BS) [Statement of Financial Position] The Cash Flow Statement (CFS) [Statement of Cash Flow] Profit and Loss Statement (P & L) Statement of Financial Performance Displays: Profit or Loss for period (one or other) Does not display: Cash flow for period Cash position Funds available for distribution Monthly does not record reality or performance

Profit & Loss Statement Sales xxx Less: Cost Of Goods Sold Opening Stock xx Add: Purchases xx Less: Closing Stock xx xxx = Gross Profit (GP) xxx Less: Business Expenses NET PROFIT before Tax Less: Tax X Profit After Tax xxx xxx yyyy Balance Sheet Statement of Financial Position Displays: Assets and liabilities & net worth Short term and long term indebtedness Does not display: Market value of assets or business as total Intangible assets Off Balance Sheet financing of assets Monthly does not record reality or performance

Balance Sheet Narrative Format Assets Current xxx Non-Current xxx Total Assets xxx Less: Liabilities Current xxx Non-Current xxx Total Liabilities xxx Net Assets XXXX Represented by: Owners Equity: Share Capital xxx Retained Profits XXXX xxx Balance Sheet --- T Account format What the Funds have been invested in Current Assets Cash on Hand Accounts Receivable Stock Prepaid Expenses

Non Current Assets Plant and Equipment Motor Vehicle Goodwill How the Business is financed Current Liabilities Bank Overdraft Accounts Payable Accrued Expenses Non Current Liabilities Loans Proprietorship Share Capital Retained Profits Cash Flow statement Displays: Cash flow from operations generated in period Cash flow from borrowings Cash flow from sale of assets (selling the farm) {HISTORICAL} Does not display: Future cash flow position Cash flow statement Cash Flows from Operating Activities Receipts from customers xxx Payments to suppliers xxx

Income taxes paid xxx xxx Cash Flows from Investing Activities Payments for Property, Plant & Equipment xxx Proceeds from sale of PPE xxx xxx Cash Flows from Financing Activities Proceeds from borrowings xxx Repayments of borrowings xxx xxx Net increase/(decrease) in cash held XXX Cash at beginning of the period XXX Cash at the end of the period XXX RATIO ANALYSIS Profitability Liquidity Efficiency Financial Shareholder value Other non financial PROFITABILITY RATIOS Gross Profit Ratio % Gross Profit Sales X 100

Return on Investment Pre Tax Profit Net Profit Ratio % Owners Equity X 100 Net Profit Sales X 100 Operating Expense Ratio % Expense Item Sales X 100 LIQUIDITY RATIOS Current Ratio Current Assets Current Liabilities Interest Cover Net Profit + Interest Expense Quick Asset Ratio Current Assets - Stock

Interest Expense Current Liabilities - Bank O/Draft Gearing / Debt to Equity Ratio Total Liabilities Owners Equity EFFICIENCY RATIOS Stock Turnover (days) Average Stock x 365 Cost of Sales Days to Collect Debtors Average Debtors x 365 Total Credit Sales Average Days to convert stock to cash Stock Turnover + Days to collect debtors SHAREHOLDER VALUE RATIOS ROSF Ratio EPS Net profit Net profit Shareholder funds Per share NTA Net tangible assets

PE Ratio Share Share selling price Earnings per Share Dividend per share Dividend earned per share OTHER NON FINANCIAL RATIOS Sales per employee Total Sales No of employees R & D Per $ of sales Assets per employee WORKING CAPITAL RATIOS Average stock turnover (days) COGS Average stock Days/debtors ratio Trade debtors Working capital ratio Average Daily sales Current assets Current liabilities

Liquid ratio Quick assets Quick liabilities Value has shifted from Tangible to Intangible Assets Percentage of market value related to Intangible Assets 38% 62% 85% Tangible Assets 62% 1982 38% 1992 15% 2000 Value has shifted from Tangible to Intangible Assets Percentage of market value related to Intangible Assets 85%

The Intellectual Capital Model: Human Capital (the skills & knowledge, culture and loyalty of our people) Structural Capital (patents, processes, databases, networks, recipes, formulas, etc) Tangible Assets 15% 2000 Customer Capital (relationships with customers and suppliers) Strategic Business Management 1 2 3 4 5 6 7 8 9 10 11 12

13 14 15 16 17 18 19 20 21 22 23 STRATEGIC BUDGETING ROLLING FORECASTS BALANCED SCORECARD / CORPORATE METRICS SCORECARD TRIPLE BOTTOM LINE REPORTING AT OR Moving TOWARDS ONE DAY REPORTING REPORT ON A PAGE (ROAP) ENHANCED CAPITAL AND REDUCED OPERATING SPEND FOCUS STRATEGIC REVENUE MANAGEMENT & PRICING TARGET PRICING & TARGET COSTING: Manufacturing to a Price TOTAL LIFE CYCLE COSTING / STEWARDSHIP FULL PRODUCT/SERVICE COSTS TOTAL WORKING CAPITAL MANAGEMENT PROCESS MAPPING / BUSINESS PROCESS REENGINEERING BENCHMARKING Internal and External CUSTOMER PROFITABILITY ANALYSIS ) CUBE MANAGEMENT ) CHANNEL MANAGEMENT ) ACTIVITY BASED COSTING / MANAGEMENT )

NEW TRANSFER PRICING MODELS egPURCHASER - PROVIDER ROLE SERVICE LEVEL AGREEMENTS / EXPENSE REDUCTION ANALYSIS MANAGING & ACCOUNTING FOR QUALITY EVA / SVA / MVA / VBM KNOWLEDGE MANAGEMENT REAL OPTIONS ANALYSIS : STRATEGIC PREDICTIVE ANALYSIS Score: / 23 SLAM DUNK! NEW BUDGET FOCUS/APPROACH: ROLLING FORECASTS 2 1 Jan 4 1 July 30 June 6 X Quarterly Rests The 90 day Deliverables 6 X Quarterly Rests 6 X Quarterly Rests Bye Bye Budgeting The annual budget is dead.

Long live the rolling forecast. Annie Gurton, International Management Magazine ONE DAY REPORTING (ODR) ODR focuses on condensing the monthly management reporting cycle so that it can be completed within one working day with the appropriate reports disseminated to management [UPSTREAM & DOWNSTREAM]. It challenges existing practices that have taken anywhere between a couple of days and a few weeks to one that effectively completes the reporting process within an eight hour timeframe. DAY 50 THE 8 Hour REPORT THE 4 PM REPORT Then days 2 and 3 are used for management action. THE BALANCED SCORECARD Financial Perspective Goals How do we look to our Shareholders? Measures FINANCIAL How do customers see us?

What must we excel at? Internal Business Perspective Goals Measures Customer Perspective Goals INTERNAL BUSINESS PROCESSES Measures CUSTOMER Innovation and Learning Perspective Goals Measures LEARNING & GROWTH Can we continue to improve our create value? SOMETHINGS MISSING: THE MOST VALUABLE ASSET Financial

To succeed financially, how should we appear to our shareholders? Objectives MeasuresLead MeasuresLag Targets Initiatives FINANCIAL Customer To achieve our vision how should we appear to our customers? Objectives MeasuresLead MeasuresLag

Targets INTERNAL BUSINESS PROCESSES Internal Business Process Initiatives Objectives To satisfy shareholders and our customers, what business process must we excel at Vision and Strategy CUSTOMER Objectives MeasuresLead MeasuresLag Targets

Initiatives LEARNING & GROWTH MeasuresLag HRM/People Learning and Growth To achieve our vision, how will we sustain our ability to change and improve? MeasuresLead To satisfy shareholders and our customers, what people skilss and resources must we excel at Objectives

MeasuresLead MeasuresLag Targets Initiatives HRM/ PEOPLE Targets Initiatives TRIPLE BOTTOM LINE REPORTING: Looking for balance Financial To succeed financially, how should we appear to our shareholders? Objectives MeasuresLead MeasuresLag Targets

Initiatives FINANCIAL ENVIRONMENTAL SOCIAL To achieve Objectives MeasuresLead our vision how should we appear to our customers? MeasuresLag Targets Initiatives SOCIAL / COMMUNITY To satisfy Objectives Measuresshareholders Lead and our customers, what people skilss and resources must we excel at

MeasuresLag Targets Initiatives ENVIRONMENTAL TOWARDS THE SEVEN SCORES OF SUCCESS: THE FULL PICTURE Customer Objectives To achieve our vision how should we appear to our customers? M easuresLead MeasuresLag Targets Initiatives CUSTOMER Internal Business Process

Learning and Growth LEARNING & GROWTH To achieve our vision, how will we sustain our ability to change and improve? Objectives M easuresLead M easuresLag Targets Initiatives Financial To succeed financially, how should we appear to our shareholders? Objectives

M easuresLead M easuresLag Targets Initiatives INTERNAL BUSINESS PROCESSES Objectives To satisfy shareholders and our customers, what business process must we excel at FINANCIAL Objectives M easuresLead M easuresLag Targets

MeasuresLag Targets Initiatives ENVIRONM ENTAL SOCIAL To achieve our vision how should w e appear to our customers? M easuresLead To satisfy shareholders and our customers, what people skilss and resources must we excel at Initiatives SOCIAL /

COMMUNITY H R M /P e o p le T o s a tis f y s h a re h o ld e rs and our c u s to m e r s , w h a t p e o p le s k ils s a n d r e s o u rc e s m ust w e e x c e l a t O b je c tiv e s M easu resL ead M e asu resLag T argets HRM/ PEOPLE In itia tiv e s Objectives M easuresL ead M easuresLag

Targets Initiatives ENVIRONMENTAL TOWARDS THE SEVEN SCORES OF SUCCESS: THE FULL PICTURE Customer Objectives To achieve our vision how should we appear to our customers? M easuresLead MeasuresLag Targets Initiatives CUSTOMER Internal Business Process Learning and Growth LEARNING

& GROWTH To achieve our vision, how will we sustain our ability to change and improve? Objectives M easuresLead M easuresLag Targets Initiatives Financial To succeed financially, how should we appear to our shareholders? Objectives M easuresLead M easuresLag

Targets Initiatives INTERNAL BUSINESS PROCESSES Objectives To satisfy shareholders and our customers, what business process must we excel at FINANCIAL Objectives M easuresLead M easuresLag Targets MeasuresLag

Targets Initiatives ENVIRONM ENTAL SOCIAL To achieve our vision how should w e appear to our customers? M easuresLead To satisfy shareholders and our customers, what people skilss and resources must we excel at Initiatives SOCIAL / COMMUNITY H R M /P e o p le

T o s a tis f y s h a re h o ld e rs and our c u s to m e r s , w h a t p e o p le s k ils s a n d r e s o u rc e s m ust w e e x c e l a t O b je c tiv e s M easu resL ead M e asu resLag T argets HRM/ PEOPLE In itia tiv e s Objectives M easuresL ead M easuresLag Targets Initiatives

ENVIRONMENTAL

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