School of Social Science Master in Business Administration Postgraduate Dissertation Financial analysis of Municipalities The Case of the Municipality of Dion-Olympos Voulgaris Athanasios Supervisor: Dr. Nikolaos Tsangarakis Patras, Greece, July 2020 Theses / Dissertations remain the intellectual property of students (“authors/creators”), but in the context of open access policy they grant to the HOU a non-exclusive license to use the right of reproduction, customisation, public lending, presentation to an audience and digital dissemination thereof internationally, in electronic form and by any means for teaching and research purposes, for no fee and throughout the duration of intellectual property rights. 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Financial analysis of Municipalities The Case of the Municipality of Dion-Olympos Voulgaris Athanasios Supervising Committee Supervisor: Co-Supervisor: Dr.Nikolaos Tsangarakis Dr.Timotheos Angelidis Professor Hellenic Open University Αssistant Proffessor Hellenic Open University Patras, Greece, July 2020 Voulgaris Athanasios: Financial Analysis of Municipalities The Case of the Municipality of Dion-Olympos Acknowledgments Special thanks to my supervisor Mr. Nikolaos Tsangarakis for the guidance and insights he provided me with, during the preparation of my dissertation. I would like also to thank my wife Athina and my family and my friends providing me with unfailing support and continuous encouragement throughout my years of MBA Studies. iv Voulgaris Athanasios: Financial Analysis of Municipalities The Case of the Municipality of Dion-Olympos Abstract The financial analysis of the economic statements of the Local Government Organisation (O.T.A) plays a key role for the Municipal Council, in order to make financial decisions, regarding policy making for economics and also evaluating economic performance. In this dissertation we are going to refer to the financial analysis of the budget and the financial statements of the Municipality of Dion-Olympus, for the time period from 2016 to 2018, using financial ratios. The first part is about a theoretical depiction of the financial analysis, its value and purpose, as well as a brief reference to the regulation regarding the financial operation of Local Governments in Greece. The second part, through a case study, introduces firstly the financial statements of the Municipality of Dion-Olympus for the time period of 2016-2018, while, secondly, the financial ratios of the budget and the statements are being analyzed. Last but not least, at the end of the report, a comparative analysis of the ratios per citizen is presented, which were calculated in the previous module, using equivalent financial ratios per citizen, regarding other Municipalities of Pieria's Region, specifically the Municipality of Katerini and the Municipality of Pydna-Kolindros. Keywords Local Government Organisations, Financial Statement Analysis, Municipality of Dion-Olympos, Financial Ratios, Ratios per Citizen v Voulgaris Athanasios: Financial Analysis of Municipalities The Case of the Municipality of Dion-Olympos Xρηματοοικονομική Ανάλυση Δήμων “Η περίπτωση του Δήμου Δίου-Ολύμπου” Βούλγαρης Αθανάσιος Περίληψη Η χρηματοοικονομική ανάλυση των οικονομικών καταστάσεων των Οργανισμών Τοπικής Αυτοδιοίκησης (Ο.Τ.Α), αποτελεί ένα σημαντικό εργαλείο για την λήψη οικονομικών αποφάσεων από το Δημοτικό Συμβούλιο κατά το στάδιο χάραξη της οικονομικής πολιτικής και αξιολόγησης των οικονομικών επιδόσεων τους. Στην παρούσα εργασία παρουσιάζεται η οικονομική ανάλυση των στοιχείων του προϋπολογισμού του απολογισμού και των οικονομικών καταστάσεων του Δήμου Δίου- Ολύμπου για την περίοδο από το 2016 έως 2016 με τη βοήθεια αριθμοδεικτών. Στο πρώτο μέρος επιχειρείται μια θεωρητική αποτύπωση του περιεχομένου της χρηματοοικονομικής ανάλυσης, της αξίας και του σκοπού της καθώς και μια μικρή αναφορά στο πλαίσιο που διέπει την οικονομική λειτουργία των ΟΤΑ στην Ελλάδα. Στο δεύτερο μέρος. υπό την μορφή μιας μελέτης περίπτωσης, αρχικά παρουσιάζονται οι οικονομικές καταστάσεις του Δήμου Δίου-Ολύμπου για την περίοδο 2016-2018 και στη συνέχεια αναλύονται οι αριθμοδείκτες προϋπολογισμού – απολογισμού των οικονομικών καταστάσεων του. Τέλος παρουσιάζεται μια συγκριτική ανάλυση των δείκτων άνα δημότη που υπολογίστηκαν στην προηγούμενη ενότητα με τους αντίστοιχους δείκτες ανά δημότη για τους υπόλοιπους Δήμους της Περιφερειακής Ενότητας Πιερίας και συγκεκριμένα για τον Δήμο Κατερίνης και τον Δήμο Πύδνας-Κολινδρού. Λέξεις – Κλειδιά Οργανισμοί Τοπικής Αυτοδιοίκησης, Χρηματοοικονομική Ανάλυση, Δήμος Δίου- Ολύμπου, Χρηματοοικονομικοί αριθμοδείκτες, Δείκτες ανά δημότη vi Voulgaris Athanasios: Financial Analysis of Municipalities The Case of the Municipality of Dion-Olympos Table of Contents Acknowledgments ................................................................................................................ iv Abstract ................................................................................................................................. v Περίληψη.............................................................................................................................. vi Table of Contents ................................................................................................................ vii List of Figures ....................................................................................................................... x ListofAbbreviations&Acronyms ........................................................................................ xiii 1. Introduction ....................................................................................................................... 1 2. Literature review on Financial Statement Analysis .......................................................... 4 2.1Role of Financial Analysis Statement of Local Government ....................................... 4 2.2 Financial Statement Analysis Techniques .................................................................. 6 2.3 Local Government Financial Key Performance Indicators ......................................... 6 2.4 Importance of Financial Ratios for Local Governments ............................................. 7 2.5 International Accounting Standards for Local Governments ...................................... 7 3.Methodology ...................................................................................................................... 9 3.1 Liquidity Ratios ........................................................................................................... 9 3.2 Efficiency Ratios ......................................................................................................... 9 3.3 Capital Structure Ratios ........................................................................................... 10 3.4 Activity Ratios .......................................................................................................... 11 3.4.1 Account Receivables Turnover Ratio ............................................................... 12 3.4.2 Turnover receivables in days ............................................................................. 12 3.4.3 Turnover Assets Ratio ........................................................................................ 12 3.5 Balance sheet structure ratios .................................................................................... 13 3.6 Income Statement Ratios ........................................................................................... 13 4. Local Government Organisation's Bookkeeping System ............................................... 14 4.1. The institution of Local Government in Greece. ..................................................... 14 4.2 The budget of Local GovernmentAuthorities .......................................................... 15 4.3 Accounting Systems .................................................................................................. 21 4.3.1. Cash register accounting system ....................................................................... 21 4.4. Framework for the Double-entry bookkeeping System ........................................... 23 4.5. Accounting Books of the Double Entry Accounting Method .................................. 24 4.6 Economic Observatory LGO ..................................................................................... 25 5. The Municipality of Dion-Olympos ............................................................................... 27 5.1 Overview ................................................................................................................... 27 5.2 Economic profile of the municipality of Dion-Olympos .......................................... 28 6. Results of ratio analysis ................................................................................................. 30 6.1 Financial statement analysis of the municipality of Dion-Olympos ........................ 30 6.1.1Data Evolution of the balance sheet