Michael Allen
Principal, Corporate Finance

• The Issue of Reports
• Financial Reports
• Contents of Annual Reports
• The Media and Annual Reports
• Management Reports
• Understanding Management Reports
• ASX Rule 3.1 for Listed Companies
• The Balance Sheet
• The Profit & Loss Statement
• The Statement of Cash Flows
• Thinking Like a General Manager
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The type of reports that will cross your desk will vary based on:-
• The type of business you work for: conglomerate vs government department
• The style of CEO you work for e.g. detail person or big-picture person
• The use of email
• The time of year
Supporting your boss requires:-
• Knowing which reports are important and which are not
• Understanding the issues arising from those reports
• Being able to communicate about those issues
Do not assume reports are complete or accurate
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Two main types:-
• Annual Reports o Prepared for shareholders o Have public relations issues
• Management Reports (monthly) o Prepared for internal purposes o Vary hugely o Could include lots of individual reports that inform Management and the
Board on status of the business and legal entities o May have public relations issues – Rule 3.1
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• Chairman’s Report
• CEO’s Report
• Operations Report (the “meat”)
• Director’s Report
• Financial Reports o Balance Sheet o Profit & Loss Statement o Statement of Cash Flows o Statement of Changes in Equity
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Things the media are sensitive to:-
• Profit performance o vs previous half or previous year o vs what was expected
• Audit qualifications o e.g. the company is not a going concern (liquidation pending?) o make sure there is no qualification or understand what the qualification means
• Executive and Board remuneration
• Executive and Board shares or options
• Related party transactions
• Discussions to buy or sell businesses or major strategies
• Strategies/purchases that have not worked
• Forecasts for the future of the business
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Ideally these reports should cover:-
• Budget versus actual profit and loss
• Reforecast of year end result (for ASX listed companies)
• Balance Sheet positions
• Cash position and forecast if an issue
• KPIs of the business
• Have an issue based commentary in words and not just be a pile of figures
• BHP does not need to discuss cash flow problems as it does not have any
• Many businesses do have cash flow issues!
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• Develop relationships with key report producers
• If you don’t understand important points then ask o People don’t mind explaining their output
• Think in terms of an investor
• Understand KPI’s
• If you note what you think is a missing KPI of significance, raise it with your boss.
You might find it becomes their idea very quickly!
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• This rule creates stress points for listed companies
• The rule requires stock exchange announcements for matters which may cause a change in share price
• Profit downgrades or upgrades are typical examples
• The rules are specific about when announcements should be made
• The interplay between the need to announce quickly and get authorised by the
Board is difficult
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10 April 2020
Balance Sheet Example
Current Assets
Cash 300,000
Trade and other receivables 700,000
Inventory
Other
$
300,000
100,000
1,400,000
Current Liabilities
Trade and other payables 1,000,000
Provisions
Interest bearing liabilities
Other
100,000
700,000
100,000
1,900,000
Non Current Assets
Fixed Assets 700,000
Intangible assets (goodwill) 2,000,000
Deferred tax assets 100,000
2,800,000
Non Current Liabilities
Trade and other payables 100,000
Provisions 200,000
Interest bearing liabilities 1,000,000
1,300,000
1,000,000 Net Assets
Equity
Issued Capital
Reserves
Accumulated Profits
Total Equity
400,000
100,000
500,000
1,000,000
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10 April 2020
Profit & Loss Statement Example
Revenues
$
11,000,000
Cost of Goods Sold
Opening inventory
Purchases
Closing inventory
Cost of Goods Sold
Gross Profit
500,000
6,000,000
300,000
6,200,000
4,800,000
Operating Expenses
Administrative expenses
Bank charges
550,000
80,000
Interest expense
Depreciation
Insurance expenses
Legal expenses
Impairments
200,000
25,000
300,000
150,000
10,000
Wages 2,000,000
Research and Development 500,000
Rent
Telephone
Utilities
Total Expenses
500,000
50,000
120,000
4,485,000
Profit before Tax
Taxation (30%)
Net Profit after Tax
315,000
94,500
220,500
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10 April 2020
Statement of Cash Flows Example
$
Cash flows from operating activities
Net Profit after Tax
Adjustments for:
Depreciation and Amortisation
Impairments of PPE, financial assets and intangibles
220,500
25,000
10,000
Changes in assets and liabilities:
Trade and other receivables
Inventories
Trade and other payables
Net cash flow from operating activities
Cash flows from investing activities
Proceeds from sale of investments
Net cash flow from investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Increase (decrease) in debt
Net cash flow from financing activities
Net increase (decrease) in cash and cash equivalents
(200,000)
200,000
140,000
395,500
100,000
100,000
100,000
(300,000)
(200,000)
295,500
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• To think like a General Manager you need to understand the business
•
What is the business model?
• What are the key drivers? e.g. sales level, margins achieved, resource prices, new customers
• What are the key risks affecting business performance?
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•
Learn the Business
•
Identify the Key Reports
• Understand the Key Reports

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