Article 1: Additional Performance Measures

Question 1

Why would additional performance measures be used?

Answer 1

Users are demanding more information and issuers seem willing to give users their understanding of the financial information.

Question 2

What are examples of common APM’s?

Answer 2

Normalised profit, earnings before interest and tax (EBIT) and earnings before interest, tax, depreciation and amortisation (EBITDA)

Question 3

What do APM’s sometimes exclude?

Answer 3

There could be the exclusion of income or expenses that are considered irrelevant

Question 4

What is a benefit of APM’s?

Answer 4

Easier comparisons

Question 5

How can APM’s be misleading?

Answer 5

• Bias in calculations
• Inconsistency
• Inaccurate classification
• Lack of transparency
• Not easily identifiable

Question 6

Why would you use EBITA?

Answer 6

A useful unit of measurement for evaluating the operating performance of the group and the parent

Question 7

Why would you use organic changes in Revenue, EBITA and EBIT?

Answer 7

These measures exclude the effects of the change in the scope of consolidation, exchange differences and non-organic components constituted by non-recurring items and other non-organic income and expenses.

Question 8

Why would you use net financial debt?

Answer 8

An accurate indicator of its ability to meet its financial obligations. It is represented by gross financial debt less cash and cash equivalents and other financial assets.

Question 9

Why would you use adjusted net financial debt ?

Answer 9

Exclude effects that are purely accounting in nature resulting from the fair value measurement of derivatives and related financial assets and liabilities.

Question 10

What are the IASB looking to change?

Answer 10

Include within IAS 1 Presentation of Financial statements

Question 11

Why are IASB looking to add in information to IAS 1?

Answer 11

APMs appear to be used by some issuers to present a confusing or optimistic picture of their performance by removing negative aspects.

Question 12

What is the European Securities and Market Authority guidance?

Answer 12

• issuers should define the APM used, the basis of calculation and give it a meaningful label and context.
• APMs should be reconciled to the financial statements.
• APMs that are presented outside financial statements should be displayed with less prominence.
• An issuer should provide comparatives for APMs and the definition and calculation of the APM should be consistent over time.
• If an APM ceases to be used, the issuer should explain its removal and the reasons for the newly defined APM