TIPS FOR ANALYSING INCOME STATEMENT

FINANCE FOR NON-FINANCIAL MANAGERS

 

Finance for non financial managers

Non-financial managers often feel confused and lost because they do not understand the business language . Many managers, who do not have a financial background experience problems understanding financial aspects of a business problem, or discussing these concepts with financial managers. This is why you should attend: Finance for non-Financial Managers.

 

TIPS FOR UNDERSTANDING AN INCOME STATEMENT

Income statement, is the easiest of the major financial statements. I say easy because it’s just a list of all the revenue, minus all the expenses, to calculate what’s left over in profit.  It is similar to one own personal income statement.

The problem is that the income statement can be easily manipulated by, say, less-than-honest management.. Even totally honest companies can have income statements that don’t represent economic reality. Cash flows define economic reality, revenue and expenses define accounting reality – cash is king.

The difference between your own income statement and a company income statement is that your personal income statement is “cash based”. This is not the case with a company’s income statement.

Some basic tips are presented below in comparing income statements.

1. Create a similar base to compare income statements,

This is an income statement relating everything back to sales using percentages.

In this way you can easily determine costs as a percentage of revenue.

2 Compare movements year-on-year

This will indicate to you whether the company revenues are increasing faster than their cost,

You want to be careful of companies that have the lowest operating profit in their fastest growing segment. This could cause a decline in the company’s overall profitability as sales grow faster than profits. For example, a segment that’s growing 10% a year, but has a 5% margin, will contribute more to total operating profit growth than a segment growing at 50% a year with a 1% margin.

3. Read the Management Discussion and Analysis

Although one might consider this “boring”, it provides essential insight into how the company is interpreting.  It also makes it easier at times to interpret the financial statements as management is effectively analyzing and explaining the more important companies.

4. Notes to income statement

 

These provide key insights and often reveal issues that may not be taken into account in the financial statement. For example the notes may indicate that the company si being sued.

 

5. Look at segmented data

This will tell you which parts of the business are doing well and which are doing badly.

WHAT WILL YOU LEARN?

 

When the course (Finance for non-Financial Managers) is complete, you will learn the following skills:

  • Identify what causes and drives costs;
  • Profitability: the causal relationship between margins, volumes and overheads.
  • Financial health: how to interpret financial reports such as income statements and balance sheets, and recognise what action is required to improve the health of a business.
  • Apply key ratios and performance measures; Cost management: including key cost calculations. • Plan more effectively as to take the financial impact of your decisions into consideration;
  • Gain insight into working capital management;
  • Be aware of growth, cash-flow and profitability considerations;
  • Implement the concept of contribution and marginal costing;
  • Cash flow: forecasting and the key elements of working capital management.
  • Calculate discounted cash-flow and capital costs; and
  • Understand the principles of valuation and value creation from an economic perspective.

MORE INFORMATION – FINANCE FOR NON-FINANCIAL MANAGERS

For more information on this course click on the following link: Finance for non-financial managers or contact Hayley (011 882-8853).

Courses are held in Johannesburg, Durban, Cape Town and all major centres.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Project Management Training Course, Lean Six Sigma Training Course, Presentation Skills Training Course, Business Writing Training Course, Finance for non-finance managers, Excel Training Course