Professional Documents
Culture Documents
Advantages:
Common man cannot understand annual accounting. That’s why this can be easily understood
by common man.
Disadvantages:
• Some times Co.’s exclude one-off Non-Recurring items from EBITDA like,
E.g.
1 – one of impairment.
2 – one of penalties.
3 – gain/loss from changes in F.V of Financial instruments.
-Inconsistencies in calculations.
-Inaccurate calculation of items.
-Lack of transparency.
➔ Some time Co. gives little info about how these ratios are calculated & they don’t give proper
reconciliation with profits.
➔ In APM’s some ratios are new, meaning nobody have a proper knowledge of that ratio, that’s
why it would be difficult to understand.
APM INCLUDES:
• All measures of financial performance not specifically defined by any applicable reporting frame
• All measures of financial performance not specifically defined by any applicable reporting frame
work.
• All measures designed to illustrate the physical performance of entity (E.g. # of units change/ #
of employee change)
• It helps to interpret disclosure.
Example of APM:
i) Net financial debt = (gross financial debt – cash & cash equivalent)
ii) EBITDA
iii) Adjusted net financial debt (this includes effect of derivative liabilities)
Ans.
ADVANTAGES:
- As foreign exchange gain/ loss are volatile. That’s why they should be excluded.
- Also these exchange gain / loss works in a cycle. So in long term they will be reversed. That’s
why they should not be included, so that investors are not confused.
DISADVANTAGES:
- As this APM converted loss before tax of (2)m to profit of 1m. It may be used by ASPIRE
deliberately to improve performance.
- Foreign exchange risk is manageable, it can be minimized through hedging. That means its
controllable.
- It is agreed that exchange gain/ loss follows a cycle & they do reverse in long term. But ASPIRE’s
majority exchange loss is due to short term receivables and in short term losses do not reverse.
That means it is a real loss, which will effect liquidity of Co. & cash. That’s why it must be
included.
ASPIRE reported this APM on the face of Income statement, which is against IAS-1, APM should
not be given prominence like official IAS/ IFRS
From <https://d.docs.live.net/c0ec30fc977b5597/Desktop/ADDITIONAL%20PERFORMANCE%20MANAGEMENT.docx>
Ans.
- Average salary increase by 1.2% is less then inflation rate. It means employees average real
time income is decreased. It may be possible that some of dominant employee could have got
more then 1.2% increase. But information in the scenario is on average basis.
- Revenue/employee increased by 14%, which shows increase in efficiency. But the increase of
revenue is not matched with increase in salary.
Although it may be possible that employees are not responsible for this
Revenue increase, and that revenue increase may be due to other factors like
technological changes OR new contracts. But still the work force may take it negatively.
- Sick days increased by 133% which is inline with the dissatisfaction issue. As employees may be
demotivated now. This high absence rate may be due to poor work environment OR low job
satisfaction. It may be possible that employees are unhappy with decreased salary increment.
- Also employees turn over of cate is higher then industry average. This may be due to
competitors offering better salaries then CATE.
From <https://d.docs.live.net/c0ec30fc977b5597/Desktop/ADDITIONAL%20PERFORMANCE%20MANAGEMENT.docx>
IAS – 1 allows to add line items in SOCI, if that line item, increases the relevance of
financial statements. But it doesn’t mean that Co. reports APM on the face of SOCI.
1- APMs are normally used by internal management for performance evaluation, but it can be
used by external if they would like to find out management’s view about business.
2- APMs are not provided by IASB, that’s why inconsistencies are there in the calculation of APMs.
Player 2 should report the basis on which this APM is reported.
3- APMs are not normally reconciled back to profit but in PLAYER 2’s case, it can be reconciled.
4- APMs are some times used for manipulation. This may be the case here, because unadjusted
EPS is 2 cents & adjusted is 10.5 cents. It does look like PLAYER 2 has tried to uplift its
performance through this APM.
5- APMs are not normally comparable because every company has its own APMs.
6- Some times Companies report APMs on the face of income statement, which is wrong, as it
reduces the importance of official IAS/IFRS numbers. But PLAYER 2 has not reported its APM on
the face of income statement. They have reported it in disclosure notes which is acceptable.
7- PLAYER 2 has excluded amortization from adjusted EPS. One of the reasons of exclusion may be
it is a non cash expenditure and it is calculated on the basis of judgment, which is true. But
amortization is also “must”, according to matching principal, because we have included
revenues related that brand and intangible in our income statement, then why to ignore
expense related to that revenue. Also by ignoring amortization, we simply ignore the cost of
brand, which is a real cash flow.
8- Also PLAYER 2 has excluded restructuring cost on the basis of one – off expenditure. But it
doesn’t look like one – off cost, because it is also present in comparatives. Also because
competition & technological changes now a days demands regular restructuring. That’s why
PLAYER 2 should not exclude restructuring expenditure.
9- PLAYER 2 has excluded impairment of retail stores on the basis, that it is also a one – off
expense & distort comparison. But in reality presence of impairment in financial statements
means that the business is not doing great or well or future cash inflows are low, and this
information is totally relevant for shareholders.
Assumptions:
As the C.V of net assets is less then market capitalization that’s why no impairment.
Inclusion contradicts with whole market’s view. That’s why Co. should include
sensitivity of cash flows used in the calculation of V.I.U. So that shareholders can
understand the risk of this project.
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From <https://d.docs.live.net/c0ec30fc977b5597/Desktop/ADDITIONAL%20PERFORMANCE%20MANAGEMENT.docx>