Finance

for
Executives
A gentle but practical introduction to some financial concepts and techniques

By : Nabeel Razzaq (MBA, ACMA)

From : PIA- Taxes and Payroll

August 05, 2021

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 Agenda:
 Key Benefits and Outcomes
 Tools of Financial Management
Defining Accounting and Finance Terms
 Understand Annual Report (Financial Reporting):
• Income statements
• Statement of Changes in Equity
• Balance Sheets
• Cash flow Statement
 Analyzing Financial Data - Financial Analysis Techniques
 Financial Budgeting & Forecasting
 Prepare and Interpret a Cash Budget
 Capital Budgeting
 Capital Structure of a firm
 Weighted Average Cost of Capital (WACC)

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 Benefits & Outcomes:
Breakthrough the language of finance & Communicate more effectively with
accounting and finance peers

Understand the basic accounting model and its limitations & Read and use annual
reports and disclosures

Analyze and interpret financial statements & Interpret a company's profitability,

solvency, and liquidity

Understand the budget process and forecasting techniques

Understand why cash flow is king

Increase your own or firm's wealth through capital budgeting

Professional recognition (Certificate)

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 Understanding Accounting Concepts:
Accounting
Assets
Liabilities
Owner’s Equity
Accounting Equation
Financial Accounting
Working Capital Management
Cost Vs Expense
Flow of Information in accounting system:
Journal Entries
Ledger
Trial Balance
Financial Statements

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 Understanding Accounting Concepts:
Primary Standard Setting Bodies:
US Financial Accounting Standards Board (FASB) - GAAP
UK International Accounting Standards Board (IASB) – IAS / IFRS

Regulatory Bodies:
US - Securities and Exchange Commission (US Sec)
UK - Financial Services Authority (UK FSA)
Pak - Securities and Exchange Commission of Pakistan (SECP)

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 Understanding the ANNUAL REPORT
Audit Report
Unqualified/unmodified opinion
Qualified opinion
Adverse opinion Modified opinion
Disclaimer of opinion

Management’s Discussion and Analysis

Financial Reports and Their Construction

Income Statement
Statement of Changes in Equity
Balance Sheet
Cash flow Statement
Notes to the Financial Statements

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 Understanding the INCOME STATEMENT
Profit and Loss Account / Statement of Operations / Statement of Earnings

Revenue – Expenses = Profit / (Loss)

Fixed Cost Vs Variable Cost

Users:
Investors: Valuation Purpose
Lenders: Debt Servicing Ability
Tax Authorities: To cross verify tax paid and payable of the company

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 Understanding the INCOME STATEMENT
Window Dressing: In Accounting it refers to the manipulation done by the management of the company
intentionally in the financial statements in order to present a more favorable picture of the company in front of the users of
the financial statement before the same is released in the public.

Purpose of Window Dressing in Accounting

• Shareholders and Potential shareholders will be interested in investing in the company if the financial look is good.
• It is useful to seek funds from investors or to obtain any loan.
• The stock price of the company will shoot up if the financial performance is good.
• Tax avoidance
• can be done by showing poor financial results.
• To cover up the poor management decisions taken.
• It improves the liquidity position of the business.
• To show a stable profit and results for the company.
• It is done to reassure the financial stability of the company to money lenders.
• It is done to achieve targeted financial results.
• It is done to showcase a good return on investment.
• To increase the performance bonus to the management team based on the overstated profits.
• To cover up the actual state of business in case

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 Understanding the INCOME STATEMENT
Window Dressing: In Accounting it refers to the manipulation done by the management of the company
intentionally in the financial statements in order to present a more favorable picture of the company in front of the users of
the financial statement before the same is released in the public.

Purpose of Window Dressing in Accounting:

Top Methods of Window Dressing in Accounting:
Cash/Bank: Postponing the payment to suppliers so that at the end of the period, the cash/bank balance will be high.
Selling off the old assets: so that the cash balance will improve and show a better liquidity position, at the same time fixed
assets balance will not differ much since it is an old asset with more accumulated depreciation
Inventories: Changing the valuation of inventories to increase or decrease profits.
Revenue: Companies sell products at a discounted price or gives special offers to boost up the sales at the year-end so that
the financial performance of the company looks better.
Depreciation: Changing the depreciation method from accelerated depreciation to the straight-line depreciation method so
the profits will be improved.
Creation of Provisions: As per the concept of prudence in accounting, it requires recording expenses and liabilities as soon
as possible but revenue only when it is realized or assured. If an excess provision is created, it can reduce the profits and
reduce the corresponding tax payment.
Short Term Borrowing: Short term borrowing is obtained to maintain the liquidity position of the organization
Sale and Leaseback: Selling off the assets before the end of the financial year and uses the money to fund the business and
maintain the liquidity position and leasing it back for a longer term for the business operations.
Expenses: Presenting the capital expenditure as revenue expenditure to understate the profits.

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 Understanding the BALANCE SHEET
Statement of Financial Position / Condition
Liquidity Vs Solvency

Solvency refers to an enterprise's capacity to meet its long-term financial commitments.

Liquidity refers to an enterprise's ability to pay short-term obligations.

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 Understanding the CASH FLOW STATEMENT
Cash flow from operations: Running the business
Cash flow from financing: Capitalizing the business
Cash flow from investing: Building the business

How to use this statement?

explain how a profitable company can go bust

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 Financial Statement Analysis:
Common Size Statement Analysis
Ratio Analysis

Benchmarking:
Time Series Analysis
Cross Sectional Analysis
Standardization

PIA Annual Report 2020

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 Revenue Maximization and Cost Saving:
• Maximize Revenue
• Fuel Expense Saving
• A cost is a sacrifice of resources
• An expense is a cost incurred in the process of generating revenues
• Analysis of the impacts on costs based on the increase or the decrease of
activity levels- sensitivity Analysis.

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 Capital Budgeting Techniques:
Payback period  
Net Present Value
Internal Rate of Return
Profitability Index
Accounting Rate of Return

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 Prepare and Interpret a Cash Budget:

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 Capital Structure of a firm:
Equity
Debt

25%

50% 50%

75%

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 Weighted Average Cost of Capital (WACC):
Before Tax Cost of Debt
After Tax Cost of Debt
Cost of Equity
Cost of Preferred Stock
Cost of Common Stock

Weighted Average Cost of Capital (WACC)

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 Thank You

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