Accounting
- System of control and registration of expenses and income and other economic operations carried out by a company or entity.
- Accounting is an information system that identifies, measures and communicates economic information to facilitate the management of the company or third parties the diagnosis and decision making.
Annual Accounts
o Balance sheet
It is the representation of the company’s assets at any given time
o Profit and Loss Account (P&L)
It is the summary of the financial situation of a company in a given period in terms of income and expenses
o Memory
It explains the information collected in the other accounts showing the achievement, results and objectives
o Statement of changes in equity
o Cash flows Statement (reports on the origin and use of cash and cash equivalents)
Accounting analysis
- Assets analysis
o Type of file: Balance sheet
o Type of calculations: Working capital
o Objective: Structure of the equity
- Financial analysis
o Type of calculations: Solvency and debt ratios
o Objective: Liquidity and solvency
- Economic analysis
o Type of file: Income Statement
o Type of calculations: Profitability, Ratios
o Objective: Ability to generate surpluses
The Balance Sheet - Assets
Non-current assets
Patents, software, land, building, real estate
Current assets
Raw materials, goods, trade receivables, cash
The Balance Sheet - Liabilities
Own capital
Debt
Equity: Own funds, grants, donations
Non-current liabilities: long period
Current liabilities: short period
Financial analysis
- Liquidity = Current asset / Current liabilities —> short-term solvency
- Solvency = Asset / Liabilities —> general solvency
- Indebtedness = Liabilities (total) / (Equity + Liabilities) —> financial autonomy against indebtedness
The Profit and Loss Account (P&L)
- Result = income – expenses
o Profits: Income > Expenditure
o Loss: Income < Expenditure
Economic Analysis
- Profitability ratios
ROE, ROI
- Working Capital
Return on Equity (ROE)
ROE (Return on Equity) = Net income * 100 / Equity
Financial profitability: Ability of Equity to generate profits
Return on Investment (ROI)
ROI (Return on Investment) = EBIT / (Total assets – current liabilities)
Economic profitability: Ability of the company’s assets to generate returns, regardless of the way in which they have been financed or the cost to the company.
Working Capital
Working Capital = Current assets – Current liabilities
o It is a KPI to check the health of the company
o It is the surplus of the company’s current assets that we have left after meeting our short-term payment commitments
o There must be some correspondence between the liquidity of the asset and the callability of the liability.
o Fixed or non-current assets must be financed with permanent capital and current assets with short-term liabilities.
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