Video 1 - A budget perspective on financial reports

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Budgeting essentials and development

28 classificações

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Fundação Instituto de Administração

Budgeting essentials and development

28 classificações

The Budgeting Essentials and Development course focus on an integrative and practical view of concepts, methods, and techniques to develop a budget. After finishing this course, learners will be able to: - Develop the budget with a broad view of the corporate functions; - Integrate the strategic guidelines into the discussions of budgeting process; - Structure the budget planning and development in a logical sequence - Coordinate the project of budget planning with the different areas of the company - Actively promote assumptions discussions to improve the process of developing the budget - Apply financial concepts to support the budget planning process - Design a budget monitoring and control model to support the performance management - Evaluate the performance of the company by managing the results and the budget In this course, learners will have a deeper understanding of the budgeting process, its challenges, common issues, and approaches to mitigate the problems and improve the learning curve of budget planning. It is integrative by emphasizing the transition between the corporate strategy and the budget. It is practical by following a structured process of going through a framework that illustrates and demonstrates how to analyze, develop and control the budget.

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MODULE 4 - Financial and reporting model

In this module, we will develop an understanding of how to consolidate the reporting model on the budget, through a financial approach with emphasis on a budget perspective. To build this knowledge, we will walk through a conceptual overview and components, visit an overall managerial view of profits and losses, work on the cash budget and forecasting cash-flow concepts and application. We also discuss the accounting reports and the relevance of the financial and non-financial indicators.

Video 1 - A budget perspective on financial reports8:46

Video 2 - Financial statements - Cash is king8:41

Conheça os instrutores

Alberto Sansiviero Jr.
MBA
FIA Futures Studies Program
Samantha Mazzero
MSc, MBA, BS Math
FIA Profuturo – Futures Studies Program
Nelson Yoshida
Ph.D., MBA, B.Eng.
FIA Profuturo – Futures Studies Program
Roberto Dumas Damas
M.Sc., CFA
FIA Profuturo - Futures Studies Program
Fernando Fleury
Ph.D.
FIA Profuturo - Futures Studies Program

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Welcome back, my friends.

Now we're going to discuss a bit about accounting reports.

Do you remember that we spoke in the previous lessons about accounting reports.

It started with a balance sheet, income statement and cash flow.

Just for you to remember, balance sheet, it shows,

like a picture of the company in a certain time.

For example, if you see assets and liabilities,

what's the difference between assets and liabilities?

Asset are considered to be all right and

a company must own or control to conduct its business.

And liabilities,

it's just obligation of the company inquires to also conduct its business.

Why assets should be absolutely equal to liabilities,

that's why it called balance sheet.

In a nutshell, if I'm going to say assets increase,

that means liabilities should increase as well.

If assets decrease, liabilities should decrease as well.

It seems quite simple for us, but

this is quite important, when you gotta discuss about working capital.

For example, if assets increase, we have said that liabilities increase, right?

But take it for instance, for example, if average collection period increased,

that means clients, account clients, will increase.

If assets increase and liabilities increase, what does that mean?

If you give more collection period to your clients, you're going to need cash.

How cash?

You're going to need to increase loans.

You have to increase capital market's instruments

to get cash to finance your asset.

So it's quite important to understand when you're going to discuss

change in working capital.

But for now, we're just going to talk about balance sheet.

I think it's pretty much clear I want to discuss balance sheet.

We have assets, liabilities, assets should be equal to liabilities, always match.

Assets increase, liabilities increase, assets decrease, either, or

the assets should decrease or all the liabilities should increase.

And then you have income statement, income statement

is also part of financial statement, and account of reports of the company.

But it's a little bit different than a balance sheet.

Why? Because financial statement,

what you call income statement is like a movie.

It shows all performance of a company during, for example, a year.

Total sales, cost of a goods sold, gross profit,

administrative expense, operation expense, and

then you have depreciation, operating income, net financial expense.

So we're going to show net profit, margin, operating margin, all this stuff.

What happen during the year?

Which is different from a balance sheet.

A balance sheet just shows the financial position of the company in one day,

mainly, for example, December 31st of that year.

That's a picture of the company, it's different for income statement.

Income statement is like a movie,

it shows what the company did during that period of time.

And then if you move on, you're going to have another financial statement that we

call cash flow statement.

What's cash flow statement?

All of them, all of them, are important, all of them.

Are important because you cannot have income statement.

You cannot have balance sheet without have cash flow statement.

Because obviously if cash is part of your balance sheet,

you need to have a cash flow statement to show how cash behave during that year.

So that's why you have what you say cash flow statement is also a movie about

what happened to your cash position during that year.

How many or how much cash outflow you incurred or

how much cash inflow or outflow.

What's the reason you lost cash, what's the reason you gained cash?

It's due to operating activities or due to higher indebtedness or

due to lower or higher capital expenditure, investment.

So everything impacts all your financial statement and

accounting reports of a company.

Let's move to another part, EBITDA, it's quite important indicator and

a that we call EBITDA, is that a little bit different from operating income.

EBITDA stands for earnings before interest, taxes,

depreciation and amortization.

And then you might ask, why on earth

should I have EBITDA instead of just work with operating income?

If you remember what I said just five seconds ago, earnings before interest,

tax, depreciation, and amortization, it's earnings before interest.

So it's before interest, I just want to see how is operating income,

operating performance of the company.

I don't care how much the company is getting loan from bank.

I don't care yet how much the company's paying for

banks in terms of financial expense.

And then I may say, wow, okay?

Quite understood, but operating income is pretty much the same, yes.

But if you continue, you will say, earnings before interest, taxes.

I don't care what tax bracket might influence the net profit.

I just care about the operating income.

So, we'll go and say again, so let's use the operating income and

then will come exactly the main part.

You deduct depreciation and amortization because,

it depends which company you are analyzing or which company located in certain

countries that have different manners for you to estimate depreciation.

Or it could be a straight line, it could be a sum of digits.

So I don't care the way you do your accounting.

I just want to get the plain vanilla indicator about operating income without

being messed up with how you assume,

how you calculate the persuasion, how you finance yourself.

It just a naked view about your operating income.

That's why we have to deduct interest, taxes, depreciation and amortization.

Once you have EBITDA, that does not mean you have the cash flow.

Do you remember what you say at the beginning, EBITDA is not cash flow,

yes you understand.

Once you have EBITDA for example, you have to deduct change in working capital.

Why you say change in working capital?

Do you remember what it said, assets increase, liability should increase.

In our mind, eventually we'll say, assets higher are good.

Yes, but given the fact that assets should match to liability,

if assets increase liability increased.

So if you give higher tenure to your client,

instead of your client pay in just one day, he will pay 360 days,

o bviously your asset will increase, the account main client.

So what it going to be in terms of a liability?

Likely is going to be loans, so be careful, when we say change in

working capital, it's just to see if you will increase average collection period.

If you'll increase average inventory period or

if you will increase or decrease average supply period.

So we have to check, if change in working capital increase, this is a cash outflow.

Why, for example if your working capital increase,

it means that you're giving more average collection bureau.

So you need cash, you need to get the loans from someone.

That's why asset increase, liability increase.

And let's move on, once you have EBITDA minus

change in working capital, finally, we have what we call operating cash flow.

That's operating cash flow of the company.

Never ever make the confusion that EBITDA is cash flow.

Let's have a break now in the first part of lesson three.

We will get back soon.

[MUSIC]

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