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Pre-read Module 1 Basic Concepts in Finance
Objectives of this module
Introduce basic financial concepts & terminology with a focus on financial reporting
Explain difference between regulatory reporting & management reporting
Explain the main components of each financial statement
Explain how the financial statements interact Explain the typical cash cycle of a company
13/04/2023 2
There are 2 types of financial reporting
1. Project profitability
2. Product line profitability
3. Customer profitability
4. Business Unit P&L
13/04/2023 3
For an external audiencePrepared in collaboration with
accountant
For an internal audienceFull freedom in what you do &
how you do it
RegulatoryReporting
1. Income Statement or Profit & Loss (P&L)
2. Balance Sheet
3. Cash flow statement
ManagementReporting
There are 2 types of financial reporting
1. Project profitability
2. Product line profitability
3. Customer profitability
4. Business Unit P&L
13/04/2023 4
RegulatoryReporting
1. Income Statement or Profit & Loss (P&L)
2. Balance Sheet
3. Cash flow statement
ManagementReporting
External audiencePrepared in collaboration with
accountant
Internal audienceFull freedom in what you do &
how you do it
3 parts in the regulatory reporting
13/04/2023 5
Balance SheetP&L or Income
StatementCash Flow Statement
Shows what the business owns, what it owes to lenders & creditors, and other obligations or claims on the assets at a selected point in time
Shows whether a company made or lost money during the period being reported
Shows where the cash that the company used came from and where the cash that the company generated went to during the period being reported
Indication of the overall financial stability of the
company
Indication of the profitability of the
company
Indication of the ability to pay the bills
3 parts in the regulatory reporting
13/04/2023 6
Balance SheetP&L or Income
StatementCash Flow Statement
Shows what the business owns, what it owes to lenders & creditors, and other obligations or claims on the assets at a selected point in time
Shows whether a company made or lost money during the period being reported
Shows where the cash that the company used came from and where the cash that the company generated went to during the period being reported
Indication of the overall financial stability of the
company
Indication of the profitability of the
company
Indication of the ability to pay the bills
Balance sheet shows the current status of what the company owns and owes
13/04/2023 7
2012 (In ‘000)
Assets Liabilities
Cash & equivalents $972,309 Current liabilities $415,379
Short term investments $479,141 Deferred tax $27,717
Property, Plant & Equipment (Net) $186,677 Long Term Liabilities $30,810
Working Capital $603,418 Equity $908,424
$1,382,330 $1,382,330
Example: Linkedin
Everything the company OWNS
Everything the company OWES
Owed to sharehold
ers
Balance Sheet- A simple example from personal life
13/04/2023 8
Assets (All Your Stuff) €220,000
Cash savings €6,000
Flat €200,000
Car €10,000
Piano €4,000
Liabilities €220,000
Mortgage flat €120,000
Loan (not a gift) from my parents €10,000
Equity €90,000
Gift from parents ends up here
Example: Linkedin buys a $100K-building with cash
13/04/2023 9
2012 (In ‘000)
Assets Liabilities
Cash & equivalents $972,309 Current liabilities $415,379
Short term investments $479,141 Deferred tax $27,717
Property, Plant & Equipment (Net) $186,677 Long Term Liabilities $30,810
Working Capital $603,418 Equity $908,424
$1,382,330 $1,382,330
Example: Linkedin
-100K
+100K
=
Example: Linkedin buys a $100K-building with a loan
13/04/2023 10
2012 (In ‘000)
Assets Liabilities
Cash & equivalents $972,309 Current liabilities $415,379
Short term investments $479,141 Deferred tax $27,717
Property, Plant & Equipment (Net) $186,677 Long Term Liabilities $30,810
Working Capital $603,418 Equity $908,424
$1,382,330 $1,382,330
Example: Linkedin
+100K +100K
+100K +100K
Example: Linkedin gives $100K dividend to shareholders from cash
13/04/2023 11
2012 (In ‘000)
Assets Liabilities
Cash & equivalents $972,309 Current liabilities $415,379
Short term investments $479,141 Deferred tax $27,717
Property, Plant & Equipment (Net) $186,677 Long Term Liabilities $30,810
Working Capital $603,418 Equity $908,424
$1,382,330 $1,382,330
Example: Linkedin
-100K
-100K
-100K -100K