Análisis y Consolidación Contable: Objetivos, Usuarios y Límites Financieros, Apuntes de Macroeconomía

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Analysis and Accounting Consolidation

Universidad Complutense de Madrid Facultad de CCEE y EE Departamento de Economía Financiera y Contabilidad II

LESSON 1

INTRODUCTION TO FINANCIAL STATEMENT ANALYSIS

1. Purpose of analysis

Analysing the Financial Statements and other financial information of a company allows you:

1. To give us an idea of the economic and financial situation of the

company in the past and in the present.

2. To estimate the future perspectives of the company.

In consequence:

• All the users of the accouting information can make their

decisions with a higher level of certainty.

• The internal users of the accounting information can improve

the work of the management of the company and will achieve

better results in the future.

Analysing financial statements: purposes

Evolution of the debt-ratio

The object of financial analysis

To adopt the point of view of the COMPANY:

(not of the shareholders or other stakeholders)

Economic unit of production

Final purpose

To achieve added value

(increasing company´s wealth)

How to achieve the added value?

Using two cycles

Real (or fisical) transformation cycle

Financial Cycle

Using raw materiales and other production factors (work, capital), the company achieves the final product, sells it and collects the money for it. This money later is used to make new investments.

each cycle increases the value of the company

AVAILABILITY

(Cash)

AVAILABILITY

(Cash)

FIXING THE ASSETS

(Investments)

SEQUENCE:

Example: highlighter pen

The structure of the company and its production cycle

Economic structure

INVESTMENT

Financial structure

FINANCING

AVAILABILITY

AVAILABILITY

FIXING THE ASSETS

Cash

FINANCIAL SOURCES

PROFITABILITY SOLVENCY

Profitability and Solvency

Economic structure INVESTMENT

Financial structure FINANCING

PROFITABILITY SOLVENCY

Aptitude of the company to achieve positive results (= profits)

Aptitude of the company to pay its debts on time.

EQUILIBRIUM: To be profitable in conditions of solvency

CONTRASTING OBJECTIVES

2. ACCOUNTING INFORMATION

AND ITS LIMITS

Is accounting information representative enough to analyse and

evaluate all the work of the management of a company?

There is a lack of representative of accounting information, due to

some basic reasons that obstruct its representative value, because:

A. The balance is a static source of information. B. Effects of valuation take influence into the results. C. The balance sheet doesn´t inform about different activities. D. The classification of the assets and debts is made by its nature.

But…

Target Groups of the Financial Statements Information

Owners

of the company

Clients Suppliers

Banks/ other Creditors

Public Administrations

(Employees) Workers Managers

Two main groups that use accounting information

INTERNAL Users EXTERNAL Users