Understanding Business Drivers – Taking the mystery out of Accounting ... And much more to come ….

1. Understanding Business Drivers – Taking the mystery out of Accounting ... And much more to come …. Presented by John Petty, FCPA, FCA Client Director, Pitcher Partners 0417 367 951 john@pettypresentations.com.au And Yvette Pietsch, FCA Partner, Taxation & Business AdvisoryPitcher Partners (02) 9221 2099 ypietsch@pitcher-nsw.com.au

3. P & L Statement Balance Sheet

4. Session outcomes List the three key financial reports Detail what the key financial reports do and do not tell you, limitations and when to use Latest Information reporting trends

5. The Profit and Loss Statement (P & L) [Statement of Financial Performance] The Balance Sheet (BS) [Statement of Financial Position] The Cash Flow Statement (CFS) [Statement of Cash Flow] The Key Financial Reports

6. ‘Statement of Financial Performance’ Displays: Profit or Loss for period (one or other) Does not display: Cash flow for period Cash position Funds available for distribution Monthly does not record reality or performance Profit and Loss Statement (P & L)

7. Sales xxx Less: Cost Of Goods Sold Opening Stock xx Add: Purchases xx Less: Closing Stock xx xxx = Gross Profit (GP) xxx Less: Business Expenses xxx NET PROFIT before Tax xxx Less: Tax X Profit After Tax yyyy Profit & Loss Statement

8. ‘Statement of Financial Position’ Displays: Assets and liabilities & net worth Short term and long term indebtedness Does not display: Market value of assets or business as total Intangible assets Off Balance Sheet financing of assets Monthly does not record reality or performance Balance Sheet

9. Assets Current xxx Non-Current xxx Total Assets xxx Less: Liabilities Current xxx Non-Current xxx Total Liabilities xxx Net Assets XXXX Represented by: Owners Equity: Share Capital xxx Retained Profits xxx XXXX Balance Sheet – Narrative Format

10. What the Funds have been invested in How the Business is financed Current Assets Cash on Hand Accounts Receivable Stock Prepaid Expenses Non Current Assets Plant and Equipment Motor Vehicle Goodwill Current Liabilities Bank Overdraft Accounts Payable Accrued Expenses Non Current Liabilities Loans Proprietorship Share Capital Retained Profits Balance Sheet --- ‘T’ Account format

11. Displays: Cash flow from operations generated in period Cash flow from borrowings Cash flow from sale of assets (selling the farm) {HISTORICAL} Does not display: Future cash flow position Cash Flow statement

12. Cash Flows from Operating Activities Receipts from customers xxx Payments to suppliers xxx Income taxes paid xxx xxx Cash Flows from Investing Activities Payments for Property, Plant & Equipment xxx Proceeds from sale of PPE xxx xxx Cash Flows from Financing Activities Proceeds from borrowings xxx Repayments of borrowings xxx xxx Net increase/(decrease) in cash held XXX Cash at beginning of the period XXX Cash at the end of the period XXX Cash flow statement

13. RATIO ANALYSIS • Profitability • Liquidity • Efficiency • Financial • Shareholder value • Other non financial

14. Gross Profit Ratio % Gross Profit Sales X 100 Net Profit Ratio % Net Profit Sales X 100 Operating Expense Ratio % Expense Item Sales X 100 PROFITABILITY RATIOS Return on Investment Pre Tax Profit Owners Equity X 100

15. Current Ratio • Current Assets • Current Liabilities Quick Asset Ratio Current Assets - Stock Current Liabilities - Bank O/Draft Interest Cover Net Profit + Interest Expense Interest Expense Gearing / Debt to Equity Ratio Total Liabilities Owners Equity LIQUIDITY RATIOS

16. Days to Collect Debtors • Average Debtors x 365 • Total Credit Sales EFFICIENCY RATIOS • Stock Turnover (days) • Average Stock x 365 • Cost of Sales • Average Days to convert stock to cash • Stock Turnover + Days to collect debtors

17. ROSF Ratio • Net profit • Shareholder funds • EPS • Net profit • Per share • NTA • Net tangible assets • Share • PE Ratio • Share selling price • Earnings per Share • Dividend per share • Dividend earned per share SHAREHOLDER VALUE RATIOS

18. Sales per employee • Total Sales • No of employees OTHER NON FINANCIAL RATIOS • R & D Per $ of sales • Assets per employee

19. Days/debtors ratio • Trade debtors • Average Daily sales WORKING CAPITAL RATIOS • Average stock turnover (days) • COGS • Average stock • Working capital ratio • Current assets • Current liabilities • Liquid ratio • Quick assets • Quick liabilities

20. Intangible Assets 38% 62% 85% Tangible Assets 62% 38% 15% 1982 1992 2000 Value has shifted from Tangible to Intangible Assets Percentage of market value related to …

21. Value has shifted from Tangible to Intangible Assets Percentage of market value related to … The Intellectual Capital Model: Human Capital (the skills & knowledge, culture and loyalty of our people) Structural Capital (patents, processes, databases, networks, recipes, formulas, etc) Customer Capital (relationships with customers and suppliers) Intangible Assets 85% Tangible Assets 15% 2000

22. Strategic Business Management • 1 STRATEGIC BUDGETING – ROLLING FORECASTS • 2 BALANCED SCORECARD / CORPORATE METRICS SCORECARD • 3 TRIPLE BOTTOM LINE REPORTING • 4 AT OR Moving TOWARDS ONE DAY REPORTING • 5 REPORT ON A PAGE (ROAP) • 6 ENHANCED CAPITAL AND REDUCED OPERATING SPEND FOCUS • 7 STRATEGIC REVENUE MANAGEMENT & PRICING • TARGET PRICING & TARGET COSTING: Manufacturing to a Price • TOTAL LIFE CYCLE COSTING / STEWARDSHIP • 10 FULL PRODUCT/SERVICE COSTS • TOTAL WORKING CAPITAL MANAGEMENT • 12 PROCESS MAPPING / BUSINESS PROCESS REENGINEERING • 13 BENCHMARKING – Internal and External • CUSTOMER PROFITABILITY ANALYSIS ) • CUBE MANAGEMENT ) • 16 CHANNEL MANAGEMENT ) • ACTIVITY BASED COSTING / MANAGEMENT ) • NEW TRANSFER PRICING MODELS egPURCHASER - PROVIDER ROLE • 19 SERVICE LEVEL AGREEMENTS / EXPENSE REDUCTION ANALYSIS • 20 MANAGING & ACCOUNTING FOR QUALITY • 21 EVA / SVA / MVA / VBM • 22 KNOWLEDGE MANAGEMENT • 23 REAL OPTIONS ANALYSIS : STRATEGIC PREDICTIVE ANALYSIS Score: … / 23 SLAM DUNK!

23. NEW BUDGET FOCUS/APPROACH: ‘ROLLING FORECASTS’ 2 4 1 July 30 June 1 Jan The 90 day Deliverables 6 X Quarterly Rests 6 X Quarterly Rests 6 X Quarterly Rests Bye Bye Budgeting… “The annual budget is dead. Long live the rolling forecast.” Annie Gurton, International Management Magazine

24. ONE DAY REPORTING (ODR) ODR focuses on condensing the monthly management reporting cycle so that it can be completed within one working day with the appropriate reports disseminated to management [UPSTREAM & DOWNSTREAM]. It challenges existing practices that have taken anywhere between a couple of days and a few weeks to one that effectively completes the reporting process within an eight hour timeframe. THE 8 Hour REPORT THE 4 PM REPORT Then days 2 and 3 are used for management action. DAY 50

25. THE BALANCED SCORECARD FINANCIAL INTERNAL BUSINESS PROCESSES CUSTOMER LEARNING & GROWTH

26. SOMETHINGS MISSING: THE MOST VALUABLE ASSET FINANCIAL INTERNAL BUSINESS PROCESSES CUSTOMER LEARNING & GROWTH HRM/ PEOPLE

27. TRIPLE BOTTOM LINE REPORTING: Looking for balance FINANCIAL SOCIAL / COMMUNITY ENVIRON-MENTAL

28. TOWARDS THE SEVEN SCORES OF SUCCESS: THE FULL PICTURE CUSTOMER LEARNING & GROWTH INTERNAL BUSINESS PROCESSES FINANCIAL ENVIRON-MENTAL SOCIAL / COMMUNITY HRM/ PEOPLE

29. TOWARDS THE SEVEN SCORES OF SUCCESS: THE FULL PICTURE CUSTOMER LEARNING & GROWTH INTERNAL BUSINESS PROCESSES FINANCIAL ENVIRON-MENTAL SOCIAL / COMMUNITY HRM/ PEOPLE