Money related Statement Analysis: Understand and Interpret Financial Results for Better Management & Credit Decisions Denver – March 30, 2004 Axiomate, Inc.Slide 2
Introduction and Understanding Specific Interests Eric Edwards – Axiomate, Inc. Jeff Holben – E 2 Business Services, Inc. What Participants Hope to Get from Seminar Axiomate, Inc.Slide 3
Purpose of Class Understand the essentials of monetary presentation Understand where the numbers originate from and what they mean. Prologue to the "craft of bookkeeping" or the goal v. subjective Understand the essentials of money related instruments Understand the nuts and bolts of arrangement assessment Axiomate, Inc.Slide 4
Our Day Walkthrough the Financial Statements Discuss every significant detail: What the number means Source of the number Evidentiary matter behind the number Hard side of number The degree to which the number is OBJECTIVE Soft side of number The degree to which the number is SUBJECTIVE The One Sided Entry For each activity (Dr.) there is an equivalent and inverse response (Cr.) Look at commentaries Walk through the S-1 Turn you lose on the numbers, perhaps Axiomate, Inc.Slide 5
Types of Org. Structures Axiomate, Inc.Slide 6
What Type of Org. Structure Number of Owners/Shareholders Taxes Liability Cost of Operations Financing Axiomate, Inc.Slide 7
Purpose of Financial Statements Used by: Equity Shareholders Banks and Financial Creditors Customers and Suppliers Potential Investors Management and Board Relied upon in picking up solace from danger Axiomate, Inc.Slide 8
Purpose of Financial Statements Equity Shareholders Monitoring Investment & Management Banks and Financial Creditors Analyzing Risk For Credit Decisions Customers and Suppliers Analyzing Risk For Credit Decisions Potential Investors Analyzing Risk for Investment Decision Management and Board Business Management/Oversight Axiomate, Inc.Slide 9
Purpose - Comfort from Risk Credit Risk Investment Risk Management Risk Employment Risk Purchase Risk Axiomate, Inc.Slide 10
Purpose of Financial Statements Offense – Statement preparers Vs Defense – Statement Users (& Auditors) Axiomate, Inc.Slide 11
Example Companies Netflix, Inc. (Less complex) Symbol: NFLX (NASDAQ) Total Revenues of $150 million Rapidly developing, entrepreneurial organization Aspen Technology, Inc. (Complex) Symbol: AZPN (NASDAQ) Total Revenues of $320 million Complex, battling organization Core Financial Statements don\'t recount the entire story Axiomate, Inc.Slide 12
Guest Company - Netflix (Nasdaq: NFLX) is the world\'s biggest online DVD motion picture rental administration offering more than one million individuals access to more than 15,000 titles. Netflix\'s allure and achievement are based on giving the most sweeping choice of DVDs, a simple approach to pick motion pictures and quick, free conveyance. Axiomate, Inc.Slide 13
Elements of A Complete Financial Package Auditors Opinion Balance Sheet Income Statement of Cash Flows Statement of Equity Footnotes Other SEC Disclosures for Public Companies Axiomate, Inc.Slide 14
Types of Statements – Accountant Opinions Audit Statements are a reasonable presentment as per GAAP Review Statements displayed in GAAP, seem reasonable. Arrangement Statements have been composed Axiomate, Inc.Slide 15
Understanding The Auditor\'s Opinion (the Defense?) Only the Opinion Page Belongs to the Auditors (not our business to plan articulations) Our work is adequate to have REASONABLE affirmation explanations are free of MATERIAL error The Statements arranged on predictable premise and Present FAIRLY the budgetary condition Qualified versus.. Inadequate Axiomate, Inc.Slide 16
Auditor\'s Opinion - Unqualified Axiomate, Inc.Slide 17
Auditor\'s Opinion - Qualified Qualification Axiomate, Inc.Slide 18
Auditors – who do they play for? Evaluators were set up as fairly a private segment police power to maintain bookkeeping uprightness. Securities Act of 1933/34 Auditors play out the "Validate" capacity They accept accountability for decency & constancy Yet, examiners are enlisted by and paid for by the Company Audit council (Mgmt Control versus.. Autonomous) Through 2000, counseling expenses were lucrative Axiomate, Inc.Slide 19
Understanding Company\'s Motivates (the Offense) Financial explanations and commentaries have a place with the organization. Administration utilizes monetary explanations to recount a story – the way they need to story to be told. Story might be intended for a particular gathering of people. Consider who the gathering of people may be when perusing articulations Financial explanation presentation is NOT dark & white. Axiomate, Inc.Slide 20
Dissecting The Balance Sheet ASSETS Axiomate, Inc.Slide 21
Fundamentals of Accounting For each charge, there must be an equivalent and relating credit(s) Axiomate, Inc.Slide 22
Liquidity Current Assets Current Liabilities The Balance Sheet Long-Term Liabilities Fixed Assets Equity Section Other Assets Axiomate, Inc.Slide 23
The Balance Sheet – Current Assets Also: A/R & Inv Axiomate, Inc.Slide 24
Dissecting the Balance Sheet – Left Side Thinking – Current Assets Current Assets Axiomate, Inc.Slide 25
Dissecting the Balance Sheet – Left Side Thinking – Current Assets Current Assets Axiomate, Inc.Slide 26
The Balance Sheet – Fixed Assets Axiomate, Inc.Slide 27
Fixed Assets (Aspen Tech) Axiomate, Inc.Slide 28
Dissecting the Balance Sheet – Left Side Thinking – Fixed Assets Axiomate, Inc.Slide 29
Dissecting the Balance Sheet – Left Side Thinking – Fixed Assets Axiomate, Inc.Slide 30
The Balance Sheet – Intangibles/Other Assets Axiomate, Inc.Slide 31
Creating the Intangible (what to do with the charge) Axiomate, Inc.Slide 32
Dissecting the Balance Sheet – Left Side Thinking – Intangibles Axiomate, Inc.Slide 33
Dissecting the Balance Sheet – Left Side Thinking – Intangibles Axiomate, Inc.Slide 34
Dissecting the Balance Sheet – Left Side Thinking – Other Assets Deposits Long-term receivables Deferred Tax benefits Long-term prepaids Axiomate, Inc.Slide 35
Dissecting The Balance Sheet LIABILITIES Axiomate, Inc.Slide 36
Netflix – Current Liabilities Axiomate, Inc.Slide 37
Dissecting the Balance Sheet Right Side Thinking Current Liabilities Axiomate, Inc.Slide 38
Dissecting the Balance Sheet Right Side Thinking Current Liabilities Axiomate, Inc.Slide 39
Netflix – Long Term Liabilities Axiomate, Inc.Slide 40
Dissecting the Balance Sheet – Right Side Thinking Long-Term Liabilities Axiomate, Inc.Slide 41
Dissecting the Balance Sheet – Right Side Thinking Long-Term Liabilities Axiomate, Inc.Slide 42
Dissecting The Balance Sheet EQUITY/NET WORTH Axiomate, Inc.Slide 43
Netflix – Equity Axiomate, Inc.Slide 44
Dissecting the Balance Sheet Right Side Thinking Equity Axiomate, Inc.Slide 45
Dissecting the Balance Sheet Right Side Thinking Equity Watch stock for … .. Axiomate, Inc.Slide 46
Complex Equity (Aspen Tech) Axiomate, Inc.Slide 47
Dissecting the Balance Sheet – Important Metrics Axiomate, Inc.Slide 48
Dissecting the Balance Sheet – Other Good Metrics Inventory Turnover: Cost of Goods/Inventory turnover days: 365/Inventory Turnover A/R Turnover Sales/Accounts Receivable A/R turnover days: 365/AR Turnover Cash Cycle Add Inventory and A/R days Number of days from item to money Axiomate, Inc.Slide 49
Dissecting The Income Statement Axiomate, Inc.Slide 50
Income Statement – Revenue – Growth Axiomate, Inc.Slide 51
Income Statement – Revenue - Transition Growth No Growth Axiomate, Inc.Slide 52
Dissecting the Income Statement - Revenue Types of Revenues Goods Sold (Sales) Fees Subscriptions Rents Software Licenses Maintenance Gross versus.. Net Project Revenues/Progress Billing When to Recognize/Record Axiomate, Inc.Slide 53
Income Statement – Revenue – Growth Axiomate, Inc.Slide 54
Dissecting the Income Statement – Cost of Goods Axiomate, Inc.Slide 55
Dissecting the Income Statement – Cost of Goods Direct Cost of Revenue Cost of Sales versus.. Working Expenses Should Cost of Sales all be variable? Designation of Fixed Expenses to offices/classes Axiomate, Inc.Slide 56
Aspen Tech – Operating Expenses Axiomate, Inc.Slide 57
Dissecting the Income Statement – Operating Expenses Types of Expenses – Allocation Discretion Sales and Marketing Advertising, Sales pay rates/commissions, T&E Research & Development Salaries General & Administrative Rent, Supplies, Utilities Other Operating Expenses/Non-repeating/Special Cash versus.. Non-Cash Capitalized Expenses/Amortization Axiomate, Inc.Slide 58
Operating cost – another methodology Axiomate, Inc.Slide 59
Dissecting the Income Statement – Below the Line Interest & Investment Income/(Expense) Extraordinary Items Minority Interest New Reconciliations Axiomate, Inc.Slide 60
Dissecting the Income Statement – Important Metrics & Terms Gross Margin/Contribution Margin Operating Margin/Return of Sales Industry Specific Measures Sales & Marketing/Revenues R&D/Revenues G&A/Revenues EBITDA Axiomate, Inc.Slide 61
Aspen Tech Comparative Income Statement Axiomate, Inc.Slide 62
Aspen Tech Income Statement Trend Analysis Axiomate, Inc.Slide 63
Taking a Bath What organizations/CFO\'s will do in terrible years Positioning to oversee income in great years Sometimes, they will "benefit" from the bathwater Many cleaned up in 2001/02 Axiomate, Inc.Slide 64
Dissecting The Statement of Cash Flows Axiomate, Inc.Slide 65
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