Research How to use Company Accounts for Collective Bargaining Bill Taylor CWU ILO Turin August 11/

Why look at company accounts? Helps us to:  Build a true picture of the company  Manage our expectations  Build a realistic case for a pay claim  Gives greater bargaining strength Research

What company accounts tell us Help us assess whether a company is:  Profitable  Being run efficiently  Likely to grow in the future  Financially stable Research

Reading Annual Accounts Research  Directors’ report  Directors remuneration  Ownership  Subsidiaries  Auditors’ Report  Profit and Loss Account  Balance Sheet  Notes to the Accounts

Profit and Loss Account Research Shows how a company’s profit was reached over a given Period  Turnover (Sales)  Operating costs  Operating profit  Pre-tax profit  Dividend  Retained profit

Balance Sheet Research List of assets and liabilities – what the company owns and what it owes  Fixed assets: land, buildings, equipment, brand names  Current assets: bank balances, stocks and debtors  Current liabilities: debts to be paid within one year  Long term liabilities: debts to be paid after one year  Shareholders equity/funds

Research Notes to the accounts Contain useful information on  Segmental analysis of finances (by geography or division)  Operating costs (wages and salaries, pensions costs)  Number of employees  Employee share plans  Debt  Pension plans  Five year summary

Indicators of financial stability Size is not everything – a large company is not always a healthy company  Liquidity: current assets greater than current debts Liquidity test: (current assets – current liabilities)  Solvency: total assets greater than total liabilities Solvency test: (current assets + fixed assets) – all liabilities Research

Assessing wealth creation Research Value Added  Represents net wealth produced by an enterprise  No statutory requirement to produce value added statements Value added is calculated by  Turnover – cost of bought-in goods and services Cost of bought in goods and services can be calculated by  Operating costs – (staff costs + depreciation)

Indicators of efficiency (productivity measures) Show how much each employee contributes in financial terms Useful to track over time  Turnover (sales) per employee: (Turnover/number of employees)  Operating profit per employee: (operating profit/number of employees)  Value added per employee: (value added/number of employees)  Value added in relation to labour costs: (value added/wages, salaries and fringe benefits) Research

Indicators of profitability Profitability is a key determinant of the amount by which an Employer can afford to increase pay The following measures the ratio between turnover and operating costs. The lower the ratio the better.  (operating costs – depreciation)/ turnover The following measures the relationship between gross operating profit, and wealth created. The higher the ratio the better.  (gross operating profit + depreciation)/value added Research

Indicators of Growth Potential Capital expenditure is the major factor in determining the likelihood of expansion Capital expenditure in relation to wealth created  (Capital expenditure/value added) Relative strength of the current commitment to capital expenditure  (Capital expenditure/number of employees) If both ratios are high, the company has good growth prospects Research

Summary  Company accounts important for creating a true picture of performance  Balance sheet, profit and loss, notes to the accounts  Financial Stability  Efficiency/productivity  Profitability  Growth Potential  Allows us to build a realistic case for a pay claim  Gives greater bargaining strength Research

 Questions and discussion Research