Monetary Statement Analysis for Sales plus Marketing Executives

Although it is not necessary to be a qualified accountant to design a Strategy for Sales Excellence, a basic understanding of what is involved in financial analysis is essential for anyone in sales and marketing. It is too enticing, and often too easy, to use “blue skies” thinking in planning sales and marketing activities. It is also easier to spend money without fully recognizing the return one is getting for this. It is critical that sales and marketing executives be more disciplined and analytical in the way they go about planning, performing and evaluating the sales and marketing plans and strategy. One way of introducing more discipline into the procedure is by having a basic understanding of the particular financial implications of decision making, and how financial measures can be used to monitor plus control marketing operations.
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The purpose of this particular text is to provide exactly that, and the first chapter deals basically with an introduction to the activities involved in monetary analysis.

The Income Statement

The P&L (profit and loss) declaration otherwise known as the income statement is usually illustrated below. This is an abbreviated edition as most income statements contain much more detail, for example , expenses are typically detailed based on their individual.

G/L ledger account:

The income statement procedures a company’s financial performance over the specific accounting period. Financial functionality is assessed by giving a summary of the way the business incurs its revenues plus expenses through both operating and non-operating activities. It also shows the web profit or loss incurred over the specific accounting period, typically over the fiscal quarter or year. The particular income statement is also known as the “profit and loss statement” or “statement of revenue and expense. inch

Sales – These are defined as overall sales (revenues) during the accounting period. Remember these sales are internet of returns, allowances and discounts.

Discounts – these are discounts earned by customers for paying their bills on tie to your company.

Cost of Goods Sold (COGS) : These are all the direct costs that are related to the product or rendered program sold and recorded during the construction period.

Operating expenses – These include all other expenses that are not a part of COGS but are related to the operation of the business during the specified accounting period. This account is usually most commonly referred to as “SG&A” (sales common and administrative) and includes expenses such as sales salaries, payroll fees, administrative salaries, support salaries, plus insurance. Material handling expenses are generally warehousing costs, maintenance, administrative workplace expenses (rent, computers, accounting charges, legal fees). It is also common exercise to designate a separation associated with expense allocation for marketing and adjustable selling (travel and entertainment).

EBITDA – earnings before income tax, devaluation and amortization. This is reported because income from operations.

Other profits & expenses – These are almost all non-operating expenses such as interest gained on cash or interest compensated on loans.

Income taxes – This account is a provision for income taxes for reporting purposes.

The Components of Net Income:

Operating income from ongoing operations – This comprises most revenues net of returns, allowances and discounts, less the cost and expenses related to the generation of such revenues. The costs deducted from income are typically the COGS and SG&A expenses.

Recurring income before curiosity and taxes from continuing operations – In addition to operating income through continuing operations, this component contains all other income, such as investment earnings from unconsolidated subsidiaries and/or other investments and gains (or losses) from the sale of assets. To be included in this category, these items must be recurring within nature. This component is generally regarded as the best predictor of future revenue. However , non-cash expenses such as depreciation and amortization are not assumed to be good indicators of future capital expenditures. Since this component will not take into account the capital structure of the business (use of debt), it is also used to value similar companies.

Recurring (pre-tax) income from continuing operations — This component takes the company’s economic structure into consideration as it deducts interest expenses.

Pre-tax earnings from continuing operations – Included in this category are usually items that are either unusual or infrequent in nature but cannot be both. Examples are an employee-separation price, plant shutdown, impairments, write-offs, write-downs, integration expenses, etc .

Net income through continuing operations – This element takes into account the impact of taxes from continuing operations.

Non-Recurring Items:

Discontinued operations, extraordinary items plus accounting changes are all reported since separate items in the income statement. They are all reported net of fees and below the tax line, and are not included in income through continuing operations. In some cases, earlier earnings statements and balance sheets have to be adjusted to reflect changes.

Income (or expense) from discontinued operations – This component is related to income (or expense) generated due to the shutdown of one or more divisions or procedures (plants). These events need to be remote so they do not inflate or deflate the company’s future earning potential. This kind of nonrecurring occurrence also has a nonrecurring tax implication and, as a result of the particular tax implication, should not be included in the income tax expense used to calculate net income from continuing operations. That is why this income (or expense) is always reported net of taxes. The same is true with regard to extraordinary items and cumulative a result of accounting changes (see below).

Outstanding items – This component pertains to items that are both unusual and occasional in nature. That means it is an one time gain or loss that is not expected to occur in the future. An example is environment remediation.

The Balance Sheet

The balance page provides information on what the company has (its assets), what it owes (its liabilities) and the value of the business in order to its stockholders (the shareholders’ equity) as of a specific date. It is known as a balance sheet because the two sides balance out. This makes sense: a company needs to pay for all the things it has (assets) simply by either borrowing money (liabilities) or getting it from shareholders (shareholders’ equity).

Assets are economic resources that are expected to produce economic benefits for their owner.

Liabilities are obligations the organization has to outside parties. Liabilities symbolize others’ rights to the company’s cash or services. Examples include bank loans, debts to suppliers and debts in order to employees.

Shareholders’ equity is the value of a business to its owners all things considered of its obligations have been met. This net worth belongs to the owners. Shareholders’ equity generally reflects the amount of funds the owners have invested, plus any profits generated that were eventually reinvested in the company.

The balance page must follow the following formula:

Total Resources = Total Liabilities + Shareholders’ Equity

Each of the three segments from the balance sheet will have many accounts within it that document the value of each segment. Accounts such as cash, inventory and property are on the asset side of the balance linen, while on the liability side you will find accounts such as accounts payable or long-term debt. The exact accounts on a balance sheet will differ simply by company and by industry, as there is absolutely no one set template that precisely accommodates the differences between varying varieties of businesses.

Current Assets – They are assets that may be converted into cash, offered or consumed within a year or less. These usually include:

Money – This is what the company has in cash in the bank. Cash is reported at its market value at the confirming date in the respective currency in which the financials are prepared. Different cash denominations are converted at the market conversion rate.

Marketable securities (short-term investments) – These can be both collateral and/or debt securities for which a ready market exists. Furthermore, management desires to sell these investments within 1 year’s time. These short-term purchases are reported at their market value.

Accounts receivable – This signifies the money that is owed to the organization for the goods and services it has provided in order to customers on credit. Every business has customers that will not pay for the products or services the company has provided. Administration must estimate which customers are usually unlikely to pay and create an account known as allowance for doubtful accounts. Variants in this account will impact the reported sales on the income declaration. Accounts receivable reported on the balance sheet are net of their realizable value (reduced by allowance to get doubtful accounts).

Notes receivable : This account is similar in nature to accounts receivable but it is supported by more formal agreements such as a “promissory notes” (usually a short-term loan that carries interest). Furthermore, the maturity of records receivable is generally longer than balances receivable but less than a year. Information receivable is reported at the net realizable value (the quantity that will be collected).

Inventory – This particular represents raw materials and items that are available for sale or are in the process of becoming made ready for sale. These items could be valued individually by several different indicates, including at cost or market value, and collectively by FIFO (first in, first out), LIFO (last in, first out) or even average-cost method. Inventory is appreciated at the lower of the cost or selling price to preclude overstating earnings and assets.

Prepaid expenses – They are payments that have been made for services that this company expects to receive in the near future. Normal prepaid expenses include rent, insurance premiums and taxes. These expenses are valued at their original (or historical) cost.

Long-Term assets – These are assets that may not be converted into cash, sold or consumed inside a year or less. The proceeding “Long-Term Assets” is usually not displayed on a company’s consolidated balance sheet. However , all items that are not incorporated into current assets are considered long-term assets. These are:

Investments – These are assets that management does not expect to market within the year. These investments can include bonds, common stock, long-term information, investments in tangible fixed possessions not currently used in operations (such as land held for speculation) and investments set aside in special funds, such as sinking funds, pension funds and plan-expansion funds. These types of long-term investments are reported with their historical cost or market value on the balance sheet.

Fixed assets – These are durable physical properties used in operations that have an useful lifestyle longer than one year.

This includes: Machinery and equipment – This category represents the total machinery, equipment plus furniture used in the company’s operations. These assets are reported at their historical cost less accumulated depreciation.

Structures or Plants – These are buildings that the company uses for its functions. These assets are depreciated and therefore are reported at historical cost less gathered depreciation.

Land – The land owned by the company on which you can actually buildings or plants are seated on. Land is valued on historical cost and is not depreciable under U. S. GAAP (generally accepted accounting principles).

Other assets – This is a special classification regarding unusual items that cannot be included in among the other asset categories. Examples include deferred charges (long-term prepaid expenses), non-current receivables and advances to subsidiaries.

Intangible assets – These are property that lack physical substance but provide economic rights and advantages: patents, franchises, copyrights, goodwill, trademarks and organization costs. These possessions have a high degree of uncertainty in regard to regardless of whether future benefits will be realized. These are reported at historical cost internet of accumulated depreciation.

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