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Session #CTP-04 Copyright © 2018 – The Essential Learning for CTP Candidates Carolinas Cash Adventure 2018 – Session #CTP-04 Carolinas Cash Adventure - 2018: CTP Track Financial Statements, Analysis & Decisions Session #4 (Mon. 9:15 – 10:15 am) ETM5-Chapter 8: Financial Accounting and Reporting ETM5-Chapter 9: Financial Planning and Analysis Essentials of Treasury Management, 5th Ed. (ETM5) is published by the AFP which holds the copyright and all rights to the related materials. As a prep course for the CTP exam, significant portions of these lectures are based on materials from the Essentials text. © 2018 - The Treasury Academy, Inc. - All Rights Reserved 1 To Sign up for On-Line Access E-mail request to: [email protected] You will receive an invitation to join the class from Canvas-Instructure Click on link and use your e-mail address as Username and you can set your own password First place to go is MODULES Materials for all of the chapters in ETM5 are provided © 2018 - The Treasury Academy, Inc. - All Rights Reserved 2 Addition Information Check out the web site for The Treasury Academy www.treasuryacademy.org Copies of all session lecture notes from conference Additional handouts and other items of interest are provided there Please note that the full content and on- line support are all on the Canvas site, which requires you to e-mail me for an invitation © 2018 - The Treasury Academy, Inc. - All Rights Reserved 3 Copyright © 2018 – The Treasury Academy, Inc. All Rights Reserved 1 Essential Learning for CTP Candidates Carolinas Cash Adventure 2018 – Session #CTP-04 Overview of Chapter 8 Topics Introduction Accounting Concepts and Standards Financial Reporting Statements Accounting for Derivatives, Hedges, and Foreign Exchange(FX) Translation Accounting for G/NFP © 2018 - The Treasury Academy, Inc. - All Rights Reserved 4 Introduction to Financial Accounting and Reporting Financial statements summarize a company’s operating results and financial position © 2018 - The Treasury Academy, Inc. - All Rights Reserved 5 Analyzing Financial Statements Provides Insights Into: Overall liquidity level Ability to generate revenues from assets and control costs Capital structure © 2018 - The Treasury Academy, Inc. - All Rights Reserved 6 Copyright © 2018 – The Treasury Academy, Inc. All Rights Reserved 2 Essential Learning for CTP Candidates Carolinas Cash Adventure 2018 – Session #CTP-04 Accounting Concepts and Standards Global Accounting Standards . IASB & IFRS U.S. Accounting Standards . GAAP & SEC Filings Comparison . IFRS is high level/less detailed than GAAP . GAAP converging towards IFRS standards © 2018 - The Treasury Academy, Inc. - All Rights Reserved 7 U.S. Accounting Standards Principles underlying GAAP .Measurement Principle .Revenue-Recognition Principle .Expense Recognition (Matching) Principle .Full Disclosure Principle © 2018 - The Treasury Academy, Inc. - All Rights Reserved 8 Group Exercise Working in your groups, answer the following questions: Why do we need auditors? Is there a difference between internal and external auditors? What was the impact of SOX on the auditing profession? © 2018 - The Treasury Academy, Inc. - All Rights Reserved 9 Copyright © 2018 – The Treasury Academy, Inc. All Rights Reserved 3 Essential Learning for CTP Candidates Carolinas Cash Adventure 2018 – Session #CTP-04 Auditing & Financial Statement Reliability Confidence in the integrity of financial reports is critical in an open, market-driven economy Certification of accounting and auditing professionals is a key part of the process © 2018 - The Treasury Academy, Inc. - All Rights Reserved 10 The Audit Process An independent audit helps to assure outside parties that the information provided in the financial statements is relevant, complete, accurate and presented fairly © 2018 - The Treasury Academy, Inc. - All Rights Reserved 11 Audit Opinions Standard Unqualified Opinion Unqualified with Explanatory Paragraph or Modified Unqualified Qualified Adverse Disclaimer of Opinion © 2018 - The Treasury Academy, Inc. - All Rights Reserved 12 Copyright © 2018 – The Treasury Academy, Inc. All Rights Reserved 4 Essential Learning for CTP Candidates Carolinas Cash Adventure 2018 – Session #CTP-04 Impact of SOX on Audit Process Role of the PCAOB controls CEO and CFO certification of financial statements Fines and criminal penalties Requires independent audit committees © 2018 - The Treasury Academy, Inc. - All Rights Reserved 13 Types of Financial Statements Balance Sheet . Assets . Liabilities . Shareholders’ Equity Income Statement . Revenues . Expenses Statement of Retained Earnings Statement of Cash Flows . Sources and Uses of Funds © 2018 - The Treasury Academy, Inc. - All Rights Reserved 14 Sample Balance Sheet “Snapshot” Assets: Current assets Fixed assets Depreciable fixed assets Intangible assets Liabilities: Current liabilities Long-term liabilities Equity Assets = Liabilities + Shareholders’ Equity Source: ETM5 - © AFP © 2018 - The Treasury Academy, Inc. - All Rights Reserved 15 Copyright © 2018 – The Treasury Academy, Inc. All Rights Reserved 5 Essential Learning for CTP Candidates Carolinas Cash Adventure 2018 – Session #CTP-04 Sample Income Statement A record of revenues and expenses Shows the net change in shareholders’ equity from operations over a specified period Source: ETM5 - © AFP © 2018 - The Treasury Academy, Inc. - All Rights Reserved 16 Sample Statement of Cash Flows Shows sources and uses of cash Sections: Operating Investing Financing Cash from operations calculated by adding back non- cash charges (e.g., depreciation) Cash, not earnings, repays debt This example shows the indirect format Source: ETM5 - © AFP © 2018 - The Treasury Academy, Inc. - All Rights Reserved 17 Accounting for Derivatives, Hedges and FX Translation Derivative/Hedge Accounting . What is instrument’s intended use? FX Translation Accounting . Functional Currency: currency of the primary economic environment in which the entity operates . Translation of foreign statements to reporting currency GAAP VS IFRS © 2018 - The Treasury Academy, Inc. - All Rights Reserved 18 Copyright © 2018 – The Treasury Academy, Inc. All Rights Reserved 6 Essential Learning for CTP Candidates Carolinas Cash Adventure 2018 – Session #CTP-04 Overview of Chapter 9 Topics Introduction Time Value of Money Capital Budgeting Budgeting Cost Behavior Financial Statement Analysis Performance Measurement © 2018 - The Treasury Academy, Inc. - All Rights Reserved 19 Basic Financial Concepts Time Value of Money . Future Value FV = PV × (1 + i)n . Present Value = $100 × (1 + .10)2 Opportunity Cost = $100 × 1.21 = $121 . What is the right rate to use? Cost of Capital . Concept of WACC Cost Behavior . Total, Fixed, Variable, Semi-variable . Operating & Financial Leverage, Econ. of Scale Capital Budgeting . NPV, PI, IRR © 2018 - The Treasury Academy, Inc. - All Rights Reserved 20 Concept of Opportunity Cost What is the appropriate rate to use for time value analysis? . Investors look to alternative investments in a particular risk class to discover the best rate of return available . By investing in one particular company or investment, the investor loses the opportunity to invest in other securities . The firm must provide a return that equals the investors’ opportunity cost © 2018 - The Treasury Academy, Inc. - All Rights Reserved 21 Copyright © 2018 – The Treasury Academy, Inc. All Rights Reserved 7 Essential Learning for CTP Candidates Carolinas Cash Adventure 2018 – Session #CTP-04 Time Value of Money The value of cash flow is determined by: • Amount of the cash flows. • Appropriate interest rate. • At what future period the cash flow is expected to occur. © 2018 - The Treasury Academy, Inc. - All Rights Reserved 22 Future Value What is the future value of $100 if it can be invested for two years, compounded annually, at a rate of 10% per year? Future Value PV (1 i)n $100 (1 .10)2 $100 (1.10) (1.10) Where: $100 1.21 $121 FV = Future value Source: ETM5 - © AFP PV = Present value i = Periodic interest rate n = Number of periods © 2018 - The Treasury Academy, Inc. - All Rights Reserved 23 Present Value What is the present value of $2,382 to be received after three years, discounted at a rate of 6.00% annually? FV $2,382 Present Value (1 i)n (1 0.06)3 $2,382 (1.06)(1.06)(1.06) $2,382 $2,000 Where: 1.191 FV = Future value Source: ETM5 - © AFP i = Periodic interest rate n = Number of periods © 2018 - The Treasury Academy, Inc. - All Rights Reserved 24 Copyright © 2018 – The Treasury Academy, Inc. All Rights Reserved 8 Essential Learning for CTP Candidates Carolinas Cash Adventure 2018 – Session #CTP-04 PV of a Stream of Payments CCC C PV123 ... ... n (1 i)123 (1 i) (1 i) (1 i) n As an example, assume the following annual cash flows: $200 in year one, $400 in year two and $600 in year three. If the appropriate discount rate is 12%, then the PV of the stream would be: $200 $400 $600 PV (1 .12)123 (1 .12) (1 .12) $200 $400 $600 1.12 1.2544 1.4049 $178.57 $318.88 $427.08 $924.53 © 2018 - The Treasury Academy, Inc. - All Rights ReservedSource: ETM5 - © AFP 25 PV for Periods of Less Than 1 Year Assume a payment of $50,000 to be received in 15 days at an annual discount rate of 6%, compute the present value. Source: ETM5 - © AFP © 2018 - The Treasury Academy, Inc. - All Rights Reserved 26 Decision Evaluation Identifying Relevant Costs and Revenues . A relevant economic cost or revenue must affect future cash flows – beware of sunk costs . A relevant economic cost or revenue must differ among the alternatives
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