How to use Company Accounts for Collective Bargaining

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How to use Company Accounts for Collective
Bargaining
Bill Taylor CWU ILO Turin August 11/12 2005
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Why look at company accounts?

• Helps us to
• Build a true picture of the company
• Manage our expectations
• Build a realistic case for a pay claim
• Gives greater bargaining strength

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What company accounts tell us

• Help us assess whether a company is
• Profitable
• Being run efficiently
• Likely to grow in the future
• Financially stable

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Reading Annual Accounts

• Directors report
• Directors remuneration
• Ownership
• Subsidiaries
• Auditors Report
• Profit and Loss Account
• Balance Sheet
• Notes to the Accounts

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• Profit and Loss Account

• Shows how a companys profit was reached over a
  given
• Period
• Turnover (Sales)
• Operating costs
• Operating profit
• Pre-tax profit
• Dividend
• Retained profit

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• Balance Sheet

• List of assets and liabilities what the company
  owns and what it owes
• Fixed assets land, buildings, equipment, brand
  names
• Current assets bank balances, stocks and debtors
• Current liabilities debts to be paid within one
  year
• Long term liabilities debts to be paid after one
  year
• Shareholders equity/funds

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Indicators of financial stability

• Size is not everything a large company is not
  always a
• healthy company
• Liquidity current assets greater than current
  debts
• Liquidity test (current assets current
  liabilities)
• Solvency total assets greater than total
  liabilities
• Solvency test (current assets fixed assets)
  all liabilities

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Assessing wealth creation

• Value Added
• Represents net wealth produced by an enterprise
• No statutory requirement to produce value added
  statements
• Value added is calculated by
• Turnover cost of bought-in goods and services
• Cost of bought in goods and services can be
  calculated by
• Operating costs (staff costs depreciation)

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Indicators of efficiency (productivity measures)

• Show how much each employee contributes in
  financial terms
• Useful to track over time
• Turnover (sales) per employee (Turnover/number
  of employees)
• Operating profit per employee (operating
  profit/number of employees)
• Value added per employee (value added/number of
  employees)
• Value added in relation to labour costs (value
  added/wages, salaries and fringe benefits)

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Indicators of profitability

• Profitability is a key determinant of the amount
  by which an
• Employer can afford to increase pay
• The following measures the ratio between turnover
  and
• operating costs. The lower the ratio the better.
• (operating costs depreciation)/ turnover
• The following measures the relationship between
  gross operating
• profit, and wealth created. The higher the ratio
  the better.
• (gross operating profit depreciation)/value
  added

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Indicators of Growth Potential

• Capital expenditure is the major factor in
  determining the
• likelihood of expansion
• Capital expenditure in relation to wealth created
• (Capital expenditure/value added)
• Relative strength of the current commitment to
  capital
• expenditure
• (Capital expenditure/number of employees)
• If both ratios are high, the company has good
  growth prospects

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Summary

• Company accounts important for creating a true
  picture of performance
• Balance sheet, profit and loss, notes to the
  accounts
• Financial Stability
• Efficiency/productivity
• Profitability
• Growth Potential
• Allows us to build a realistic case for a pay
  claim
• Gives greater bargaining strength

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• Questions and discussion