Monetary Statement Analysis for Sales and Marketing Executives

Although it is not necessary to be a qualified accountant to design a Strategy for Sales Perfection, a basic understanding of what is involved in monetary analysis is essential for anyone in product sales and marketing. It is too appealing, and often too easy, to use “blue skies” thinking in planning sales and marketing activities. It is also easier to spend money without fully recognizing the return one is getting for this. It is critical that sales and advertising executives be more disciplined and deductive in the way they go about planning, performing and evaluating the sales plus marketing plans and strategy. Amazing introducing more discipline into the procedure is by having a basic understanding of the financial implications of decision making, and how financial measures can be used to monitor plus control marketing operations. The purpose of this text is to provide exactly that will, and the first chapter deals fundamentally with an introduction to the activities involved in financial analysis.

The Income Statement

The particular P&L (profit and loss) declaration otherwise known as the income statement is definitely illustrated below. This is an abbreviated edition as most income statements contain much more detail, for example , expenses are typically detailed based on their individual.

G/L ledger account:

The income statement measures a company’s financial performance more than a specific accounting period. Financial performance is assessed by giving a summary of the way the business incurs its revenues and expenses through both operating plus non-operating activities. It also shows the net profit or loss incurred more than a specific accounting period, typically over a fiscal quarter or year. The income statement is also known as the “profit and loss statement” or “statement of revenue and expense. ”

Sales – These are defined as overall sales (revenues) during the accounting time period. Remember these sales are internet of returns, allowances and discount rates.

Discounts – these are discounts earned by customers for paying their own bills on tie to your business.

Cost of Goods Sold (COGS) : These are all the direct costs which are related to the product or rendered program sold and recorded during the sales period.

Operating expenses – For instance , all other expenses that are not a part of COGS but are related to the operation of the business during the specific accounting period. This account is usually most commonly referred to as “SG&A” (sales common and administrative) and includes expenditures such as sales salaries, payroll taxes, administrative salaries, support salaries, plus insurance. Material handling expenses are commonly warehousing costs, maintenance, administrative office expenses (rent, computers, accounting fees, legal fees). It is also common practice to designate a separation associated with expense allocation for marketing and variable selling (travel and entertainment).

EBITDA – earnings before income tax, depreciation and amortization. This is reported since income from operations.

Other revenues & expenses – These are almost all non-operating expenses such as interest earned on cash or interest compensated on loans.

Income taxes – This account is a provision for taxes for reporting purposes.

The Components associated with Net Income:

Operating income from ongoing operations – This comprises all of revenues net of returns, allowances and discounts, less the cost plus expenses related to the generation of the revenues. The costs deducted from income are typically the COGS and SG&A expenses.

Recurring income before curiosity and taxes from continuing functions – In addition to operating income through continuing operations, this component includes all other income, such as investment earnings from unconsolidated subsidiaries and/or some other investments and gains (or losses) from the sale of assets. To be one of them category, these items must be recurring within nature. This component is generally regarded as the best predictor of future cash flow. However , non-cash expenses such as devaluation and amortization are not assumed to be good indicators of future capital expenditures. Since this component will not take into account the capital structure of the organization (use of debt), it is also used to value similar companies.

Recurring (pre-tax) income from continuing operations — This component takes the company’s economic structure into consideration as it deducts attention expenses.

Pre-tax earnings from continuing operations – Included in this category are usually items that are either unusual or even infrequent in nature but can not be both. Examples are an employee-separation cost, plant shutdown, impairments, write-offs, write-downs, integration expenses, etc .

Net income through continuing operations – This component takes into account the impact of taxes from continuing operations.

Non-Recurring Products:

Discontinued operations, extraordinary items and accounting changes are all reported as separate items in the income declaration. They are all reported net of fees and below the tax series, and are not included in income from continuing operations. In some cases, earlier revenue statements and balance sheets have to be adjusted to reflect changes.

Income (or expense) from discontinued procedures – This component is related to earnings (or expense) generated due to the shutdown of one or more divisions or operations (plants). These events need to be isolated so they do not inflate or deflate the company’s future earning potential. This type of nonrecurring occurrence also has a nonrecurring tax implication and, as a result of the tax implication, should not be included in the tax expense used to calculate net income through continuing operations. That is why this income (or expense) is always reported internet of taxes. The same is true with regard to extraordinary items and cumulative effect of accounting changes (see below).

Outstanding items – This component relates to items that are both unusual and infrequent in nature. That means it is an one time gain or loss that is not anticipated to occur in the future. An example is environment remediation.

The Balance Sheet

The balance sheet provides information on what the company is the owner of (its assets), what it owes (its liabilities) and the value of the business in order to its stockholders (the shareholders’ equity) as of a specific date. It is known as a balance sheet because the two edges balance out. This makes sense: a company has to pay for all the things it has (assets) simply by either borrowing money (liabilities) or getting it from shareholders (shareholders’ equity).

Assets are economic resources that are expected to produce economic benefits for their owner.

Liabilities are obligations the company has to outside parties. Liabilities represent others’ rights to the company’s cash or services. Examples include bank loans, financial obligations to suppliers and debts in order to employees.

Shareholders’ equity is the associated with a business to its owners all things considered of its obligations have been met. This net worth belongs to the owners. Shareholders’ equity generally reflects the amount of capital the owners have invested, in addition any profits generated that were consequently reinvested in the company.

The balance linen must follow the following formula:

Total Resources = Total Liabilities + Shareholders’ Equity

Each of the three segments of the balance sheet will have many balances within it that document the significance of each segment. Accounts such as cash, inventory and property are on the asset side of the balance page, while on the liability side you can find accounts such as accounts payable or even long-term debt. The exact accounts on the balance sheet will differ simply by company and by industry, as there is no one set template that precisely accommodates the differences between varying types of businesses.

Current Assets – These are assets that may be converted into cash, offered or consumed within a year or less. These usually include:

Money – This is what the company has within cash in the bank. Cash is documented at its market value at the reporting date in the respective currency where the financials are prepared. Different cash denominations are converted at the market conversion rate.

Marketable securities (short-term investments) – These can be both collateral and/or debt securities for which a ready market exists. Furthermore, management desires to sell these investments within one year’s time. These short-term assets are reported at their their market value.

Accounts receivable – This represents the money that is owed to the organization for the goods and services it has provided to customers on credit. Every company has customers that will not pay for the items or services the company has provided. Administration must estimate which customers are usually unlikely to pay and create an account known as allowance for doubtful accounts. Variants in this account will impact the particular reported sales on the income statement. Accounts receivable reported on the balance sheet are net of their realizable value (reduced by allowance intended for doubtful accounts).

Notes receivable – This account is similar in nature to accounts receivable but it is usually supported by more formal contracts such as a “promissory notes” (usually the short-term loan that carries interest). Furthermore, the maturity of notes receivable is generally longer than balances receivable but less than a year. Information receivable is reported at the net realizable value (the amount that will be collected).

Inventory – This particular represents raw materials and items that are available for sale or are in the process of getting made ready for sale. These items could be valued individually by several different indicates, including at cost or current market value, and collectively by FIFO (first in, first out), LIFO (last in, first out) or average-cost method. Inventory is highly valued at the lower of the cost or selling price to preclude overstating earnings and assets.

Prepaid expenses – They are payments that have been made for services the company expects to receive in the near future. Typical prepaid expenses include rent, insurance costs and taxes. These expenses are valued at their original (or historical) cost.

Long-Term assets – These are assets that may not be converted into cash, sold or consumed within a year or less. The heading “Long-Term Assets” is usually not displayed on a company’s consolidated balance page. However , all items that are not contained in current assets are considered long-term property. These are:

Investments – These are investments that management does not expect to sell within the year. These investments can include bonds, common stock, long-term notes, investments in tangible fixed assets not currently used in operations (such as land held for speculation) and investments set aside in particular funds, such as sinking funds, pension check funds and plan-expansion funds. These types of long-term investments are reported with their historical cost or their market value on the balance sheet.

Fixed resources – These are durable physical attributes used in operations that have an useful lifestyle longer than one year.
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This includes: Equipment and equipment – This classification represents the total machinery, equipment and furniture used in the company’s operations. These assets are reported at their own historical cost less accumulated depreciation.

Buildings or Plants – These are buildings that the company uses for its procedures. These assets are depreciated and are reported at historical cost less accumulated depreciation.

Land – The land owned by the company on which the company’s buildings or plants are seated on. Land is valued with historical cost and is not depreciable under U. S. GAAP (generally accepted accounting principles).

Other assets – This is a special classification regarding unusual items that cannot be included in among the other asset categories. Examples include deferred charges (long-term prepaid expenses), non-current receivables and advances to subsidiaries.

Intangible assets – These are possessions that lack physical substance but provide economic rights and advantages: patents, franchises, copyrights, goodwill, trademarks and organization costs. These property have a high degree of uncertainty in regard to whether or not future benefits will be realized. They may be reported at historical cost internet of accumulated depreciation.

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