10年财务工作经验总结.docx

Level 1Law and taxationCorporate Governance & Risk ManagementReportingAudit and AssuranceLevel 2ProfessionalPerformance ManagementFinancial ManagementLevel 3Business AnalysisLevel 1INTERNAL CONTROL AND RISK MANAGEMENTWHATComponents of internal ControlMonitoringInformation and communications Control activitiesRisk AssessmentControl environmentWhat are internal controls for:WHY?1. Reliability and integrity of information2. Compliance with law and regulations3. Safeguarding of assetsTypical ControlsA. Preventive controlsa. Written policies and proceduresb. Segregation of dutiesc. Advanced approval and authorizationd. Applications controlse. Limited accesses to physical assets and records.B. Detective controlsa. After the fact reviewHOW?b. Reconciliationd. Maintain trial balance and control accountse. Physical countsC. Controls on assertionsa. Classification: Chart of Accountsb. Cut off: Timely processc. Accuracy: Sufficient appropriate supportingd. Existence: Regular physical countse. Completeness: Pre-numbered documents.f. Occurrence: A schedule outside the accounting records.Typical techniques for internal auditA. Basic proceduresa. Inquiryb. Inspectionc. Recalculationd. Re-performancee. Observationf. Confirmationg. Physical countsCHECK B. Normal modela. Agree opening balance with previous closing balanceb. Review general ledger for unusual recordsc. Agree a separate schedule to/from accounting records for completenessd. Carry out analytical proceduree. Test transactions in detailf. Test balance in detailg. Review presentation and disclosures.h. Cut off testing to ensure existence, cut off and completenessi. Review of post-period items to ensure cut-off and completenessLevel 1REPORTING Underlying Assumptions for a true and fair representationa. Accrual basis (Matching principle)b. Going concernWhat can we see from financial statements?a. Economic resources controlledb. Financial structurec. Liquidity or Solvencyd. Financial performancee. Changes in financial position, e.g. to cash flow statement to predict the capability to generate cash.Characteristic of Reliabilitya. Faithful representationb. Substance over formc. Prudenced. NeutralityKey definitions and recognition criteria Asset: A resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity.Equity: Is the residual interest in the assets of the entity after deducting all its liabilities.+Liability: A present obligation of an entity resulting from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.=Recognition criteria: a. Probability of future economic benefitsb. Reliability of measurementLevel 2Financial ManagementObjectives of Financial Management To Maximize Shareholders Wealtha. Focus on future Investment Decisionsb. Focus on dividend Dividend policyc. Focus on financing plans Financing Decisionsd. Focus on risk management Risk ManagementMain categories =1. Financing decisions Dividend policy2. Investment decisions3. Working capital management Financial risk management4. Financial analysis / Acquisitions.Dividend PolicyDividend Theories1. A bird in hand theory (Liquidity preference) Dividend in hand is less risky than future capital gain2. Tax Preference Theory Dividends apply to a high rate tax Taxes are delayed in capital gain3. MM theory (Dividend irrelevance theory / Capital structure irrelevance principle) The firms value is based on its earning power and its business risk. Assumptions for MM theory: T No Taxation I Full information/Efficient market C No transaction costs. K Only business risk, No financial riskDividend Policy1. The best approach is to have a stable and predictable policy. The current dollar dividend should be set so that there is an extremely low probability that the dividend, once set, will never have to be lowered or omitted. Managers should avoid to sell new common stocks or cut dividends.2. Signal effect: Increase in dividend accompanied with increase in stock price does not means inventors prefer dividend. Just they are more concerned about the information behind the dividend announcement.3. Clientele effect: Different groups prefer different dividend policies.Financing DecisionCapital Structure TheoryGearingKeKoKd1.Traditional ViewCost of CapitalPa. As the level of gearing increase, the cost of debt will first remain unchanged to a certain level of gearing. Beyond this level, the cost of debt will increase as interest cover falls, the amount of assets available for security falls and the risk of bankruptcy increases.b. The cost of equity rises as the level of gearing increases and financial risk increases.c. The weighted average cost of capital does not remain constant, but rather falls initially and increase as gearing increase. The lowest point of WACC is the optimum level of gearing.2. The net operating income view (MM theory)Refer to above MM dividend theory.3. GearingAdvantages of gearing:- Gearing effects- Tax relief- No dilution of control- Low return required.- Asset matchingDrawbacks:- Financial risk- Loan covenants- Gearing causing cost of equity to increaseCapital Gearing Ratio- Capital gearing ratio = Prior charge capital / Capital employed- Debt Equity ratio = Prior charge capital / (Ordinary share capital + reserves)- Interest cover = Profit before interest and tax / Interest charge- Cash flow ratio = Net cash-flow from operations / total debtsPecking order theory- This theory does not look at how much should be for equity, how much should be for debt- Instead, It only see an order that a company consider for its fund, first from retained earnings, second debt, finally equity.Cost of capital1. CAPM & Dividend growth model P0 = D1/(r-g)Dividend growth model is based on empirical evaluation and does not give any explanations. CAPM incorporate risk in the model (Level of gearing / Nature of business)2. WACCOnly with the same gearing and same nature of business then WACC could be used as discount rate.3. CAPM (Could be used to calculate the required return for an investment with a given beta as well as cost of capital)- e = Cov (e,m)/m2 = em em/m2 = eme/m- e = beta of an investment in shares/equity - Cov(e,m) = covariance of returns on the shares with the returns on the market- m2 = variance of the returns on the market (ie the standard deviation squared) - e = the total risk / standard deviation of the returns on the shares - m = the total risk / standard deviation of the returns on the market - em = correlation coefficient between returns on the shares and the marketR = Rf +(Rm- Rf) eE.g. Investment A = 2, portion = 0.8 Investment B = 4, portion = 0.2,Then Portfolio (A+B) (A+B) = 2*0.8 + 4*0.2 = 2.44. CAPM and MM combined Geared betaa = Ve/(Ve +Vd(1-T) *eFirst, to geta from industrye, Second, get thee for the investing company. Third, calculate the required return based on that e. Finally, calculate the WACC.Selecting Sources of finance for business Internal sources To have a cash projection: how much excessive cash there is? To have cash balance from working capital management To dispose some of assets to have cash for the projects External sources Cost of finance / Debt finance is cheaper than equity as debt is less risky / allowable for tax relief / Less issue costs Security / Debt finance needs security. Capital Market / Equity finance is not a good choice in bear market. Financial gearing Business gearing / risk Dilution of EPS Dilution of control Consideration of debt finance Duration Fixed rates & Floating rates Foreign currency borrowing Status of the company Loan covenants Sources of finance Internal sources / Retained earning less dividend Short term finance / overdraft facility, short term loan, trade credit Debt finance / bonds, bank finance Venture capital Equity finance / stock market listing (Initial public offer. Placing, introduction) Working capital management / Inventory, receivables, payables Leasing Sell and purchase backPortfolios theory: Portfolio can reduce risk without impact to expected returnInterest Theory- Expectations theory- Liquidity preference theory. Investors require compensation for sacrificing liquidity on long term bonds- Market segmentation theory.Working Capital ManagementA. Objective- Liquidity: To employees, to suppliers, to taxes, to meet liabilities to ensure survivals- Profitability: High level of cash holding harm profit- Conflicts: Liquid assets give the lowest returnsOperating Cycle Should be as short as possible DaysRaw material holding period xAccounts payable payment period (x)Average production period xInventory turnover period (period) xAccounts receivable payment period xOperating Cycle XThe sales revenue / net working capital ratio Should be within a reasonable range = Sales revenue / (Current assets Current liabilities)Sales / Working capital Harm ProfitLiquidity ratio Over-capitalization Turnover periods Is to failRapid increase in turnoverRapid increase in current assets Over trading Easily run to serious problemsMost of the increase is in trade AP/bank overdraftDebt and liquidity ratio alter dramatically Working capital funding strategiesA. ConservativeFunding all assets using long term capitalB. AggressiveEven using current liabilities to fund permanent current assets C. ModerateFunding non-current and permanent current assets using long term capital and fluctuating current assets using current liabilities.A. Management of CashWhy hold cash?- Transactions motive to meet regular commitments- Precautionary motive for unforeseen contingents- Speculative motive for short term investmentsCash flow problems?- Making losses- Inflation- Growth- Seasonal business- One-off items of expendituresEasing cash shortage- Obtain new resources- Longer credit- Accelerate accounts receivables- Postpone capital expenditures- Selling non-essential assets- Defer tax / dividend payments- Holding less inventoryCentralization of the treasury dept- Professionals Liquidity management / foreign currency management / investing the surplus funds- Borrowing in bulk- Operating companies focus on their businessB. Account receivables / payables managementBenefits calculationAnnual benefits XX- Financing savings (W(i) XX- Administration savings XXAnnual costs X- Factors fee XXNet Benefits XXWorkings:Existing situation- XXX- XXXAnnual finance costRevised situation- XXX- XXXAnnual finance costAnnual Finance savings.Ways to manage account receivables- Credit management- Offering cash discount- Factoring & Invoice discountingWays to manage foreign account receivables- Advance against collections- Factor or invoice discounting- Documentary credit- Export credit insuranceAccount payables management- Obtain / extend credit from suppliers- Maintain good relations with suppliers- Obtain early settlement discounts if beneficialRatio Analysis They are a means to an end, not the end in themselves. Three main issues will affect performance appraisal - Major acquisition- Revaluation- DisposalProfitability and return- Return on Capital employed (ROCE) = PBIT / Capital employedCapital employed = Total assets less current liabilities = shareholders funds plus long term liabilities- ROCE = Profit margin * Asset turnover = PBIT/Sale revenue * Sales revenue/Capital employed- Return on equity (ROE) = Earnings attributable to ordinary shareholders / shareholders equityDebt and gearing (long term solvency)- Debt ratio = total debts / total assets- Gearing/leverage = Interest bearing debt (Prior charge capital) / (shareholders equity +interest bearing debt)- Equity to assets ratio = shareholders equity / (shareholders equity + interest bearing debt) or total assets less current liabilities- Debt-equity ratio = Prior charge capital / (share capital + reserves)- Interest cover = PBIT / Interest expense- Cash flow ratio = net cash inflow / total debts (short term or long term)Liquidity- Current ratio = current assets / current liabilities- Quick ratio (acid testing ratio) = (current assets inventory) / current liabilitiesEfficiency- Accounts receivable collection period = trade receivables / sales * 365 days- Inventory turnover period = inventory / cost of sales * 365 days- Accounts payables payment period = Trade accounts payables / purchase * 365 daysShareholders investment ratios (stock market ratios)- Earnings per share (EPS)- Dividend per shareDividend cover = EPS / Dividend per share- P/E ratio = current share price / EPS- Dividend yield = dividend on the share for the year / current market value of the shareRisk Management Foreign Currency ManagementTypes:- Economic risk- Translation risk- Transaction riskHow to manage foreign currency risk- Invoice in local currency- Netting- Matching- Leading & Logging- Forward exchange contract- Money Market hedging- Currency futures & OptionsInterest rate risk- Matching or smoothing (Internal hedging)- Forward rate agreements- Interest rate derivatives (Futures contracts / options / Swaps)Centralization of the treasury deptProfessionals liquidity management Foreign curr management Investing for surplus Borrowing in bulkOperating companies focus on their businesses Level 2Performance ManagementCost accountingCategories of costProduction cost (Cost of goods)- Fixed and variable cost- Direct and indirect cost (overhead)Non-production cost- Administrative / Selling / Distribution / Finance cots- Having the character of “period”Absorption Costing is GAAP prescribed costing method.- Allocation of fixed overheadl Is based on the normal capacity of the production facilities.l The amount of fixed overhead allocated to each unit of production is not increased due to low production or idle palnt.l Unallocated overhead is recognized as period expense as incurred.l In the periods of abnormally high production, the amount allocated to each unit of production is decreased so that inventories are not measured above cost. Total production costIndirect costDirect costAllocate to cost centersServiceBABACost of UnitsMarginal (Variable) Costing- Fixed costs is considered as period costs as those fixed manufacturing overhead is going to incur anyway. If capacity allowed, it is better to make a marginal profit than doing nothing.- Contribution is the diff between Sales revenue and Marginal costs = Sales Variables costs (both production and non-production costs)- Disadvantagesl Will not earn enough profit to cover other costs in long terml Other normal price customers will argue to have the same prices.Activity Based Costing- Grouping the overhead costs according to the activities causing those costs (cost drivers).- Advantages: Provides a more precise way to determine costs per unit of output, especially since not all overhead costs are driven by production volumes.- Disadvantages: It can be complex and costly to implement as it is not a “ Plug-in-and-go” system.Other relevant cost accounting method- Target costing : the likely price minus the reasonable profit to get the maximum cost of manufacturing the product.- Life-cycle costing: to like at the costs related to development, design, launch and maintenance.- Back Flush accounting: Usually used in JIT environment, detailed tracking of cost is eliminated.- Throughput Accounting : Usually used in JIT environmentThroughput (T) = Sales direct materialsInvestment (I) is money tied up in the systemOperating expense (OE) includes maintenance, utilities, rent, taxes, payroll, etcNet Profit (NP) = T OEReturn on investment (ROI) = NP / IProductivity (P) = T/OE Investment Turns = T/I- The key for throughput accounting is to focus on the bottlenecks in a production process (Assuming there is demand for the output)- Five focusing steps l Identify the systems bottlenecksl Decide how to exploit the systems bottlenecks (No Idle time)l Subordinate everything else to the decisions made instep 2l Elevate the systems bottlenecks (To reduce each unit produced per time, to find new resources)l If a new constraint is broken, go back to step 1Linear Programming- Is usually used to either maximize contribution or minimize costs- Usual stepsa) Define the variablesb) Define the “Objectiv