Marel Q1 2024 Investor Presentation from May 8, 2024
Chapter 15: Accounting
1. Chapter 15
Understanding Accounting and
Financial Statements
2. Learning Goals
1 Explain the functions and identify the 5 Explain the functions and major
three basic activities involving accounting. components of the four principal
financial statements: the balance
2 Describe the roles played by public, sheet, the income statement, the
management, government, and not-for- statement of owner’s equity, and the
profit accountants. statement of cash flows.
3 Identify the foundations of the accounting 6 Discuss how financial ratios are
system, including GAAP and the role of used to analyze a company’s
the Financial Accounting Standards financial strengths and weaknesses.
Board (FASB).
7 Describe the role of budgets in a
4 Outline the steps in the accounting cycle, business.
and define double-entry bookkeeping and
8
the accounting equation. Outline accounting issues facing
global business and the move
toward one set of worldwide
accounting rules.
3. Accounting
s Accounting is the process of measuring, interpreting,
and communicating financial information to enable
people inside and outside the firm to make informed
decisions.
4. Open Book Management
s Open book management- sharing sensitive
financial information with employees and
teaching them how to understand and use
financial statements.
s Viewing financial information may help them
better understand how their work contributes
to the company’s success.
s Outsiders use financial data to evaluate
investment opportunities.
5. Business Activities Involving
Accounting
s Financing activities provide necessary funds to
start a business and expand it after it begins
operating.
s Investing activities provide valuable assets
required to run a business.
s Operating activities focus on selling goods and
services, but they also consider expenses as
important elements of sound financial
management.
6. Accounting Professionals
s Public Accountants
s Provide accounting services (auditing,
tax preparation, consulting) to individuals
or business firms for a fee
s CPA
s Management
Accountants
s Provide timely, relevant, accurate, and
concise information that executives can
use to operate their firms
s CMA
s Government and Not-for-
Profit Accountants
7. Foundation of Accounting Systems
s Generally accepted accounting principles (GAAP) encompass
the conventions, rules, and procedures for determining
acceptable accounting practices at a particular time.
s Financial Accounting Standards Board (FASB) is primarily
responsible for evaluating, setting, or modifying GAAP in the
U.S.
s Sarbanes-Oxley Act (SOX) responded to cases of accounting
fraud.
s Created the Public Accounting Oversight Board, which sets
audit standards and investigates and sanctions accounting
firms that certify the books of publicly traded firms.
s Senior executives must personally certify that the financial
information reported by the company is correct.
s Resulted in increase in demand for accountants.
8. The Accounting Cycle
s Accounting cycle- set of activities involved in
converting information about transactions into
financial statements.
9. The Accounting Equation
s Assets- anything of value owned or leased by a
business.
s Liability- claim against a firm’s assets by a creditor.
s Owner’s equity- all claims of the proprietor, partners, or
stockholders against the assets of a firm, equal to the
excess of assets over liabilities.
s Basic accounting equation- relationship that states
assets equal liabilities plus owners’ equity.
s Double-entry bookkeeping- process by which
accounting transactions are entered; each individual
transaction always has an offsetting transaction.
10. Impact of Technology on Accounting
s Simplifies the accounting process by automating data
entry and calculations.
s Available products are customized for businesses of
different sizes.
s Entrepreneurs and small businesses use: QuickBooks,
Peachtree, and BusinessWorks.
s Larger firms use larger scale software packages like:
Computer Associates, Oracle, and SAP.
s Software that handles accounting information for
international businesses is another option. Offers
different country information/language.
s Some systems offer web-based packages for small and
medium businesses.
11. Balance Sheet
s Balance sheet— statement of a firm’s
financial position—what it owns and the
claims against its assets—at a particular point
in time
s Photograph of firm’s assets together with its
liabilities and owner’s equity
s Follows the accounting equation
13. Income Statement
s Income Statement— financial record of a
company’s revenues and expenses and
profits over a period of time
s Firm’s financial performance in terms of
revenues, expenses, and profits over a given
time period
s Reports profit or loss
s Focus on revenues and costs associated with
revenues
15. Statement of Owners’ Equity
s Statement of Owners’ Equity— is
designed to show the components of the
change in equity from the end of one fiscal
year to the end of the next
s Begins with the amount of equity shown on
the balance sheet
s Net income is added, and cash dividends
paid to owners are subtracted
17. Statement of Cash Flows
s Statement of cash flows— a firm’s cash
receipts and cash payments that presents
information on its sources and uses of cash
s Accrual accounting— method that records
revenue and expenses when they occur, not
necessarily when cash actually changes
hands
19. Financial Ratios Analysis
s Ratio analysis— tool for measuring a firm’s liquidity,
profitability, and reliance on debt financing as well as
the effectiveness of management’s resource utilization
20. Liquidity Ratios
Total current assets
s
Current ratio compares
current assets to current
liabilities.
Total current liabilities
s Cash and equivalents
Acid-test (or quick) ratio
+ short-term investments
measures the ability of a firm
+ accounts receivable
to meet its debt payments on
short notice.
Total current liabilities
21. Activity Ratios
Net sales
s
Inventory turnover ratio
indicates the number of
times merchandise moves Average of inventory
through a business.
Net sales
s
Total asset turnover ratio
indicates how much in sales
each dollar invested in assets
generates. Average of total assets
22. Profitability Ratios
s Profitability ratios measure the organization’s overall
financial performance by evaluating its ability to
generate revenues in excess of operating costs and
other expenses.
23. Leverage Ratios
s Leverage ratios measure the extent to which a firm
relies on debt financing.
s Total liabilities to total assets ratio > 50 percent indicates that
a firm is relying more on borrowed money than owners’ equity.
24. Budgets
s Budget- planning and control tool that reflects a firm’s
expected sales revenues, operating expenses, and
cash receipts and outlays
s Management estimates of expected sales, cash inflows
and outflows, and costs
s Budgets are a financial blueprint that serves as a
financial plan
s Cash budget- tracks the firm’s cash inflows and
outflows.
26. International Accounting
s Accounting procedures and practices must be adapted to
accommodate an international business environment.
s The International Accounting Standards Committee (IASC) was
established in 1973 to promote worldwide consistency in financial
reporting practices. The IASC soon developed its first set of
accounting standards and interpretations and, in 2001, became the
International Accounting Standards Board (IASB). International
Financial Reporting Standards (IFRS) are the standards and
interpretations adopted by the IASB.
s Exchange rates- ratio at which a country’s currency can be
exchanged for other currencies
s Consolidated financial statements must reflect gains and losses due
to changes in exchange rates
s Can have significant impact on financial statement
