W2: FINM4100 Accounting Analytics

W2: FINM4100
Accounting Analytics for
Decision-Makers
Analysing, interpreting and modelling accounting
data in the real world.
.
FINM4100 Roadmap
Week 1
Introduction
Week 2
Analytics &
Accounting
Week 3
Fintech
Week 4
Regtech 1
Week 5
Regtech 2
Week 6
Presentation
Q&A
Week 7
Economic
Modeling
Week 8
Data Analytics
Workshop 1
Week 9
Data Analytics
Workshop 2
Week 10
Data Analytics
Workshop 3
Week 11
Data Analytics
Workshop 4
Week 12
Presentation
Q&A
Lesson Learning Outcomes

Recap of the previous week…
There are a number of widely used analysis techniques to
extract valuable insights from data.
• Association rule learning
• Classification tree analysis
• Genetic algorithms
• Machine learning
• Regression analysis
• Sentiment analysis
• Social network analysis
The winds of change…
Cindy Alvarez
Author
Principal Design Researcher at Microsoft
“Data isn’t useful without the
product context. Conversely,
having only product context is
not very useful without
objective metrics…”
The Annual Report
Annual reports are intended to give shareholders and other stakeholders
information about the company’s activities and financial performance.
Insights from a company’s annual report:
• Market share, traffic / usage and revenue growth.
• Cost management, operational efficiency and business
rationalisation.
• Strategic direction and management analysis.
• Corporate Social Responsibility (e.g. Climate Change).
The Annual Report
Annual
Income Statement
Balance Sheet
Owner’s Equity
Cash Flow Statement
Reports a company’s financial performance
over a specific accounting period.
Provides a snapshot of what a company
owns and owes, as well as the amount
invested by shareholders.
Reports the changes in the equity section
of the balance sheet during an accounting
period.
Reports the changes in the cash position,
breaking the analysis down to operating,
investing, and financing activities.
Activity 1
Open up the financial statements extracts for Qantas and Virgin.
Q1: What are the top three operating expenses for Virgin in 2012? Is this
consistent with 2011?
Q2: What is Virgin’s biggest asset by book value? What is it’s biggest liability?
Q3: What is the equity position of Qantas in 2012? What proportion of that is
retained earnings?
Q4: What was the change in total equity for Qantas from 2011 to 2012?
Which line item most contributed to this change?
Income Statement
• Revenues represent value of products and services sold by a
company – includes both cash and credit sales
• Expenses range from:
– cost of goods sold
– selling, general and administrative expenses
– asset utilization costs – depreciation and amortization
– Interest expenses
– Income tax expenses
• Profit = Difference between the company’s revenues and
expenses.
Income Statement Analysis
Qantas Financial Statements:
1. What is the income statement and what information does it provide?
2. What is depreciation, amortisation and EBITDA? What is Qantas’ EBITDA
in 2012?
3. What are the two biggest expenses for Qantas in 2012? What is the
company strategy relating to these? (see http://www.couriermail.com.au/ipad/laborattacks-qantas-offshore-jobs/story-fn6ck4a4-1226212746888)
4. How has Qantas’ profit/ loss changed over 2011/ 2012? Do you think this
has impacted their share price?
Balance Sheet
– The balance sheet identifies all the assets and funds (liabilities
and invested amounts) of a company at a point in time.
– A summary of a firm’s financial position shows:
Total Assets = Total liabilities + Shareholders’ Equity
Assets > Liabilities ➔ we have Equity
Assets – Liabilities = Equity
Assets = Liabilities + Equity
Balance Sheet Analysis
• Qantas Financial Statements:
1. What are its biggest current and non current assets in 2012?
What is the difference between current and non-current
assets?
2. What are its biggest current and non-current liabilities in
2012? What is the difference between current and noncurrent liabilities?
3. If in 2013 Qantas’ current assets were 5,500 million, its total
liabilities were 15,000 million and its owners’s equity was
6,000 million, what would be the amount of its non current
assets?
Activity 2
Use the financial statements from Qantas to answer the following True or False
Questions:
1. The primary reason the annual report is important in finance is that it is
used by investors when they form expectations about the firm’s future
earnings and dividends, and the riskiness of those cash flows.
2. The income statement gives figures as at a certain date and the balance
sheet gives figures for the year ended
Multiple Choice
Which of the following items cannot be found on a firm’s balance sheet under
current liabilities?
a. Accounts payable.
b. Short-term notes payable to the bank.
c. Accrued wages.
d. Cost of goods sold.
e. Accrued payroll taxes.
Statement of Equity
• This financial statement connects total equity from the
previous accounting period’s balance sheet with the current
account
– Changes in asset and liability values not
reported in the income statements
– The company’s reported profit or loss
– Transaction with owners, such as the new
shares, share buy-backs and dividend payment
Statement of Cashflows
• Helps to measure cash outflows and cash inflows generated
during any period
– Profit versus cash flows: These two are not the same, because of the
presence of non-cash revenues and expenses.
• Indicates cash flows resulting from: operating activities,
investing activities, and financing activities
• Sum of cash flows measures net cash flows of company
during a given period
Cashflow Analysis
Qantas Financial Statements:
1. What does the cash flow statement tell us and how does it
link with the balance sheet?
2. Why does the ending cash balance differ from net income?
3. Briefly define operating, investing and financing activities
and indicate where the biggest cash inflows and outflows
happened for Qantas in 2012?
4. Calculate the Debt-Equity ratio for QANTAS in 2012.
Explain what this figure means
Operations
What are operating current assets and current liabilities?
• Operating current assets are the CA needed to support
operations.
Please complete in groups:
– Op CA include: _______________________
– Op CA exclude: _______________________
• Operating current liabilities are the CL resulting as a normal
part of operations.
Please complete in groups:
– Op CL include: ______________________
– Op CL exclude: ______________________
Net Operating Working Capital
NOWC measures a company’s operating liquidity by comparing
operating assets to operating liabilities.
= –
Operating
CA
Operating
NOWC CL
Calculation Question:
• What is the NOWC for Qantas in 2011?
In the news…
Consider the following article and answer the below questions
in groups:
• http://business.financialpost.com/2013/10/07/canadian-entrepreneurs-areoverlooking-a-key-management-strategy-cash-flow/
• http://timesofindia.indiatimes.com/business/india-business/India-Incs-creditquality-on-slippery-wicket-Crisil/articleshow/23650332.cms
Discussion Questions:
• Why is managing working capital important for
liquidity?
Net Operating Profit after Taxes
Net operating profit after tax (NOPAT) is a measure of profit
that excludes the costs and tax benefits of debt financing.
NOPAT is earnings before interest and taxes (EBIT) adjusted
for the impact of taxes.
NOPAT = EBIT(1 – Tax rate)
Calculation Question:
• Assuming Qantas has a tax rate of 30%,
what is its NOPAT in 2011?
Economic Value Added (EVA)
• WACC is weighted average cost of capital
• EVA = NOPAT – (WACC)(Total net operating Capital)
2. Calculation Question:
• a) Assuming WACC is 10%, what is the EVA for Qantas in 2011?
• b) What is the EVA for 2012?
1. Theory Question:
• a) What is WACC? (will discuss further in later topics)
• b) What is the EVA?
Market Value Added (MVA)
2
• MVA = market value of firm- book value of firm
=Shares outstanding*stock price- total common equity
2. Calculation Question. Look at:
http://au.finance.yahoo.com/q/ks?s=QAN.AX
• a) What is the MVA for Qantas in 2011?
• b) What is the MVA for 2012?
1. Theory Question:
• a) What is MVA and what is it used for?
Executive Remuneration
Discussion Question :
• How has CEO remuneration changed from 2011 to 2012?
• What is your opinion about this given the MVA and EVA?
Qantas 2012 Annual Report p.44
Ratios Analysis
We will consider the 2012 Annual Reports of both Qantas
and Virgin airlines
1. Ratio Analysis
1. Liquidity ratios
2. Asset management ratios
3. Debt management ratios
4. Profitability ratios
5. Market value ratios
2. DuPont Analysis
Liquidity
Current Ratio
Ability to meet obligations as and when they fall due (near term).

The post W2: FINM4100 Accounting Analytics appeared first on My Assignment Online.