APM Flashcards
What is APM
additional performance management
-each business has different needs so IAS are not enough. users demand APM for in depth analysis
EBITDA, Adv and disadv
earning before interest, tax, depreciation, amortisation.
in short we can call it cash profit
adv:
-easily understood by common man who doesnt have knowledge of accrual accounting
-bridge between liquidity and profitability
-less estimation is involved
-used internally for mgmnt accounting purpose
-it’s controllable
-more comparable
-tax and interest isnt in control of manager so it makes it easy to check performance
-argument: if we are not deducting dividends from profit, why deduct interest?
disadv:
-can still be manipulated
-still accrual accounting has it’s own purpose. (eg. fixed assets and depreciation)
is it a good idea to exclude one off items from EBITDA?
yes, more comparability
how can APM be misleading?
-inconsistencies in calculation
-inaccurate calculation of items
-lack of transparency (little info given abt how ratio is calculated and no proper reconciliation with profit)
-some ratios are new and no one understands them
APM includes
-measures of financial performance not specifically defined by any applicable reporting framework
-measures designed to illustrate the physical performance of entity (eg. units of change/ #of employee change)
-helps interpret disclosure
what is net financial debt
gross financial debt - cash & cash equivalent
adjusted net financial debt
excludes effect of derivative liabilities
which countries accept APM
UK bodies accept
australians reject
what is ESMA
european security market authority
-they have started consultation on APM
requirements for APM by ESMA
-issuer should define APM used
-reconcile to FS
-Display with less prominence
-provide comparatives APM
-if APM is ceased, give reason for ceasing
should foreign exchange gain/loss be excluded in APM
yes:
-volatile
-works in a cycle and in long term will be reversed
-uncontrollable
-more comparable with competitors
no:
-can be minimized thru hedging
-may turn loss into profit
-if loss is due to short term receivables it wont reverse
