Search results for: 'Profit and Loss Statement'
Accounting as a source of Information for financiers DF2-162-I
The general accounts are a useful tool for the company and are intended as a source of information. This information has to follow a set of rules and principles and must be recorded using the principle of double-entry bookkeeping. The finance department’s guiding principle is to "maximize the long-term economic value for shareholders." To generate economic value in the long term, the returns obtained from management of the assets in the normal course of business must exceed the financial cost of the resources funding them.
This technical note explains how concepts of accounting are particularly useful to obtain certain financial information. It talks about general accounting and its guiding principles, the profit and loss account, the balance sheet, accounting statements, liabilities, equity, assets, accounting records, depreciation, provisions, investment and financing decisions and finally cash flows, weighted average cost of capital and discounted cash flow.Academic Area:Financial Accounting | Finance
What does the financial viewpoint contribute to a bu … DF2-207-I
This technical note (TN) explains in detail the tools that can be used to analyze the financial feasibility and profitability of a business decision. Firstly, the TN emphasizes that managers must understand financial statements and their limitations. The statements do not aim to tell all the "truth" about the business; they aim to offer a reasonably honest approximation to certain aspects of it. Using Valparaiso SL as an example, readers are walked through an analysis of the profit and loss account and the balance sheet. The TN stresses that judging how well a company is managed solely on the basis of the information in the profit and loss account may lead us to form an incorrect view of what is going on in the company. Then the company’s profitability, funds flow and liquidity are analyzed and explained. Next, the cash flow statement is shown and readers learn that there are a number of different formats in which the information shown in the cash flow statement can be presented. The case wraps up by explaining that the criterion to judge whether a company is well-managed consists of analyzing its feasibility (measured in terms of the generation of net liquidity) and its profitability in real or financial terms. In sum, it is necessary to know what information is provided by the company's accounting statements, how this information relates to the business reality and what is or is not important for generating sustainable profitability.Academic Area:Finance
How to analyze the economic feasibility of a busines … DF2-209-I
This technical note takes a look at the feasibility of a joint venture, UTE Construmás, which was set up to build a parking lot. Readers must figure out how much money they need in order for the joint venture to be feasible and what financial resources must be provided over Construmás’s lifetime. In order to do so, the case walks readers through six stages to analyze its economic viability: establishing the time horizon of the forecast, determining the assumptions for the forecast, deriving the forecast profit and loss statement for the company, calculating the balance sheet associated with the forecast profit and loss statement, deducing the forecast cash flow situation, and drawing conclusions. Readers are provided with details and financial information for each stage. After going through the stages, a conclusion is reached about building the parking lot through a join venture and its profitability from an accounting point of view. However, it must also cover a peak liquidity requirement which cannot be solved by increasing turnover.Academic Area:Finance