Finansiniai sprendimai.

Verslo aplinka

Prof. Gerda Žigienė

Financial Management Decisions and its
reflection in financial statements

Investment/Capital budgeting decisions

Balance sheet – left hand side – fixed assets
part
Financing/Capital structure decisions
Balance sheet – right hand side – Share
holders equity and long term liabilities
Economic/Working capital management decisions
Balance sheet – top (sometimes bottom – as
for example in Lithuania) of both sides –
current assets and current liabilities
+
Income statement
 Investment Decisions&The Balance Sheet
ASSETS
CURRENT ASSETS
Cash
Accounts receivable
Inventories
Prepaid expenses
Total current assets

NONCURRENT (Fixed) ASSETS

Financial assets and intangibles Mor
Property, plant, and equipment INVESTMENT DECISIONS
•Gross value e
•Less accumulated depreciation tha
ACTIVITY: provide examples of
Total noncurrent assets
n the
the investment decisions of 1
company
yea
r
 Financing decisions&The Balance Sheet
LIABILITIES AND OWNERS EQUITY

CURRENT LIABILITIES
Short-term debt
•Owned to banks
•Current portion of long-term debt
Accounts payable
Accrued expenses
Total current liabilities
NONCURRENT LIABILITIES (long term debt) Mor
FINANCING/CAPITAL Long-term debt
STRUCTURE DECISIONS Total noncurrent liabilities e
tha
OWNERS (Shareholders) EQUITY
n1
yea
ACTIVITY: provide examples of the financing decisions of the company r
Economic decisions&The Balance Sheet&The Income Statement

ASSETS LIABILITIES AND OWNERS EQUITY

CURRENT ASSETS CURRENT LIABILITIES

Cash Short-term debt
Accounts receivable •Owned to banks
Les
Inventories •Current portion of long-term debt s
Prepaid expenses Accounts payable
Total current assets Accrued expenses
tha
Total current liabilities n1
yea
ECONOMIC/WORKING r
CAPITAL MANAGEMENT
DECISIONS
+
INCOME STATEMENT
Lets start a small business

ACTIVITY: lets make a quick business plan and lets take financial management
decisions. Where in financial statements will they appear?

•Investment/Capital budgeting decisions

Balance sheet – left hand side – fixed assets part
•Financing/Capital structure decisions
Balance sheet – right hand side – Share holders equity and long term
liabilities
•Economic/Working capital management decisions
Balance sheet – top (sometimes bottom – as for example in Lithuania) of both
sides – current assets and current liabilities
+
Income statement
 ECONOMIC DECISIONS

RESULT OF ECONOMIC DECISIONS

INVESTMENT FINANCING RESULT OF RESULT OF

DECISIONS DECISIONS INVESTMENT FINANCING
DECISIONS DECISIONS
A bit about reading the balance:
Signs of unattractive balance sheet

• Current liabilities significantly exceeds current assets. Might be sign of current liquidity risk
(but also might be regular situation – think about the business type where it is not the
problem)
• Weighty amount of inventories in current assets (think about different business types and
amount of inventories regarding industry or business type )
• Significant amount of accounts receivable in current assets. The question: is it the result of
the contract with customers or is it the result of the delay of payment by the customers.
• When liabilities heavy overweighs the shareholders equity. Financial risk.
• Big amount of retained earnings compare to common stock. It increases risk of other
stakeholders that one day retained earnings might be distributed among the shareholders.
Therefore creditors feel safer when retained earnings are transferred to common stock.
• What else would you consider as unattractive in the financial statements?
Business models. Impact on financial
decisions. Who is the customer
 • Mikkel Vestergaard Frandsen
• https://www.youtube.com/watch?v=HoH25TgvEbc
• https://www.youtube.com/watch?v=whSAQnO0ZTM

Who is the
customer?

UN. Financing Solutions for Sustainable Development. Climate crediting mechanisms, like other carbon market
mechanisms, enable entities, for which the cost of reducing emissions is high, to pay low-cost emitters for carbon
credits that they can use towards meeting their emission-reduction obligations, or for voluntary or trading purposes.
These mechanisms-e.g. the Clean Development Mechanism (CDM)-put a price on carbon, helping to internalize the
environmental and social costs of carbon pollution, and permit trading, which lowers the economic cost of reducing
emissions.

• https://www.fastcompany.com/1841273/hotel-uniforms-life-saving-water-filters-evolving-humanitarian-entrepreneurship-model
• http://www.sdfinance.undp.org/content/sdfinance/en/home/solutions/climate-credit-mechanisms.html
• IKEA: what is the customer profile?
https://fourweekmba.com/revenue-models/#Hidden_revenue
Twitter profit/loss statement

Twitter Inc (TWTR US) - Adjusted

In Millions of USD except Per Share FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
12 Months Ending 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018
Revenue 28,278 106,313 316,933 664,890 1.403,002 2.218,032 2.529,619 2.443,299 3.042,359
Gross Profit -14,890 44,510 188,165 398,172 956,693 1.490,448 1.672,793 1.582,435 2.077,105
Operating Income (Loss) -67,479 -127,411 -77,083 -635,831 -538,866 -435,709 -265,912 33,313 449,070
Pretax Income (Loss), Adjusted -67,541 -129,746 -79,170 -647,146 -578,351 -518,978 -339,538 -38,406 422,289
Pretax Income (Loss), GAAP -67,541 -129,746 -79,170 -647,146 -578,351 -533,305 -440,834 -95,418 423,544
Revenue % -238,846 -122,042 -24,980 -97,331 -41,222 -24,044 -17,427 -3,905 13,922
- Income Tax Expense (Benefit) -0,217 -1,444 0,229 -1,823 -0,531 -12,274 16,039 12,645 -782,052
Net Income Avail to Common, Adj -67,324 -164,118 -79,399 -651,227 -585,912 -529,333 -353,235 -67,718 1.207,107
Twitter: 2018 m. pirmą kartą įmonės veikloje deklaruotas pelnas

https://medium.com/business-models-magazine/how-does-twitter-make-money-twitter-business-model-in-a-nutshell-126c0fb57746

https://www.investing.com/equities/twitter-inc-income-statement
 Dynamics. Income statement
• Comparison of income statement when it is on monthly, quarterly, semi-
annual basis: due to accumulative principle you need to calculate
comparable indicators.

31 03 20X9 30 06 20X9 30 09 20X9 31 12 20X9

1 1 1 1
2 2 2 2 Income
3 3 3 3 statement
4 4 4
5 5 5
6 6 6 Semi-
Quarterly Monthly
7 7 annual
8 8
9 9
10
11
12
Other way of common size/vertical income
statement analysis
• 1st option was sales – 100% ???
• 2nd option if you have more detailed
income statement it is possible to
spread before counting composition:

INCOME
STATEMENT

ALL REVENUES ALL EXPENDITURES

SUM – 100% SUM – 100%
Profit ≠Profitability

What is expression of profit and what are expressions of

profitability?

Take your mobile devices and find in business news the means
of expressing profit/profitability

EBIT: financial system, tax system

Which is better? Why? There is no right answer –
argumentation matters

Financially stable Financially

corporation unstable
(good liquidity) corporation (poor
liquidity)

Profitable 1 2
corporation
Non-profitable 3 4
corporation

KAUNO TECHNOLOGIJOS UNIVERSITETAS

• External factors and business decisions
20%-70%*

Random events Global

context/country
Digital disruption

Industry Business models

Politic events innovation
(Brexit)

Company
Global warming
Renevable energu
sources

Me
(management)
US presidental election
(D. Trump) Random excesses

• *What Factors Drive Global Stock Returns? Kewei Hou G. Andrew Karolyi Bong-Chan Kho
• The Review of Financial Studies, Volume 24, Issue 8, 1 August 2011
 • Not only Financials matter

• Hard to swallow. Main reasons of collapse:

• The restaurant business is tough. Every day small independents are closing.
That has been the case for as long as I can remember – and many new
restaurants close in their first year of trading.
• The chain restaurant trade is newly highly competitive – over the last few
years masses of new mid-market restaurants and cafes opened – Byron
Burgers, Five Guys, Leon, Joe and the Juice and many more. The market is
saturated and this is not like internet shopping where the world is your oyster –
restaurants are service businesses that are geographically constrained. People
have to get to them and every table not filled on a night is a loss.
• Mass marketing a premium product is difficult. This is what Oliver said
about the vision he had for his restaurants: “We launched Jamie’s Italian in
2008 with the intention of positively disrupting mid-market dining in the UK
high street, with great value and much higher quality ingredients, best-in-class
animal welfare standards and an amazing team who shared my passion for
great food and service. And we did exactly that.” But these values come with a
price and it isn’t a price everyone can pay and those that can pay, cannot pay
every day. Mass-market restaurant chains are far cheaper to run and have a
much bigger target market – think McDonalds, Burger King, Greggs.
• Brexit. There is no doubt that a long stretch of economic uncertainty and low
wage growth has been a factor in this story – but it cannot just be put down to
that. Successfully running restaurants is hard and running a large number of
them is a good deal harder. Being a brilliant young chef is one thing – running
a business with thousands of employees and a multi-million pound turnover is
quite another.

• https://www.nytimes.com/2019/05/21/business/jamie-oliver-uk-restaurants-bankruptcy-administration.html
• https://www.bbc.com/news/business-48352026
• https://theconversation.com/jamie-oliver-restaurant-closures-did-the-celebrity-chef-bite-off-more-than-he-could-chew-117532
• https://www.boston.com/news/national-news/2019/02/14/chuck-e-cheese-pizza-conspiracy-theory-youtube
• https://fox59.com/2019/02/15/chuck-e-cheese-denies-conspiracy-theory-that-it-serves-customers-recycled-pizza/
• https://gizmodo.com/whats-going-on-with-this-youtube-chuck-e-cheese-conspi-1832611619