module 11: understanding and analyzing ict firms’ annual reports
DESCRIPTION
Module 11: Understanding and Analyzing ICT Firms’ Annual Reports. Carlo M. Rossotto, MNA Regional Coordinator, Global ICT Department, Policy Division March 11, 2009. Module Outline. Introduction to Accounting Special Issues in Accounting and Technology - PowerPoint PPT PresentationTRANSCRIPT
Module 11: Understanding and Analyzing ICT Firms’ Annual Reports
Carlo M. Rossotto, MNA Regional Coordinator, Global ICT Department, Policy DivisionMarch 11, 2009
2
Module Outline
1.Introduction to Accounting
2.Special Issues in Accounting and Technology
3.Analyzing Annual Reports for Economic
Analysis: Cases
3
Introduction to Accounting
1.Basic Accounting Principles and International Standards
2.Islamic Finance and AAOIFI Standards
3.What is a Balance Sheet
4.What is an Income Statement
5.What is a Cash Flow Statement
6.Financial Ratios
7.Financial Disclosure
4
Introduction to Accounting
Basic Accounting Principles and International Standards
– The International Accounting Standards Board (IASB) is responsible for the development of International Financial and Reporting Standards (IFRS). www.iasb.org
– A large number of countries, including Egypt, adopts IFRS or a modified version of IFRS
– Which countries are adopting IFRS: http://www.iasplus.com/country/useias.htm
– Egypt adopts IFRS for all companies, domestic and foreign
– European Union. Adoption of virtually all IFRS, with a time lag, and certain exceptions
– United States. US SEC registrants are required to use US GAAP and are not permitted to use IFRSs. However, on 14 November 2008, the US SEC published for comment a proposed “Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards” by US Issuers
5
Introduction to Accounting
Islamic Finance and AAOIFI Accounting Standards
–Islamic finance is finance in according with Islamic law and jurisprudence. London, Dubai, Kuala Lumpur emerging as global hubs for Islamic finance and banking
–Islamic finance is a growing phenomenon with over US$500billion of assets (Source: Forbes). Highest growth among all managed assets
–Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) www.aaoifi.com
–London, Dubai, Kuala Lumpur: global hubs for Islamic finance and banking
–Coordination efforts between AAOIFI and IFRS. Professional certifications (example, Islamic Finance Qualification)
6
Introduction to Accounting
What is a Balance Sheet
–Balance sheet summarizes the position or balance of a firm at a certain point in time.
–It is divided in three parts: assets, liabilities and equity
Assets
Current
Long-term
7
Introduction to Accounting
Current Assets
– Cash and cash equivalents– Inventories– Accounts receivable– Prepaid Expenses
Long-term assets
– Property, plant and equipment– Investment Property– Intangible assets– Investment assets
8
Introduction to Accounting
Liabilities
• Accounts payable
• Provisions for warranties or court decisions
• Financial liabilities (excluding provisions and accounts payable), such as promissory notes and corporate bonds
• Liabilities and assets for current tax
• Deferred tax liabilities and deferred tax assets
• Minority interest in equity
• Issued capital and reserves attributable to equity holders of the parent company
• Unearned revenue
9
Introduction to Accounting
Equity
–Share capital–Capital reserves–Revaluation reserve –Translation reserve –Retained earnings
10
Introduction to Accounting
http://www.google.com/finance?fstype=ii&q=GOOG
Example of a balance sheet: Google
11
Introduction to Accounting
Statement that reports revenues and expenses over a certain period of time
What is an income statement
Revenues –
Cost of Revenue = Gross Profit –
- General and Administrative- R&D- Depreciation- Interest expense (revenue)- Unusual expense
Total Revenues – Total Operating Expenses = Operating Income
Operating Income +/- Interest = Income before TaxIncome before tax – tax = Income after taxIncome after tax – extraordinary items = Net income
12
Introduction to Accounting
Earning per share (EPS) =
What is an income statement
EPS
Net income – preferred stock dividend
Weighted average opf common stock outstanding
Basic
Diluted
13
Introduction to Accounting
http://www.google.com/finance?fstype=ii&q=GOOG
Let’s go back to the Google example -Income statement
14
Introduction to Accounting
Statement that shows a company’s flow of cash over a certain period of time (IAS 7)
What is a cash flow statement
Operating activities• receipts from the sale of goods or services • receipts for the sale of loans, debt or equity instruments in a trading portfolio • interest received on loans • dividends received on equity securities • payments to suppliers for goods and services • payments to employees or on behalf of employees • tax payments • interest payments• payments for the sale of loans, debt or equity instruments in a trading portfolio
Items which are added back to [or subtracted from, as appropriate] the net income figure to arrive at cash flows from operations:•Depreciation (loss of tangible asset value over time) •Deferred tax •Amortization (loss of intangible asset value over time) •Any gains or losses associated with the sale of a non-current asset, because associated cash flows do not belong in the operating section.(unrealized gains/losses are also added back from the income statement)
15
Introduction to Accounting
Statement that shows a company’s flow of cash over a certain period of time (IAS 7)
What is a cash flow statement
Investing activities•Purchase of an asset •Assets can be land, building, equipment marketable securities, •Loans made to suppliers or customers
Financing activities•proceeds from issuing shares •proceeds from issuing short-term or long-term debt •payments of dividends •payments for repurchase of company shares •repayment of debt principal, including capital leases •for non-profit organizations, receipts of donor-restricted cash that is limited to long-term purposes •Items under the financing activities section include:•Dividends paid •Sale or repurchase of the company's stock•Net borrowings
16
Introduction to Accounting
http://www.google.com/finance?fstype=ii&q=GOOG
Let’s go back to the Google example -Cash flow
17
Introduction to Accounting
Financial Ratios
Profitability Ratios - Examples
Return on Equity (ROE) =
Net Income
Average Sharehold. Equity
18
Introduction to Accounting
Financial Ratios
Liquidity Ratios - Examples
Current Ratio =
Current Assets
Current Liabilities
19
Introduction to Accounting
Financial Ratios
Activity Ratios - Examples
Asset Turnover =
Total Sales
Total Assets
20
Introduction to Accounting
Financial Ratios
Debt Ratios - Examples
Debt Ratio =
Total Liabilities
Total Assets
21
Introduction to Accounting
Financial Ratios
Market Ratios - Examples
P/E Ratio =
Market Price
Diluted EPS
22
Introduction to Accounting
Financial Disclosure Obligations
Financial Disclosure
• Local securities laws and regulations• Compliance with international accounting standards• Local Stock exchange regulations• Foreign Stock exchange regulations• Statute of the corporation
23
Accounting and Technology
Research and Development- Capitalisation Approach
IFRS and Technology Firms
Revenue RecognitionIFRS requires recognition of revenue on an element of a transaction, if that elements has commercial substance on its own
24
Accounting and Technology
Research and DevelopmentR&D expense is capitalised once technical and commercial feasibility established
IFRS and Technology Firms: Affected Areas
MarketingRecognition of customer incentives
SalesDifferent revenue recognition methods
Taxation, Legal, CommunicationsIFRS as an opportunity to reshape business
25
Accounting and ICT Analysis
How to Use Balance Sheet of Technology Firms for Economic Analysis
CASE I – BRITISH TELECOM, TELEKOM MALAYSIA AND INTERNATIONAL COMMUNICATIONS REVENUES
26
Accounting and ICT Analysis
How to Use Balance Sheet of Technology Firms for Economic Analysis
CASE II – TELECOM EGYPT
27
Accounting and ICT Analysis
How to Use Balance Sheet of Technology Firms for Economic Analysis
CASE III – Mobinil