Preparation of the financial report to the management

Within every economic entity, it is necessary to have precise information about what the company is in order to be able to show society, in its various areas, what it is, how it is operating, and everything relevant that can serve to decide on it, in addition to the fact that said information is not only used abroad, but also internally, since based on this information provided, the shareholders will have a broad vision of how their capital is working, the returns that are being obtained and based on this, make well-founded decisions.

An interpretation report, in a notebook in which the analyst, through comments, explanations, suggestions, charts, etc., makes accessible to his client the concepts and figures of the content of the financial statements that were the object of his study. The content of the report is made up of a notebook, which in turn is made up of the covers and the sheet containing the analyst's work.

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Companies cannot be considered as independent bodies; Only the analysis of internal data is sufficient to forge adequate opinions on the financial situation and profitability of a business, the analysis can be completed with information regarding the conditions that prevail within the business and over which management has control, analysis of the conditions that prevail outside the business, and over which the organization has no government.

UNIT 6

"PREPARATION OF FINANCIAL REPORT TO THE MANAGEMENT"

6.1. Preparation of Financial Report to Management

The report from the material point of view can take the following parts:

COVER. The main external part of the covers is intended for:

Name of the company Denomination of being a work of interpretation of financial statements or the subject that corresponds The date or period to which the statements correspond.

BACKGROUND. This section is where the work carried out by the analysis appears, and is generally intended for the following:

Mention and scope of the work carried out. Brief history of the company, from its constitution to the date of the report. Brief description of the commercial, legal and financial characteristics of the company. Objectives pursued by the work carried out. Signature of the person responsible.

FINANCIAL STATEMENTS. This part presents the financial statements of the company, generally in a synthetic and comparative form, ensuring that the terminology is fully accessible to the users of the information.

GRAPHICS. Generally, this report contains a series of graphs that make the concepts and figures of the content of the financial statements even more accessible. It is up to the analyst to decide the number of graphs and the form of them.

COMMENTS, SUGGESTIONS AND CONCLUSIONS. Here the various comments made by the person responsible for the report are grouped in an orderly, clear and accessible manner; also the suggestions and conclusions that it deems pertinent to present.

6.1.1. Internal.

In accordance with the provisions of the General Law of Commercial Companies in its Fifth Section, it indicates the most important aspects of the Financial Information that must be prepared.

“The Corporations, under the responsibility of their administrators, will present to the shareholders meeting annually, a report that includes at least:

A report by the administrators on the progress of the company in the year, as well as the policies followed by the administrators and, where appropriate, on the main existing projects. A report stating and explaining the main accounting policies and criteria and of information followed in the preparation of financial information. A statement showing the financial situation of the company as of the closing date of the fiscal year. A statement showing, duly explained and classified, the results of the company during the fiscal year. A statement that shows the changes in the financial situation during the year. A statement that shows the changes in the items that make up the equity, that occurred during the year.The notes that are necessary to complete or clarify the information provided by the previous statements.

A report from the curators will be added to the above.

The internal report is made for administrative purposes and the administrator is in close contact with the company, has access to the accounting books and in general all sources of business information are available to him. The results of his work are more satisfactory because the internal analyst is better informed of the peculiarities and movements of the business.

6.1.2. External.

The internal and external analysis, on the other hand, differ from each other in that the former has access or all the information necessary for the analysis, since it is carried out within the company itself; while the external analysis is carried out outside the company, either by a credit analyst, investment advisers, or any interested person.

For external purposes and for the general public to be aware of the information within the fifteen days following the approval of the information by the shareholders, “the financial statements should be published, together with their notes and the opinion of the commissioner, in the official newspaper of the entity where the company has its domicile, or, in the case of companies that have offices or dependencies in various entities, in the Official Gazette of the Federation. An authorized copy of the same will be deposited in the Public Registry of Commerce. If any opposition has been formulated in term against the approval of the balance by the general meeting of shareholders, the publication and deposit will be made with the annotation relative to the name of the opponents and the number of shares they represent. ”

In the external report, the analyzer has no contact with the company, and the only information it has is what the company deems appropriate to provide.

For the analysis of the Financial Statements, time, money and effort are required. When presenting the analysis, the relationship between the report and the person informed must be established; therefore, a specific report must be prepared for each case.

An adequate presentation must be made, in such a way that it captures the attention of the reader, with which an adequate presentation will have been made, thus the report requires that it be carried out as follows:

-COMPLETE.- Presentation of favorable and unfavorable data.

-LOGICALLY DEVELOPED.-The work must be divided into stages, each allowing the development of the following topics in a natural and logical way, the problem and the basis come first, the conclusions at the end

-CLEAR AND PRECISE.- The facts must be concisely established, conclusions and recommendations accessible and fair, the solutions must be viable for the same problem.

-CONCRETE.-It must not contain material foreign to the problem, and it must refer to specific and determined cases of the business. Abstractions and generalizations should be avoided.

- TIMELY.- The usefulness of a report depends on the opportunity with which the results are being provided, therefore the information must always be timely, since an extemporaneous report causes a false situation of immediate appreciations that serve as guidance for the decision-making, since these can affect long and short periods.

6.2. Excerpted for Executive Purposes

This report will be made in order to answer the main questions of any executive interested in the company, some of these people who may be interested are the following:

Shareholders have a particular interest in evaluating management performance. These in turn are interested in knowing the results of their management, paying special attention to accounting information. Shareholders will have to decide whether to sell their shares or to buy new shares. Investor advisers will need to analyze financial information to better serve their clients. Credit analysts will study applicants' accounting information to select those to whom credit will be granted. The Secretary of the Treasury will compare the accounting profits as detailed in the Income Statement with the global taxable income presented in the tax declaration. Unions may have an interest in accounting information,even when the distribution of profits to workers is based on global taxable income. The Stock Exchange requires that all public limited companies whose shares are restricted in the Stock Exchange submit reliable information on a regular basis.

Below we show a report model that can be used to inform management, that is, to fulfill certain executive purposes.

MANAGEMENT EVALUATION

The General Directorate is in charge of Lic. Javier Contreras Ruíz, who has extensive experience in the Financial Sector for more than 17 years. Joined the Company in February 1991. Among its main activities, the general management of finance (Citicorp financial leasing company) and various positions within Citibank (work for a period of 8 years) stand out. The other officials have collaborated for a long time in the company, achieving important results, which is why we consider them to be capable and knowledgeable people of their business.

A further guarantee of the good management of the company can be found with Lic. Miguel Castillo Fonseca (Executive Vice President), who has been characterized by directly intervening in the business to maintain strict control over it and which has allowed Atlas to grow quickly.

Recently, Mr. Ignacio Reyna González joined the Group, who in addition to owning 17% of the shares of the lessor, worked together with the Castillo family since its creation. For more than 5 years, he served as CEO of Alfa. Subsequently, he held various positions at Bancomer as General Director of the Leasing Company and others. In 1993, it joined the Inbursa Group to collaborate in the creation of the Bank and for four months it began its functions in Alfa to carry out the integration as a Financial Group and possibly in the future the constitution of a good Specialized Bank.

Arrendadora Alfa has a staff of 13 employees and 158 employees. They constantly send their employees to training programs in order to provide better Service and obtain optimal results. At the beginning of the year, a spending budget is set for this purpose.

The quality and professionalism of both its officers and employees and its shareholders is a guarantee of the proper functioning of the company.

Detailed for specific purposes

These reports are prepared for a specific project or objective, such as an investment project, acquisition of machinery, issuance of shares, increases in capital, obtaining financing, etc.

For this reason, this report should have and promote:

A clear vision of profits. A plan to keep profit factors in balance, that is, the volume of sales, gross margin and operating expenses. Obtain greater profitability with what the company has, that is, Inventories, Clients, Capital from banks and other sources. Helps optimize profits.

The program and analytical report must be completed every month in order to financially manage the company.

Financial statements based on parameters or reasoning.

The most used analysis methods are the following:

simple ratios comparative statements trend for comprehensive percentages cash flows and standard ratios

SIMPLE REASONS

This is the most used to analyze financial information, and consists of relating one item to another, or a group of items with another group. It is very common to relate the sales item to the accounts receivable, or else to relate the current assets with the current liabilities, both elements of the reason being a set of items. Items from the same financial statement may be related to each other, or from different financial statements. For example, the liability can be related to stockholders' equity, information contained in the statement of financial position, or also, the cost of sales item with that of inventories, being the statement of income and statement of financial position respectively.

COMPARATIVE STATEMENTS

A statement is meaningless if the comparative base is not carried out, it can normally be made between the financial statements of this year with those of several previous years, or also, with those of other companies in the same field. Sometimes it has to be done with the financial statements prepared with historical or real data with the financial statements that had previously been prepared in a projected way (pro forma statements).

This method belongs to the so-called horizontals, since it refers to the analysis of various periods. These statements of financial position will be presented in the form of a report to facilitate their analysis.

TRENDS

Like the comparative statement method, the trend method is a horizontal method of analysis. A year will be selected as the base and 100% will be assigned to all games for that year. Then proceed to determine the percentages of trends for the other years and in relation to the base year. The balance of the item in the year in question will be divided by the balance of the item in the base year. The result will be multiplied by 100 to find the trend percentage.

A percentage greater than 100% means that there has been an increase in the balance of the item compared to the base year The trend percentages of a game should be compared to the trend percentages of similar games.

INTEGRAL PERCENTAGES

The large figures that appear in the financial statements can confuse a reader of them. One way to simplify understanding is to convert these figures to integral percentages, where the mathematical maxim is respected: the whole is equal to the sum of its parts. If this method is applied to the income statement, net sales are considered as 100% and the rest of the items in the income statement will be related to said net sales.

5.- CASH FLOWS AND CASH FLOWS

When carrying out this type of method, the information presented to two compassionate balances corresponding to the previous year and the current year is taken into account so that a Cash Flow Statement or a Cash Flow Statement can be drawn up. o Statement of Changes in Net Working Capital is often dominated as a financial statement of big finance, whose function is to determine those changes that arise in a non-current item that constitutes a source or an application of net working capital. It can be mentioned that among the financing sources, those coming from bond or share issues stand out, as well as the use of resources in business expansion through the acquisition of fixed assets.

6.- STANDARD REASONS, This method is considered as the average ratio. In statistics there are ways in which you can determine the premediation:

The Arithmetic meanThe medianThe fashion

The arithmetic mean is the most used average and is obtained by adding the terms and then we can proceed to divide this sum by the number of these terms.

The median is a measure of position and its advantage is that it does not affect extreme values. The terms will be ordered from least to greatest and the term and the term that is in the middle of said order will determine the median value:

The mode is the value that is repeated the most and in the example the one that is repeated the most is 18%.

In the study of the standard ratios another method is the dispersion, since it is a measure of the distance of the individual values from the average value.

The most widely used dispersion measures are as follows:

Standard deviation and Barracks.

The standard deviation will be used in conjunction with the arithmetic mean, while the quartiles will be used with the median. If the values are ordered from least to greatest, on reaching the term that represents a quarter of all the terms, the value of the first quartile will have been obtained. As you continue in the order until you reach the term that is in the middle of the total of the terms, its value will be equivalent to the second quartile better known as median. If the order is continued until reaching the term that represents three quarters of the total of the terms, the value of the third quartile will be determined.

The National Banking and Securities Commission may determine standard ratios for banking institutions, since all credit institutions carry the same catalog of accounts and the same classification and grouping of items, and most importantly, the same accounting criteria.

Here is an example of this type of information.

COMPAÑÍA LA ASTURIANA, SA DE CV

CP Andrea Zamora Dávila.

Managing Director.

In relation to the analysis applied in the figures of the Financial Statements for 2002, we find the following items that we consider to be of greater relevance.

Land: In 2002, the land that was budgeted for was not acquired because it did not have an agreement with what was proposed by the real estate company, so we have a variation between what is budgeted and the real amount of $ 207,000.00 Buildings: Consequently with the aforementioned, modifications were made to the building, which is why there is a variation of $ 133,400.00 as budgeted.

III. Cash and Banks: From the balance budgeted in this item we have a variation of $ 90,000.00 since an increase was generated to the account.

Clients: In the account we show a decrease of $ 32,200.00 due to the fact that an optimal level of sales has not been obtained. Sales: The account represents a decrease since the budgeted amounts in sales with our clients were not carried out satisfactorily and this caused a deviation.

In accordance with the application of the financial analysis indices applied to the financial statements, the following result was obtained.

The Solvency and Liquidity indices in real figures exceed those budgeted, so this situation is satisfactory to settle our debts. Therefore, these indicators represent that the company is at a healthy and beneficial level.

The Capital Investment Index that is budgeted exceeds the real at the following points:

Budgeted: For every $ 1.00 of Stockholders' Equity, $ 0.54 cents has been invested in Fixed Assets.

Real: For every $ 1.00 of Stockholders' Equity, $ 0.50 cents has been invested in Fixed Assets.

Therefore, there is a need to carefully evaluate the Fixed Assets in which it is intended to invest.

Having found a series of variations in the actual figures shows us that the budget was not prepared with the required efficiency, since there is no vision to project into the future, for which the involvement of staff and identification should be sought. overview of the company's objectives to obtain budgeted results that satisfy the company.

Without further ado for the moment, I remain at your disposal for any clarification regarding the analysis carried out.

CONCLUSIONS

As it was seen throughout this unit, the reports will be made according to the people who will use it, that is, it can be internal or external. The internal will be for the members of the company from the highest level to the lowest, and external will be that required by the Government, potential investors, in short, the general public.

The internal report will be that addressed to the administration, its main objective being to evaluate the operations of the company, detecting its weak and strong points, as well as establishing corrective measures to those points that affect operations. This will provide shareholders with the possibilities of deciding whether to continue contributing or participating in the company.

The external report will be addressed to the SHCP when it wishes to verify whether it is complying with the taxes generated by the operations of the company, to the BMV so that investors can decide whether or not to invest in the company, etc.

Whatever type of report is presented, it must meet certain attributes that distinguish it from any other and that also present an adequate image of the company, these attributes are:

- Clear - Clean

- Accessible Terminology - Well written

- Concrete - Well Presented

INFORMATION SOURCES

-General Law of Mercantile Companies 2003.

Art. 172, 173

- Analysis and interpretation of financial statements.

Abraham Perdomo Moreno

Publisher: ECAFSA

1999.

Page 225,226

-Analysis and Interpretation of Financial information, Alberto García Mendoza