1. Financial Statement Analysis
Martyna Mikołajek M.Sc. Management Financial Facility Institute of Economic Sciences

2. Office hours E-mail: martyna.mikolajek@uwr.edu.pl Room: 106C
Tuesday: 17:00-19:00

3. Recommended reading
Fridson M., Alvarez F., Financial Statement Analysis: A Practitioner's Guide, John Wiley & Sons, Inc., New York, 2002.
Karwowski M., Accounting and financial reporting, Warsaw School of Economics,
Lecture’s presentations

4. Basic information of the P&L

5. P&L (Profit and loss account)
- presents the financial result of the company's activity in a given period
- difference between the income generated and the costs incurred
Possible forms:
Individual or consolidated profit and loss account according to Polish GAAP
Individual and consolidated profit and loss account according to IAS / IFRS

6. Income
Income and profit are the economic benefits generated in the reporting period, with a reliably determined value in the form of an increase in assets or a decrease in the value of liabilities that will lead to an increase in equity or a decrease in its shortfall in other ways than shareholders or owners
revenues are generated as part of the entity's business
profits constitute an increase in economic benefits or are profits not yet realized resulting from the valuation as at the balance sheet date
they are often reported at net value after deducting the relevant costs

7. Cost
Costs and losses are a decrease in economic benefits in the reporting period, with a reliably determined value in the form of a decrease in the value of assets or an increase in the value of liabilities and provisions that will lead to a decrease in equity or increase its shortfall in a different way than shareholders withdrawals or owners
costs arise as part of the entity's business
losses are a reduction of economic benefits or are losses yet not realized resulting from the valuation as at the balance sheet date

8. Expenses and Revenues
Categories related to the settlement of receivables and liabilities or payment for goods and services consisting in cash flow, which do not cause changes in equity
It is worth remembering the following receivables:
Cost, but not yet expense: accrued but unpaid interest on loans
The cost that will not be an expense: depreciation
Expense, but not yet cost: purchase of materials that have not yet been used for cash
Expense that will not be at the cost: repayment of the loan installment
Income, but not revenue yet: receivable from the customer for the goods sold
Income that will not be revenue: non-monetary donation in the form of fixed assets
Revenue, but not income yet: advance payment for future deliveries of goods
Revenue, which will not be Income: taking a bank loan

9. P&L Structure - Income Operational activities
includes incomes related to the base business of the company
related with sale of products, goods and materials
these are amounts due or received, irrespective of whether they have been paid or not, adjusted for discounts and payable VAT, and the additional payments provided

10. P&L Structure - Income
Other operational activities
groups the revenues of various forms of operational activity not directly and permanently connected with operating activities
these are revenues related to:
with social activities
with disposal of fixed assets, fixed assets under construction, intangible assets, as well as immovable property and intangible assets included in investments
with maintaining real estate and intangible assets included in investments
with the release of previously created accruals (other than those related to financial operations)
receiving free of charge assets (also by way of donation)

11. P&L Structure - Income Investment and financial activities
includes incomes related to investing and financing the company's operations
these are revenues related to:
with received and accrued interest on loans granted, funds accumulated on bank accounts, foreign bonds held
with received and accrued interest on deliveries and services
with revenues from disposal of investments in financial assets
with received dividends (shares in profits)
with the release of provisions for anticipated financial losses

12. P&L Structure - Income
Extraordinary gains: arise from events that are difficult to predict, beyond the operating activity of the entity and are not related to the general risk of operating the entity
for example: compensation for loss of assets as a result of fortuitous events

13. P&L Structure - Costs Other operating costs:
not relate directly to the entity's core business
Related:
with maintaining facilities for social activities
with disposal of fixed assets, fixed assets under construction, intangible assets, as well as immovable property and intangible assets included in investments
with maintaining real estate and intangible assets included in investments
with writing off of outdated, forgiven and uncollectable receivables
creating accruals (other than those related to financial operations)
with paid damages, penalties and fines
with free donation of assets (also by way of donation)

14. P&L Structure - Costs Financial costs:
related to the financing of the entity's operations and investment activities
Includes:
costs of selling investments in financial assets
interest and commissions on loans and credits taken
interest charges due to finance leases
interest or discount on the bonds issued by the unit
write-offs of the value of investments in financial assets
accruals created for certain or probable losses from financial operations in progress
surplus of share issue costs over the difference between the share issue value and their nominal value

15. P&L Structure - Costs Extraordinary losses:
costs arising from events that are difficult to predict, beyond the operations of the entity and not related to the general risk of running the unit
Income tax: affects the financial result for a given reporting year
includes current tax and deferred tax
current tax: it is a burden for the budget
deferred tax: it is the difference between the state of reserves and deferred tax assets at the end and beginning of the reporting period
Deferred income tax income arises when the deferred tax asset is increased or the provision is reduced
deferred income tax costs arise in the event of an increase in deferred tax liability

16. P&L (generic version)
Depreciation: costs of consumption of fixed assets and intangible assets
Consumption of materials and energy: costs of consumption of basic materials and raw materials, office materials, spare parts of machinery and equipment, packaging, electricity, gas, water, steam and energy in a different forms
External services: transport, equipment, storage, renovation and maintenance, telecommunications and postal services, property supervision, rental, lease, operational leasing, banking services
Taxes and fees: taxes and fees

17. P&L (generic version)
Wages: all wages and salaries regardless of the type of the employment relationship
Social security and other benefits: social insurance premiums charged to the employer, contributions to the Labor Fund, Guaranteed Employee Benefits Fund, obligatory charges to the company social benefits fund, holiday benefits, costs related to health and safety, employee training
Other costs by type: business travel expenses, representation and advertising costs, property insurance

18. P&L (estimate version)
In this type of P&L, the costs are divided into direct and indirect costs
Direct costs: those that are referred directly to products (products and services), materials or goods
Include:
value of used direct materials
direct wages along with benefits
other direct costs, eg: value of energy consumption, tools, business trips

19. P&L (estimate version)
Indirect costs:
cost items whose reference to products (goods and services), materials or goods are impossible, irrelevant or unprofitable
they are initially recognized at the place of their creation, and then they are settled on products or on the financial result of the reporting period in which they were incurred
Include:
indirect product costs (faculty costs)
management costs
sales costs

20. P&L (estimate version) – Management costs
indirect costs incurred for the operation of the business unit as a completeness
They include:
administrative and economic costs - related to maintaining the unit's administration
general economic costs - to maintain facilities that ensure the functioning of the entire unit

21. P&L (estimate version) – Sales costs
Sell costs:
indirect costs incurred in the sale of products, goods and materials
arise after the release of reserves from warehouses or from production
for example: costs of transport, loading, unloading, packaging, costs of post-production service as well as advertising and participation in fairs

22. P&L (estimate version) – Period costs
Costs of the period:
they directly reduce the financial result of the reporting period in which they were incurred
for example: costs resulting from unused production capacity and production losses, storage costs

23. Cash flow statement

24. Cash flow statement – base information
Presents the financial result of the company's activity in analisys period. BUT, revenues and costs are measured according to actual cash inflow and expenses It is the difference of all cash inflows and cash expenses.

25. Cash flow statement – base information
Cash flows are equal to changes in cash from balance sheet.
For the purposes of the cash flow statement, we include only cash assets payable within three months from the date of receipt, issue, acquisition or opening (deposit) - if they are not recognized in cash flows from investing activities.
Possible forms:
Individual or consolidated cash flow statement according to Polish GAAP
Individual or consolidated cash flow statement according to IAS / IFRS

26. Cash flow statement – structure
Four parts:
Operating activities
Investment activity
Financial activity
Reconciliation of net cash flows with the balance of cash in the balance sheet

27. Operating activities
The basic type of the entity's activity and other activities not classified as investment or financial activities. It is shown as: in and out flows.

28. Operating activities In flows Out flows
from the sale of materials, products, goods and services
for payment for delivered goods, materials, raw materials, energy and services provided for the purpose of operating activities
for fees, copyrights, fees and other operational revenues
for employees' remuneration and other benefits for them
for social and health insurance
for contracts concluded for the purpose of acquisition and resale, if they are part of operating activities
from income tax refund, other taxes and fees of a public-law nature
due to income tax, other taxes and public fees

29. Financial activity
Operations whose base is beyond the operational acquisition of financing sources or their repayment, as well as the related costs and bills
It causes changes in the size and relation of the entity's own capital and financial debt
It is shown as: in and out flows.

30. Financial activity In flows Out flows
from the issue of shares (stock) and other capital instruments and additional payments to capital
payments to owners of shares of the entity due to their redemption and return of additional payments to capital
from the issue of long- and short-term debt financial instruments
due to the distribution of profit, including from previous years
taking out credits and loans (including realized exchange differences)
repayment of loans and credits (including realized exchange differences)
incurred costs for repayment of liabilities from financial leasing contracts
cash benefits directly related to raising capital
interest paid, bank commissions and other monetary costs directly related to raising capital

31. Investment activity
Activities related to the purchase or sale of property, plant and equipment (fixed assets, tangible assets under construction), intangible assets, long-term investments and short-term financial assets (excluding cash and cash equivalents) and the related cash costs and benefits It is shown as: in and out flows.

32. Investment activity In flows Out flows
from the sale of fixed assets, fixed assets under construction, intangible assets, investments in real estate and intangible assets and financial assets
due to purchase, assembly, commissioning of fixed assets, fixed assets under construction, intangible assets, investments in real estate and intangible assets as well as financial assets
due to the return of short- and long-term loans granted to other entities
for granting short and long-term loans to other entities
due to the return of advance payments regarding investment activity
from advance payments regarding investment activities
from derivative financial instruments
for cash benefits related to the above-mentioned components, e.g. interest on deposits
due to cash costs related to the above-mentioned components, e.g. interest on deposits

33. Statement of changes in equity

34. Statement of changes in equity – base information
Explains and illustrates all details of changes in equity - not shown in the other statements
Possible forms:
Statement of changes in equity, unit or consolidated according to Polish GAAP
Statement of changes in equity, unit or consolidated according to IAS / IFRS

35. Statement of changes in equity – structure
Four parts
Own capital (fund) at the beginning of the period
List of operations increasing and decreasing the equity by genre groups from the balance sheet
Own capital (fund) at the end of the period
Expected equity after division of financial results

36. Increasing flows issue of shares
increasing the nominal value of existing shares
additional payments to capital
transfer from supplementary capital to share capital
donation from another state enterprise
subsidy from the state budget (goverment)

37. Decreasing flows reduction of the nominal value of shares
donation to another state-owned enterprise
free transfer of assets to another state-owned enterprise
reimbursement of unduly received subsidy from the state budget

38. Additional information

39. Additional information – base information
It is a summary of financial information not included in the elements of financial statements
Parts:
Introduction to the financial statements
Additional information and explanations (explanatory notes)

40. Additional information - Introduction
the name of the company,
the period covered by the report
indication of the merger method (if consolidated)
discussing the adopted accounting principles

41. Additional information - explanatory notes
Detailed scope of changes in the value of particular groups of fixed assets
Demands of profit distribution or loss coverage
Reserve status
Breakdown of long-term liabilities by type
List of significant items of prepayments
Condition of contingent liabilities
Net revenues by type of activity
Changes in accounting principles and their impact on the amounts included in the reports