Interpreting and using
financial information
Gert van der Linde, World Bank
Uganda, Kampala
May 21, 2004
Interpreting and using
financial information
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Determining information needs
Sources of information
Importance of standards
Getting the information
Using the information
Closure
Determining information needs
• What information do we want and why?
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Trends in financial performance
Trends in financial position
Trends in cash flow sources and utilization
Audit opinion
Non-financial information – e.g. service delivery
trends
• Strategic direction
Accountability Framework
Organization:
Departments
How much?
Quality?
When?
Cost?
Outcomes
Branches
Cost Centers
Outputs
Programs
=
Budget
Effectiveness
“REAL” Performance
Agreements
Accountable for what is
controlled
Economy
Inputs:
Salaries
Supplies
Efficiency
Capital exp, etc.
Sources of information
• Budgets
• Annual reports
• Annual financial statements
– Statement of financial position (balance sheet)
– Statement of financial performance (income
statement)
– Cash flow statement
– Notes to the annual financial statements
• Strategic plans
RSA – Old “input” focus, no trends
Vote 26 - Transport
Appropriation account for the year ended 31 March 1993
Original
Estimate
Main Divisions
Adjustments
Saving
Vote 25
Estimate
Voted
Expenditure
1992-93 1992-93
1992-93
1992-93
1992-93
1992-93
R'000
R'000
R'000
R'000
R'000
R'000
1 Administration
23 430
154
2 Civil Aviation
122 148
1 264
( 210)
23 374
20 821
11 978 135 390
142 189
(Excess)
2 553
%
11
(6 799) ( 5)
RSA progress: Budget Information
RSA progress: Budget Information
RSA progress: Budget Information
National
Treasury Annual
Report:
Performance
Annual Report
Year-end: 31
March 2002,
Audited by 31
July 2002!
National
Treasury:
Income
Statement
National
Treasury:
Balance
Sheet
Accounting Standards
• Accounting Standards Board
• Participate and use IFAC “IPSAS” to issue accounting
standards
• Unresolved issues, e.g.:
– Budget still on cash basis
– Capitalization of physical assets
– Accrual standard issues
• Non-exchange Revenue
• Social Policy Obligations
• Budget Reporting
• Heritage assets
– GFS/ESA 95 and IPSAS Harmonization
Getting the Information
• Delineated the reporting entity – introduced concept of
“ownership control” into legal framework and requirement
to produce annual consolidated financial statements
• Legal recognition for accounting standards – established
Accounting Standards Board
• Changed the audit cycle to be completed 5 months after y/e
• Introduced requirement for annual reports and established
Minister’s responsibility for tabling of audited financial
information in Parliament
• Established control over the bank account configuration
• Established monthly reconciliation and reporting
procedures, supported by good audit trails
Using the information
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Trends in financial performance
Trends in financial position
Trends in cash flow sources and utilization
Audit opinion
Non-financial information – e.g. service
delivery trends
• Strategic direction
Statement of Financial
Performance
The statement of financial performance shows:
• how much revenue has been earned during the year;
• the costs and expenses associated with earning that
revenue; and
• the net earnings (or loss) - how much the company
earned (or lost).
Key numbers:
• revenue from products and services sold
• expenses, or costs, of doing business
• net earnings / (loss)
To interpret this information, analyze trends in:
• revenue
• gross profit
• operating income (operating profit)
• net earnings (net income, net profit)
• earnings per share
Statement of financial position
The statement of financial position shows a snapshot of:
• what the company owns
• what the company owes
• what belongs to the owners (net worth)
Assets should be equal to liabilities and owners’ equity.
Key numbers:
• assets (what the company owns)
• liabilities (what the company owes)
• owners equity (what belongs to the owners)
To interpret this information, analyze trends in:
• liquidity and levels of debt and inventory, e.g. the current ratio, a
comparison of current assets with current liabilities
• relationship of this statement with the statement of financial
performance, e.g. relationship of accounts receivable with sales;
inventory with the costs of sales
• time to collect money owed by customers
• time to pay debt to suppliers
Statement of cash flow
The statement of cash flow shows:
• how cash is generated
• how cash is utilized
• how surplus cash is managed
Key numbers:
• Net cash provided (or used) by operating activities
• Net cash provided (or used) by investing activities
• Net cash provided (or used) by financing activities
To interpret this information, analyze trends in:
• cash from operating activities to determine how efficiently the
company can produce and sell its primary product or service
• cash flows in relation to earnings figures (from the statement of
financial performance). For example, if positive earnings does not
turn into positive cash flows, the reasons and impact need to be
understood.
Other information
• Audit opinion
• Non-financial information – e.g. service
delivery trends
• Strategic direction
Closure
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Communicate need
Ensure legal framework supports information need
See that the Executive gets the basics right
Enforce sanctions
It costs money to produce – use it.
Questions?