451449 Professional and Business Studies Financial Management Module

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451-449 Professional and Business
StudiesFinancial Management Module

• By
• Dr. Brad Potter
• Tel [phone]
• Email bnpotter_at_unimelb.edu.au

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Session objectives

• At the end of this session you will be able to
• identify the primary role of financial reports
  with respect to meeting the information needs of
  stakeholders
• identify the main components of the financial
  reports produced by a commercial entity
• understand and interpret the key content of
  financial reports to gain insight into the
  strategies adopted by the entity management.

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The Role of Accounting

• Derives from the nature of business
• A collection of people, assets and capital that
  come together to satisfy a common goal.
• The common goal in business is to create value
  for stakeholders.
• A primary role of financial reports is to provide
  information required by these stakeholders.
• To help assessments of the value created.
• Before exploring this role further, we must first
  examine stakeholders and their needs.
• We do this in the following slide.

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Stakeholders and Their Needs

• Stakeholders are individuals, groups and others
  with an interest in an organization who can act
  to protect that interest.
• Stakeholders can take actions that support the
  business and / or take actions that harm the
  business.
• Examples of typical stakeholders are provided on
  the following slide.

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Stakeholders and their needs
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The Role of Accounting

• A primary role of accounting is to assist those
  external to the business (financial accounting)
  to make decisions.
• Published financial reports typically represent
  the primary source of information about a
  business upon which these stakeholders must rely
• To satisfy stakeholder needs, accounting
  information encompasses
• Liquidity
• Profitability
• Efficiency
• Gearing

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Accounting information

• To meet the needs of external stakeholders, the
  following financial reports are prepared
• The Statement of Financial Position
• The Statement of Financial Performance and
• The Statement of Cash Flows.
• We consider these reports in a little more depth
  now..

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Statement of financial performance

• Presents the revenue earned and expenses incurred
  by a business over a period
• Revenues
• Key characteristics
• Expenses
• Key characteristics
• This report is used to assess
• Performance (measured by profit)
• Profitability and efficiency
• Executive performance and remuneration
• Group exercise on classification

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Recognising revenue
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Statement of financial position

• The Statement of Financial Position.
• Presents the assets, liabilities and equity of a
  business at a point in time.
• Assets and liabilities
• Key characteristics
• Assets and liabilities are classified as current
  and non-current.
• This report is used to assess
• Financial position (short long term)
• Liquidity, gearing, profitability, efficiency
• Case exercise Pelican Breweries

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The Statement of Cash Flows.

• Presents the cash receipts and cash payments made
  by a business over a period.
• Cash receipts and payments are classified into
  Operating, Financing and Investing activities
• This report is used to assess
• The change in cash held over the period
• Liquidity

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Financial/Annual report

• Accounting data is provided to external users in
  a companys financial report.
• The financial report (for reporting entities)
  also includes
• Financial statements
• Notes to the accounts
• A directors report
• A directors declaration
• An audit report
• Group exercisewhats your decision?

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Assessing company performance

• The role of statements

Income statement period ending t1
Financial position t0
Financial position t1
Cash flow statement period ending t1
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Financial reports and your bank statement...

• Recall the setup of the balance sheet
• assets, liabilities owners equity
• The accounting equation
• A L OE
• Recording financial transactions and the ledger
  account

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Financial reports and your bank statement...

• Superimpose the ledger account over the
  accounting equation
• A L OE
• This gives us the rules for recording.
• This also explains the entries on your bank
  statement.

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Session 1 recap

• Introduced the primary role of financial reports
  as being to meet the information needs of
  stakeholders
• Explored the main components of the financial
  reports produced by a commercial entity
• Applied the key content of financial reports to
  gain insight into the strategies adopted by the
  entity management and to make important financial
  decisions.
• Next session
• The use of accounting information for management
  decisions