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Financial Intelligence

Financial Intelligence. Meaning Skill sets Understanding the foundation Understanding the art Understanding analysis Understanding the big picture. Speak the language – Finance is the language of the business, common denominator across the organisation.

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Financial Intelligence

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  1. Financial Intelligence

  2. Meaning Skill sets Understanding the foundation Understanding the art Understanding analysis Understanding the big picture

  3. Speak the language – Finance is the language of the business, common denominator across the organisation. Use the language to be taken seriously and to communicate effectively.

  4. Ask questions Look at financial reports with a questioning eye

  5. Use the information - to improve cash flow - assess the company’s results

  6. Benefits of financial literacy Increased ability to critically evaluate companies Better decision making- ROI / Accounts receivable Can I spend more money since my company is profitable Strength and balance throughout the organisation – HR / Mktg/ IT

  7. Analysis of Financial Statements

  8. Business Analysis Types of Business Analysis Credit Analysis Equity Analysis Business Environment and strategy Analysis Financial Analysis Prospective Analysis Valuation

  9. Roadmap to Financial Analysis Business Analysis Business Environment Analysis – Company’s economic & industry circumstances, SWOT Analysis , industry analysis Business strategy Analysis – Company’s business decisions leading to a competitive advantage , its product mix , cost structure Company profile and significant events Company shareholding pattern

  10. Company Analysis Financial performance Revenues Profitability Asset Utilisation Cash flows Working capital Management Stock performance

  11. Users of financial statements Contents of annual report

  12. Tools for financial analysis • Ratios • Percentage calculations – CAGR / YOY • Indexation of numbers • Comparison with relevant data

  13. Road map for financial analysis of a company Business of the company Shareholding pattern

  14. Profit & Loss Account - Installed capacity & utilisation - Sales - Profitability Analysis - Interest costs - Changes in accounting policies

  15. Balance Sheet - Share capital - Reserves - Tangible net worth - Contingent liabilities - Debt composition - Movement in fixed assets, capital work in progress & investments

  16. Cash flows - Operating cash flows - Investing cash flows

  17. RPAT • ROGNW • ROCE • ROE • Earning per share • Price Dividend per share • NAV per share • OPBDIT • OPBDT • OPBT

  18. Venus Music corner provides is in the business of providing audio CDs to customers. During March the accounts were maintained by a professional accountant On March 31 , the records showed a balance of Rs.21140 in his capital account. Since he could not afford an accountant, he starts maintaining the accounting records himself. He prepared the statements for the month of April 2010 and was shocked to find that his business had not fared well. He wants you to review his statements.

  19. Profit & Loss A/c for the month ended April’10 • ExpensesRevenues • Salaries 5600 Investments by owner in business 3000 • Electricity 410 Unearned service revenue 600 • Advertisement 130 • Rent 300 • Drawings 4000 Loss for the month 6840 • 10440 10440 • Balance Sheet as on April 30 • LiabilitiesAssets • Creditors 2510 Recording equipment 25500 • Service revenue Supplies 2190 • earned 12660 Debtors 1210 • Capital 14300 Cash 570 • 29470 29470

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