DEVELOPMENTS IN FINANCIAL REPORTING -PART 2 [NEW SYLLABUS]

ESG REPORTING [ENVIRONMENTAL, SOCIAL & GOVERNANCE]

Importance

ESG Criteria

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Evolution of ESG Reporting in India

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It is an analytical tool for displaying GG Human Resources related facts, metrics, improve work
performance, recruiting procedures and other important HR operations.
Types of HR Reports
Employee Information reports
Recruitment reports
Performance management
reports
Termination analysis
Equal employment
opportunity reports
Workplace safety reports
HUMAN RESOURCES REPORTING
Provides all information on
employees P employee
number, turnover rates,
diversity, revenue per
employee, employee
satisfaction % etc
Number of candidates
evaluated in a period, rate of
offer declination and reasons
thereof, total number of
interviews, top channels for
candidate sourcing, active job
positing by location ,
departments etc
Performance management
reports appraise an employee
– how each employee is
meeting their objectives
Employee evaluations, number
of hours worked and revenue
etc
List of employees who have
been terminated
Ensure that employees are not
discriminated based on
gender, race or age etc
Includes employee grievance
report, compensation reports
and safety reports
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 VALUE ADDED STATEMENT

Concept of Value Added

It is used to Judge the performance of an enterprise.
It indicates net value or wealth created by manufacturer during a specific period.
It is particularly useful for employing over an approach which will allow more fruitful discussion with
employees.
Financial reporting has traditionally concentrated on needs of shareholders and creditors with a focus
on profit as it to to evaluate success of a business enterprise.
Value-added statement report results of an enterprise in a way that recognise other stakeholders.
It is also known as “National Income Accounting”.
Value Added is included in calculation of GDP.

Value Added Statement

It is a financial statement that shows how much value has been created by an enterprise through
utilisation of its capacity i.e capital, manpower and other resources and how it is then allocated to
different stakeholders such as employees, lenders, shareholders, government et cetera with an
accounting period.

Value added statement has two parts:

i. Creation/generation of Value aAdded
ii. Distribution of Value Added

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Use of Value Added Statement
i. It is useful for external and internal decision making and performance measurement
ii. It is an alternative performance measure to profit
iii. Resource allocation decision may be based on value added
iv. Value-added reporting is useful for explaining company result to employees

Question 1

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Answer

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 ECONOMIC VALUE ADDED & MARKET VALUE ADDED

ECONOMIC VALUE ADDED (EVA)

It is a performance measure developed by Stern Stewart & CO to find true economic profit
generated by a company.

It is also called “economic profit” and provides measurement of a company’s economic success or
failure over a period of time.

EVA = NOPAT – (WACC x Invested Capital)

NOPAT = Net operating profit after tax = EBIT (1-t); t = tax rate

Question 1
B Ltd had met after tax operating profit of Rs.5,00,00 and invested capital of Rs.50 lakhs at an
average cost of 9%. Calculate B Ltd’s Economic profit.

Market Value Added

It is the difference between current total market value of a company and the capital contributed by
investors including both shareholders and the venture holders.

It is typically used for companies that are larger and publicly traded.

MVA is not a performance metric but instead it is a wealth metric measuring the surplus value a
company has generated.

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 QUARTERLY EARNINGS CALL MANAGEMENT

Concept of Earnings Call

An Earnings Call (also known as Earnings Conference Call ) is a conference call typically held in the
form of a teleconference or a webcast during which the management of a company announces and
discuss financial results of the company for a given quarter or a year.

Typical participants are investors, equity analysis and business journalist.

Frequency and timing of Earnings Call

The company may decide the frequency and timing of Earnings Call.
It is not mandatory.

Structure of an Earnings Call

1. Safe Harbour Statement
• A typical earnings call starts with a safe harbour statement made by companies
management.
• The safe harbour statement generally warns the participants that discussion of
financial results may include forward looking statements.
• Thus the estimates based on the forward-looking statements be substantially differ
from the actual results.
2. Presentation and discussion of financial results
• In earnings call, generally a company is represented by C - level executives normally
by CEO and CFO.
• The executives present and discuss the financial result for the given period quarter
or year.
• The managers provide an overview of companies upcoming goals and milestones as
well as discussion how the plans will impact future financial performance of the
company.
3. Question & Answer Session
In the final session, the investors analysis and other participants have an opportunity
to ask management questions regarding the present it financial results of the
representatives of management will answer this questions.

Importance of Earnings Call

Earnings calls or considered one of the key resources for equity analysis and investors.
The information provided during the earnings calls can be incorporated into fundamental analysis of a
company.
In fundamental analysis, analyst can compare the information obtained during the event with
information presented in “management discussion and analysis section of company’s annual report.