Index

Items from the glossary are indicated in bold.

abridged accounts 208, 212, 485

accountants 19, 21, 22

accounting 3–10

accruals 3, 4, 5–6, 8, 9, 373, 375

bad debt provisions 143

cash 5, 8, 373

equity 161

financial see financial accounting

group 154, 157–64, 189

historic cost 105, 165, 167, 169, 171, 172, 189, 404, 438–9

lease 191–2

management see management accounts/accounting

for opex and capex 72

for prepayments and accruals 134

standards see accounting and financial reporting standards

for stock 114

accounting and financial reporting standards 187–94, 208, 406–7, 444, 485

changes in 191–2

choice and 189–90, 278, 406–7

GAAP (generally accepted accounting principles) 4, 9, 33, 66, 190, 191, 440, 489

international (IAS/IFRS) 66, 189, 190–2

and management accounts packs (MAPs) 428

and opex and capex classification 71

accounting rate of return see annual yield

accounts

abridged 208, 212, 485

statutory 11, 19, 207, 208

see also company accounts; financial accounts; financial statements; management accounts

accounts payable 13, 485

see also creditors

accounts receivable 13, 485

see also debtors

accruals 6, 8, 18, 42, 50, 62, 129–36, 138, 381, 396, 441, 485

accruals accounting 3, 4, 5–6, 8, 9, 373, 375

accrued income 42, 133, 485

acid test ratio 248, 416

actual (cash flow) insolvency 256, 418

administration 256, 257

agency risk 217, 410

agents 64

Airbus A380 superjumbo 176–7

Aldi 338

alphabet shares 308–9

alternative performance measures (APM) 33

amortisation 95, 105–6, 180, 390, 392, 485

angel investors (business angels) 301, 303, 485

annual yield 362, 364–5, 435–6

arm’s-length principle 158

ASDA 305

asset turnover (AT) 41, 235, 414

asset-based finance 317, 485

asset-based valuations 286–7, 291–2, 423

assets 440

in the balance sheet 38, 39, 40, 41, 42–3

contingent 142–3, 400

leased 91–2, 96, 391

long-term (fixed) see fixed assets

net 34, 38, 39, 44, 104, 105

short-term (current) 40, 44, 86, 96, 110

values 42–3, 87, 88, 93, 104–5

associate relationships 160–1

audit

and accruals accounting 6

adverse opinion 202

and the balance sheet 42

committee 21, 221

disclaimer 203

external financial 6, 195–206, 407–9, 438, 485, 488

and going concern concept 198, 199, 203–4

internal 21, 201, 408

materiality threshold 200–1

modifications 188, 201, 409

qualified opinion 188, 201–2, 409

reform 197, 443–4

trails 21

average cost (AVCO) 114, 116, 117

B&Q 112, 113

bad debt provisions 124, 143, 395

balance, trial 17, 377, 493

balance sheet 17, 38–48, 49, 50, 208, 353, 380–2, 439

net assets/shareholders’ funds presentation 44

source and utilisation of finance presentation 44–5

timing factors 41–2, 441–2

valuation 42–3

balance sheet (technical) insolvency 255–6, 418

banks

and audited accounts 199

dividend payments 277

Beyond Budgeting Round Table (BBRT) 360

BHS 217, 218, 443

big data 329

board of directors 220–1

committees and corporate governance 221–2

see also directors

Boeing 737 Max safety 102, 176

bonds 316, 318–19

convertible 281, 316

book value 42, 104, 105, 438

see also net book value (NBV)

Boots plc 304

borrowing, cost of 315, 318–19

bottom line 31, 232, 333

BP, Deepwater Horizon disaster 139–40

breakeven sales 344–5, 346, 347, 348

budget constraints 356

budget holders 354, 356, 358

budgetary slack and padding 356

budgets/budgeting 12, 18, 341, 352–61, 432–4, 485

incremental 357–8, 434, 489

rolling 358–9, 434, 492

shrinking visibility problem 359, 434

spreadsheets 359–60

zero-based 358, 434, 493

buildings see land and buildings

business analytics 329

business angels see angel investors

business intelligence 329

business mix 234

business tax see tax

business valuation 102–3, 285–96, 423–5

asset-based 286–7, 291–2, 423

factors impacting 424

income-based 286, 287–8, 423

market to book ratio 293

premiums 290–1, 424–5

buyback agreements 65–6

capex (capital expenditure) 69–74, 386, 441, 486

capital

in the balance sheet 40, 42, 45, 147

cost of 313, 362, 368, 437, 486

share 147, 148, 152–3, 401–2

weighted average cost of (WACC) 368, 493

working see working capital

see also equity

capital allowances 81, 486

capital and reserves 40, 147, 486

capital employed 45, 236, 486

see also return on capital employed (ROCE)

capital expenditure (capex) 69–74, 386, 441, 486

capital gains 167, 388, 486

capital gains tax 76, 77, 387

capital maintenance rules 150

capital redemption reserve 154

capital reserves 42, 147, 148, 149, 150, 151, 153–4, 400, 401, 486

capitalisation of assets 91–2, 95, 96

Carillion 443

carrying value of an asset 175, 176, 177, 180

cash 3, 9, 52, 54, 292

payments 4, 51, 374

versus profit 9, 52, 374

receipts 4, 51, 374

retentions 7

cash accounting 5, 8, 373

cash equivalents 54

cash flow 353

discounted 286, 288, 362, 365–7, 368–9, 423, 487

forecasting 244, 247, 253, 355

free 54, 288, 489

operating 51, 53, 54, 383, 384

cash flow (actual) insolvency 256, 418

cash flow statement 9, 49–58, 382–4

cash generating unit (CGU) 180–1

cessation 302

charges 317–18

chief financial officer (CFO) 12, 375

choice, and accounting standards 189–90, 278, 406–7

CIMA (Chartered Institute of Management Accountants) 326, 327

commercial income 64

communication, budgeting as means of 353–4

Companies House 207, 209, 210, 213–14, 409

company accounts

and accounting standards 193

and accruals accounting 9

audit report 205

and balance sheet 46

budgets not in 361

and business valuation 294

capital and reserves 155

cash flow statement (CFS) 55

debt finance 310, 319

debtors and creditors 126, 249

dividends per share 283

earnings per share (EPS) 282

equity finance 310

fixed assets 98, 108

gearing 269

going concern disclosures 259

goodwill 107, 108

and group accounting 163

impairment 182

and information in the public domain 215

interest cover 269

investment 369–70

management accounts pack not in 330

opex and capex 72

prepayments and accruals 135

pricing strategy 339–40

profit and loss (P&L) account 35

profit planning not in 351

profitability performance measures 238

provisions and contingencies 143–4

revaluation 172–3

revenue recognition 67

stock 118

tax 84

viability statement 259

working capital 249

see also accounts; financial accounts; management accounts

company voluntary arrangement (CVA) 256, 257

Competition and Markets Authority (CMA) 338

Concorde supersonic plane 177

confirmation statement 207, 210, 409, 410, 486

conservatism 65, 115

consolidated accounts see group accounts/accounting

constraint, budgeting 356

contingent assets 142–3, 400

contingent liabilities 137, 138, 139, 141, 144, 292, 399–400

contracts

long-term 115–16

onerous 140

contribution 342–4, 348, 431, 486

contribution per unit 350

contribution percentage of sales (CPS) ratio 344–6, 347, 348, 431–2

control

organisational, and budget holders 354

ownership versus 160, 217, 221

parent companies 157

convertible bonds 281, 316

coordination, budgeting as means of 353–4

corporate failure 188, 197, 217, 226, 443, 444

corporate governance 216–27, 354, 410–12, 486

reform 197, 443–4

corporation tax 76, 80, 486

cost centres 354, 433

cost of sales (cost of goods sold (COGS)) 31

cost–volume–profit (CVP) analysis 350, 487

cost(s) 63

average 114, 116, 117

of borrowing 315, 318–19

of capital 313, 362, 368, 437, 486

classification 342

depreciated replacement 170

development 71, 101, 105

finance 95, 379

fixed 342, 343, 347, 348, 349, 350, 430, 432

of fixed assets 94–5

mixed 350

and price setting 334

stock 114, 116–17

training 95

variable 342, 343, 347, 348, 349, 350, 430, 431

versus net realisable value (NRV) 114–15

covenants 315, 486

Covid-19 pandemic 176, 179, 182, 198, 209, 254, 271, 277

credit

and debit confusion 125–6

and profit 374

credit control 121, 122–3, 243, 394, 486

credit ratings 255, 318–19

creditor days 122, 125, 394–5, 486

creditors 6, 13, 41, 50, 120–8, 138, 150, 249, 255, 292, 381, 393–4, 416, 486

buffer 147, 148, 149

and insolvency 252, 257

payments to 244, 417

crowdfunding, equity 303–4, 488

crowdlending 316–17, 487

cumulative preference shares 153

current assets 40, 44, 86, 96, 110

CVP (cost–volume–profit) analysis 350, 487

DCF see discounted cash flow

deadlines

business tax 79, 80

financial accounts 208–9, 409

debentures 312, 316, 487

debits 125–6

debt 44, 292

bad, provisions for 124, 143, 395

collection 243

defining 268

factoring 123, 243, 317, 487

insurance 123

sale of 123

servicing 300, 302, 314

debt finance 44, 45, 52, 262–4, 301, 312–20, 368, 426–7, 487

covenants 315

and financial risk 262, 300, 313–14

interest 312, 313, 314, 315

long-term 316–17, 426

secured versus unsecured 312, 317–18

short-term 317

tax advantages 300, 312, 313

debt–equity mix 314–15

debtor days 122, 125, 394–5, 487

debtors 6, 13, 41, 50, 120–8, 249, 292, 381, 393–4, 416, 487

deferred expense see prepayments

deferred income 42, 133, 381, 487

deferred tax 42, 83, 487

Deliveroo 290, 305

Dell computers 307

depreciated replacement cost 170

depreciation 76, 81, 86, 87–90, 92–5, 154, 180, 389–91, 441, 487

calculation of 89–90, 93–4, 390–1

revalued assets 165, 170–1

development costs 71, 101, 105

dilapidations 140

directors

and accounting standards 187–8, 444

and corporate governance 217, 220–2

executive 220, 221

fraud and error detection 196, 441

going concern statement 254

and insolvency risk 252–3

legal obligations 207, 208–9, 252, 441, 444

non-executive (NEDs) 220, 221

preparation and filing of accounts 208

publicly filed information about 208, 209, 210–11, 214

remuneration 210–11, 221

report 208, 212, 213

self-interest risk 217

viability statement disclosure 157–8

see also board of directors

disclaimer, audit 203

disclosure requirements 208–13

discounted cash flow 286, 288, 362, 365–7, 368–9, 423, 487

discounts

early payment 123

price 66, 335–6, 348

volume 348

distributable profits 32, 149

dividend cover 272, 275–7, 281, 422

dividend policy 309

progressive 152, 172, 309

dividend yield 272, 277–8, 282, 422

dividends 52, 76, 149, 151–2, 152–3, 154, 426

preference 272

and revaluation 171–2, 404

tax on 83

dormant companies 195

confirmation statement 210

disclosure requirements 211–13

double taxation 82–3, 487

downward revaluation 168–9, 175

early payment discounts/incentives 123, 243

earned revenue 4, 62

earnings per share (EPS) 272–3, 421–2, 488

diluted 281

earnings statement see profit and loss (P&L)

EAT/PAT (earnings/profit after tax) 31, 32, 232

EBIT/PBIT (earnings/profit before interest and tax) 31

EBITDA (earnings before interest, tax, depreciation and amortisation) 33, 378, 487

EBT/PBT (earnings/profit before tax) 31

employees 252

share options 281

employment taxes 76, 77–8, 80, 387

Enron 188

enterprise resource planning (ERP) systems 19, 329, 488

environmental, social and governance (ESG) factors 223

EPS see earnings per share

equity 40, 44, 147, 488

return on (ROE) 41, 44, 237

see also capital

equity accounting 161

equity crowdfunding 303–4, 488

equity finance 44, 45, 52, 263, 299–320, 368, 425–6, 488

private companies 302–6

public companies 306–7

equity (ordinary) shares 148, 152, 153, 300, 308–9, 402

ERP see enterprise resource planning

errors 196, 197, 198, 200–1

spreadsheet 359–60

expense(s)

accrued see accruals

deferred see prepayment

incurred 3, 4

operating 31

external financial audit 6, 195–206, 407–9, 438, 485, 488

Exxon Mobil 190

Facebook 102, 290

factoring, debt 123, 243, 317, 487

factoring organisations (‘factors’) 317

fair value 104–5, 154, 177

FASB (Financial Accounting Standards Board) 191

Federation of Small Businesses 196

FIFO (First-In-First-Out) 114, 116, 393

finance

short-term 244

sources of 44–5

see also debt finance; equity finance

utilisation of (capital employed) 44, 45

finance costs 95, 379

finance department 376

personnel 11, 12–14

typical structure of 12

finance director (FD) 12–13, 375

finance systems 11, 14–22

financial accounting

accruals accounting 3, 4, 5–6, 8, 9, 373, 375

cash accounting 5, 8, 373

‘finance’ team 13, 376

key areas 13

see also accounting and financial reporting standards; audit; fixed assets; group accounts/accounting; stock; tax

Financial Accounting Standards Board (FASB) 191

financial accounts 4, 6, 9, 141, 323

deadlines for filing 208–9, 409

draft accounts 18, 19

and management accounts, difference between 323, 376–7

statutory accounts 11, 19, 207, 208, 492

time lag 325

see also accounts; company accounts

Financial Conduct Authority (FCA) 338

financial controller 13

financial health

business valuation 285–96, 423–5

insolvency and going concern risk 251–61, 417–19

investor ratios 271–84, 421–3

long-term solvency performance measures 262–70, 419–21

profitability performance measures 231–9, 412–14

working capital and liquidity management 240–50, 415–17

financial management

budgeting and forecasting 12, 18, 341, 352–61, 432–4

investment appraisal 341, 362–70, 434–7

management accounts/accounting 6, 12, 18, 32, 323–31, 352, 376–7, 427–8

profit planning 341–51, 430–2

profitable pricing 332–40, 428–30

financial reporting standards see accounting and financial reporting standards

financial risk 265–6, 488

debt and 262, 300, 313–14

financial statements 488

accuracy of 439–41

estimates and judgements 65, 439–41

and investor ratios 278

key elements

business tax 75–85

capital and reserves 147–56

debtors and creditors 120–8

goodwill and other intangibles 101–9

group accounts 157–64

impairment 175–83

opex and capex classification 69–74

prepayments and accruals 129–36

provisions and contingencies 137–46

revaluation 165–74

revenue recognition 61–8

stock 110–19

tangible fixed assets and depreciation 86–100

limitations 438–9

primary

balance sheet 17, 38–48, 49, 50

cash flow statement 49–58

profit and loss (P&L) 9, 17, 29–36, 49, 50

reliability, relevance and trustworthiness 438–44

statement of changes in equity 32, 155, 173

statement of other comprehensive income 34

financial strategy 300

financing activities 51, 488

First-In-First-Out (FIFO) 114, 116, 393

fixed asset register (FAR) 96–7

fixed assets 40, 44, 69, 71

carrying value 175, 176, 177, 180

cost of 94–5

depreciation see depreciation

fair value of 104–5, 154, 177

impairment 42, 92, 106, 175–83

(net) book value of 104, 105, 171–2

recoverable amount 92, 175, 177–8, 180

revaluation 105, 149, 154, 165–74

value in use (VIU) 178–9, 180, 181

versus current assets 96

see also intangible fixed assets; tangible fixed assets (TFA)

fixed charges 318, 488

fixed costs 342, 343, 347, 348, 349, 350, 430, 432

floating charges 318, 488

forecasting 328, 347, 352, 353–4, 355, 357, 359, 360, 432, 488

cash flow 244, 247, 253, 355

and forward ratios 281–2

rolling forecasts 434

shrinking visibility problem 434

foreign currency translation reserve 154

forward ratios 281–2

forward-looking disclosures 442–3

see also going concern; viability statement

Frasers Group 276

fraud 196–7, 198, 408, 441, 488

free cash flow (FCF) 54, 288, 489

Funding Circle 317

future maintainable earnings 287

future performance 199, 442–3

GAAP (Generally Accepted Accounting Principles) 4, 9, 33, 66, 190, 191, 440, 489

gains

realised/unrealised 167

versus profits 167

see also capital gains

gearing 52, 138, 262, 263–5, 268, 269, 420, 489

definition of 263, 420

and interest cover, relationship between 264–5, 421

measures 263, 420

gearing ratios 192, 263, 315

Generally Accepted Accounting Principles see GAAP

going concern 198, 199, 203–4, 251, 418, 489

statement 254, 418, 442–3

Goodhart’s law 356

goods 110, 115

goods received not yet invoiced (GRNYIs) see accruals

goodwill 42, 95, 101, 102–4, 105–9, 391–2, 489

in group accounts 161–2

impairment testing 106, 175, 179–80, 405

inherent 101, 102, 103, 439

negative 106, 392

purchased 101, 103–4, 105–6, 179, 292, 440

volatility 102, 103

Google 290

Greggs

accounting standards 193, 406–7

accruals accounting 373

acid test ratio 416

audit 205–6, 407–9

balance sheet 46–7, 380, 381, 382

business valuation 294–5

capital and reserves 156, 401

cash flow statement 56–7, 374, 382, 383, 384

confirmation statement 409, 410

corporate governance 226, 410–12

credit control 394

debt 269–70

debt finance 320, 426

debtors and creditors 126–7, 417

depreciation 389–91

dividends 283–4, 422, 426

Enterprise Resource Planning (ERP) system 23–4, 330

equity finance 310, 425

finance director (FD) 375

financial accounting 377

financial statements 2020 445–83

fixed costs 430

going concern statement 260, 418

gross profit margin 412, 414

group accounting 164, 402–3

impairment 182, 370, 405–6

intangible assets 24–5, 108, 392

interest cover 421

investment appraisal 370, 435, 436, 437

investor relations team 376

leased assets 391

liquidity 415, 416, 419–20

management accounting 330, 377

operating profit margins 413, 414

opex and capex 73–4, 386

prepayments and accruals 135–6, 396–7

prices 429, 431

profit after tax (PAT) 379

profit and loss 36, 378, 380

profit maximisation 429

provisions 144–5, 398–9

publication of accounts 215, 409

retained earnings 379

return on capital employed 238, 412, 414

revenue recognition 67–8, 384, 385

shares 402

stock 112, 118, 393

tangible fixed assets 98–9

tax 83, 84, 387–8

value in business model 340, 429

variable costs 430

viability statement 419

whistleblowing policy 226, 412

working capital cycle 417

working capital days 416

GRNYIs (goods received not yet invoiced) see accruals

gross profit 31, 377–8, 413–14, 489

gross profit margin (GPM) 232, 412, 413–14, 489

group accounts/accounting 154, 157–64, 189, 402–3, 489

Grubhub 290

Heinz 104, 307

historic cost accounting 105, 165, 167, 169, 171, 172, 189, 404, 438–9

HMRC (Her Majesty’s Revenue and Customs) 75, 80, 81

Hyundai, engine recall 139

IASB (International Accounting Standards Board) 190

impairment 42, 175–83, 405–6, 441, 489

calculating 177–9

external and internal indicators of 176, 177

losses 177, 181

testing 92, 106, 175, 179–80, 405

income 489

accrued 42, 133, 485

commercial 64

deferred 42, 133, 381, 487

see also revenue

income statement see profit and loss (P&L) account

income-based valuations 286, 287–8, 423

discounted cash flows 286, 288, 423

multiples 286, 287–8, 423

incremental budgets 357–8, 434, 489

incurred expenses 3, 4

indefinite (or infinite) life assets 95, 105–6, 391–2

indexation allowance 77

inflation 77, 117

information in the public domain 207–15, 409–10

initial public offering (IPO) 305, 306, 489

insolvency 151, 241, 243, 251–61, 302, 418, 490

balance sheet (technical) 255–6, 418

cash flow (actual) 256, 418

legal support 254

procedures 256–7

warning signs 252–3

institutional shareholders 222–3, 307

insurance, debt 123

intangible fixed assets 40, 42, 95, 101–9, 391–2, 490

amortisation 95, 105–6, 390, 392, 485

valuation 292

interest 51, 52, 76, 312, 314, 315, 316

tax deductibility 300, 312, 313

interest cover 262, 264–5, 315, 421, 490

internal audit 21, 201, 408

internal rate of return (IRR) 365, 366–7, 368–9, 437, 490

International Accounting Standards Board (IASB) 190, 191

international accounting/financial reporting standards (IAS/IFRS) 66, 189, 190–2, 489

inventory see stock

investing activities 51–2, 490

investment

definitions of 233, 236

minimising versus maximising 234

return on see annual yield; internal rate of return (IRR); return on investment (ROI)

risk 363, 367–8

timing of 367

investment appraisal 341, 362–70, 434–7

annual yield method 362, 364–5, 435–6

discounted cash flow techniques 362, 365–7

internal rate of return (IRR) 365, 366–7, 368–9, 437

net present value (NPV) 365–6, 368–9, 436–7

payback period (PBP) method 362, 363–4, 367, 435, 491

investment centres 354, 433

investor ratios 13, 271–84, 421–3

invoice factoring 123

invoice finance (IF) 317

IRR see internal rate of return

JIT (just in time) stock management 111, 113, 243

journals 18, 490

Just Eat 290

Kingfisher 112, 113

KKR 304

Kraft Heinz 104, 307

land and buildings 86, 95, 96, 105, 189–90, 389

fixed charges 318

revaluation 165, 166, 170

large businesses

audit 201

disclosure requirements 208, 211–13

LDC (Lloyds Development Capital) 304–5

Learndirect 304

lease accounting 191–2

leased assets 91–2, 96, 391

ledgers, debtor and creditor 121

legal obligations

auditors 197

capital reserves creation 154

directors 207, 208–9, 252, 441, 444

and group companies 160

and provisions 141

tax 75

leverage 265–7, 301, 490

leveraged buyout (LBO) 304

liabilities

in the balance sheet 38, 39, 40, 41, 43, 44, 96, 439, 440

hidden 439

long-term (non-current) 40

non-controlling interest (NCI) 162

operating leases 440

provisions and contingencies 137–46, 292, 397–400, 440

short-term (current) 40, 44

licences 95, 105

Lidl 338

limited liability 207

liquidation 256, 257

liquidity 12, 41, 240–50, 302, 415–16

and solvency, difference between 419–20

liquidity ratio 247–8, 253, 415–16

listed companies 210

business valuation 286, 288–9

corporate governance 218

directors’ remuneration 211

disclosure requirements 211–13

equity finance 302, 306–7

filing of accounts 208, 209

financial reporting standards 189

return to private ownership 307

see also public limited companies (PLCs)

loans, long-term 316

long-term assets see fixed assets

long-term contracts 115–16

long-term liabilities 40

long-term projects 7

long-term solvency see under solvency

losses

impairment 177, 181

revaluation 168–9

management accounting (MA) team 14, 18, 376

management accounts packs (MAPs) 18, 323–31, 427–8

management accounts/accounting 6, 12, 18, 32, 323–31, 352, 376–7

margin of safety 345, 490

margins 336–7, 430, 490

mark-ups 336–7, 430, 490

market to book ratio 293, 490

market values 43, 88, 105, 170, 190

matching principle 3, 8, 129

materiality 490

and auditing 200–1

Maxwell Communications 217

micro businesses 211–13

Microsoft 104, 179

minority interest 162

mixed costs 350, 490

multi-component transactions 62–3

multinational corporations 82

multiple obligations, provision for 142

multiples valuation method 286, 287–8, 423

multi-year transactions 62–3

national insurance contributions (NICs) 78

net asset value (NAV) 293

net assets 34, 38, 39, 44, 104, 105, 490

net book value (NBV) 87, 88, 93, 171–2, 490

net present value (NPV) 365–6, 368–9, 436–7, 491

net profit 31

net profit margin (NPM) 138, 232

net realisable value (NRV) 114–15, 440

net working capital 490

Nokia 104, 179

nominal ledger 16, 17, 377, 491

nomination committee 221

non-controlling interest (NCI) 162, 491

non-listed companies, financial reporting standards 189

Northern Rock 217

obligations, provisions for 141, 142

Ocado 87, 89

onerous contracts 140

operating activities 51, 53, 491

operating cash flow 51, 53, 54, 383, 384

operating expenses 31

operating leases 440

operating profit 31, 314, 349, 350, 377–8, 383, 384, 413–14, 491

operating profit margin (OPM) 232, 235, 413–14, 491

operating risk 349–50, 491

opex (operating expenditure) 69–74, 386, 491

opportunity cost of money (capital) 365, 366, 436

ordinary (equity) shares 148, 152, 153, 300, 308–9, 402

ordinary shareholders 148, 149, 152

organisational control, budgeting as means of 354

overdrafts 244, 317

overtrading 243, 256

ownership

versus control 160, 217, 221

and debt finance 313

and equity finance 299–300

parent companies 157, 158–64

PAT (profit after tax) 236, 237, 378–9

patents 95, 101, 105

payback period (PBP) 362, 363–4, 367, 435, 491

PAYE (Pay As You Earn) 77–8, 491

payroll 13

PBIT (profit before interest and tax) 236, 237, 421

PBT (profit before tax) 236

PCPI (Private Company Price Index) 287–8

peer-to-peer (P2P) lending 316–17, 487

performance measures

and balance sheet 41

and budgets 354–5

long-term solvency 13, 262–70, 419–21

profitability 12, 32, 231–9, 412–14

planning

and budgeting and forecasting 353

profit 341–51, 430–2

PLCs see public limited companies

Polly Peck 217

pre-emption rights 308, 491

preference dividends 272

preference shares 152–3, 402

premiums, business valuation 290–1

prepayments 6, 18, 42, 129–36, 381, 396–7, 491

prescribed person 222

price earnings growth (PEG) ratio 280–1

price/earnings ratio (P/E) 272, 274–5, 278, 280, 287, 423

forward 281

prices/pricing 332–40, 341, 430

competitors 334

discounts 66, 335–6, 348

discrimination (customised/personalised) 337–8, 491

dynamic (or demand yield) 337

margins and mark-up 336–7, 430

penetration 338–9

profitable 332–40, 428–30

reviews 334

share 307, 308

skimming 338, 430

value-based 332, 333, 334, 430

principal-agent risk see agency risk

private companies

business valuation 275–6, 289

corporate governance 218

equity finance 302–6

financial accounts 209, 409

solvency assessment 255

Private Company Price Index (PCPI) 287–8

private equity (PE) 304–5, 491

product mix 234

product and service combinations 7, 62–3

professional bodies for accountants 22

profit 3, 8, 9, 52, 63

cash versus 9, 52, 374

and credit 374

distributable 32, 149

gains versus 167

gross 31, 377–8, 413–14, 489

maximisation strategies 332–3, 428–9

negative goodwill as 106

net 31

non-controlling interest (NCI) 162

operating 31, 314, 349, 350, 377–8, 383, 384, 413–14

planning 341–51, 430–2

and pricing 332–40, 428–30

retained see retained profit

sales revenue and 344, 345–7, 349–50

tax on (corporation tax) 76, 80, 486

underlying 33

profit after tax (PAT) 236, 237, 378–9

profit before interest and tax (PBIT) 236, 237, 421

profit before tax (PBT) 236

profit centres 354, 433

profit and loss (P&L) account 9, 17, 29–37, 39, 49, 50, 149, 208, 353, 380, 410, 441

profit margin

gross 232, 412, 413–14, 489

operating 232, 235, 413–14

profit multiples 287, 423

profit to volume ratio see contribution percentage of sales (CPS) ratio

profitability performance measures 12, 32, 231–9, 412–14

Prompt Payment Code 244

prospectus 307

provisions 6, 18, 42, 50, 137–46, 397–9, 492

prudence 65, 115, 492

Prudential Regulation Authority (PRA) 277

public domain, information in 207–15, 409–10

Public Interest Disclosure Act (1998) 216, 219

public limited companies (PLCs)

corporate governance 217

directors’ remuneration 211

equity finance 302, 306–7

financial accounts 208, 209, 409

solvency assessment 254–5

see also listed companies

public offerings 307, 492

purchases 3–4, 6

qualifying disclosures 222

RBS 217

reconciliations 21, 51

recoverable amount of an asset 92, 175, 177–8, 180

redeemable shares 153

reducing balance depreciation 89, 93, 390

reform, audit and corporate governance 197, 443–4

refurbishments 70

regulatory environment

external financial audit 6, 195–206, 407–9, 438, 485, 488

information in the public domain 207–15, 409–10

see also accounting and financial reporting standards; corporate governance

related parties 158

remuneration, directors’ 210–11

remuneration committee 221

repairs 70

reputation 102

reserves 40, 147

capital 42, 147, 148, 149, 150, 151, 153–4, 400, 401

capital redemption 154

distributable 149

foreign currency translation 154

revaluation 147, 149, 154, 165, 172, 173

revenue 42, 147, 149, 150, 400

share premium 147, 148, 149, 153

residual value of an asset 90, 91

restructuring 140

retained profit (retained earnings) 31, 32, 379, 492

see also revenue reserves

retentions, cash 7

return, definitions of 233, 236

return on capital employed (ROCE) 41, 45, 138, 169, 171, 192, 237, 412, 414

return on equity (ROE) 41, 44, 237

return on investment (ROI) 231, 233–8, 412, 492

drivers of 235–6, 414

maximising 233–4

return on net assets (RONA) 44, 237

return on total assets (ROTA) 237

returned goods 64, 65

revaluation 42, 43, 91, 149, 165–74, 175, 190, 404

revaluation reserve 147, 149, 154, 165, 172, 173

revenue 30, 384, 492

earned 4, 62

see also income; sales

revenue centres 354, 433

revenue expenditure see opex (operating expenditure)

revenue multiples 287, 423

revenue recognition 6, 7, 61–8, 384–5, 441

revenue reserves 42, 147, 149, 150, 400, 492

rights issues 306–7, 492

risk 302

agency 217, 410

financial see financial risk

investment 363, 367–8

operating 349–50

ROCE see return on capital employed

ROE see return on equity

ROI see return on investment

rolling budgets and forecasts 358–9, 434, 492

rollover relief 77

RONA (return on net assets) 44, 237

ROTA (return on total assets) 237

Royal Dutch Shell 52

Saga 179

sales 3–4, 6

break-even 344–5, 346, 347, 348

and profit 344, 345–7, 349–50

to working capital ratio 246

see also revenue

sales returns 64, 65

Sarbanes–Oxley Act (2002), US 220

scarce resources, budgeting and identification of 353

secondary dealing 148, 401, 492

service businesses

and audit 200

cost of sales 31

revenue recognition 62–3

‘stock’ 115

see also product and service combinations

service mix 234

share capital 147, 148, 152–3, 401–2

share options 281

share premium reserve 147, 148, 149, 153

share price 307, 308

shareholders 148, 152–3, 217

dilution of 307, 308

and insolvency 252

institutional 222–3, 307

pre-emption rights 308

shares 401–2

alphabet 308–9

earnings per share see earnings per share (EPS)

initial public offerings (IPO) 305

ordinary (equity) 148, 152, 153, 300, 308–9, 402

preference 152–3, 402

public offering 307

redeemable 153

rights issues 306–7

secondary dealing 148, 401, 492

Shell 52, 190–1

short-term assets see current assets

short-term (current) liabilities 40, 44

short-term finance 244

significant influence 160–1, 403

single obligation, provision for 142

size and disclosure requirements 208, 211–13

small businesses

abridged accounts 208

audit 195–6

cash flow statement exemption 55

debt finance 314, 427

directors’ remuneration 210–11

disclosure requirements 210–11, 211–13

equity finance 314

management accounts packs (MAPs) 325

solvency 492

assessment 254–5

and liquidity, difference between 419–20

long-term 41, 50

performance measures 13, 262–70, 419–21

short-term 41

special purpose acquisition companies (SPACs) 305–6

spreadsheets 329, 359–60

standards see accounting and financial reporting standards

start-up businesses

debt finance 314

equity finance 301, 304

statement of changes in equity 32, 155, 173

statement of other comprehensive income 34

statutory financial accounts 11, 19, 207, 208, 492

see also financial statements

‘stepped’ fixed cost 348

Stewardship Code 223

stock 41, 50, 96, 110–19, 121, 381, 392–3, 416, 440, 492

cost versus net realisable value (NRV) 114–15

costing methods 114, 116–17

JIT (just in time) management 111, 113, 243

stock days 111–13

stock turnover 113

stock-outs 111, 113

stocktakes 114

valuation 292, 440

year-end accounting 114

straight-line depreciation 89, 90, 94, 390, 391

subsidiaries 157, 158–64

sum of years’ digits depreciation 89, 93, 94

suppliers

credit 124, 243

managing 124

Takeaway.com 290

TALCL (total assets less current liabilities) 45, 236, 237, 493

tangible fixed assets (TFA) 40, 86–100, 389–91, 493

capitalisation 91–2

depreciation 76, 81, 86, 87–90, 92–5

net book value (NBV) 87, 88, 93

profit/loss on disposal 91

residual value 90, 91

revaluations 91

useful economic life 87

valuation 291

tax 51, 64, 75–85, 387–9

avoidance 80–1

capital allowances 81

capital gains 76, 77

compliance yield 81

deadlines 79, 80

and debt finance 300, 312, 313

deferred 42, 83, 487

double taxation 82–3, 487

effective tax rate 83

employment 76, 77–8, 80, 387

evasion 80

indexation allowance 77

and interest 300, 312, 313

international 82–3

penalties and interest 79

on profits (corporation tax) 76, 80, 486

relief for losses 82

residence 82–3

rollover relief 77

tax charge 76

tax gap 81, 389, 493

tax rate 76

value added tax (VAT) 76, 78–9, 80, 387, 389

TDR Capital 305

technical insolvency 255–6, 418

Tesco 61–2, 64, 65, 244–5, 338

time/timing

and accruals accounting 6

and the balance sheet 41–2, 441–2

and budget-setting 355

and financial accounts 325

of investment 367

and profit and loss (P&L) account 32

time value of money 365

top line see revenue

total shareholder return (TSR) 272, 278–9

trademarks 101, 105

training costs 95

treasury team 13–14

trial balance (TB) 17, 377, 493

true and fair 200, 202, 439, 493

TSB 102

turnover 30, 384, 493

see also income; revenue

Uber 141, 337, 339

Uber Eats 290

UK

accounting standards 187–8, 188–9, 190

credit rating 319

UK Corporate Governance Code (The Code) 216, 217–18, 219–21, 257, 411

Ultra Low Emission Zones (ULEZ) 176

Unilever 234–5

US

accounting standards (US GAAP) 66, 190, 191

corporate governance 220

valuation

balance sheet 42–3

business see business valuation

intangible fixed assets 292

premium 290–1, 424–5

stock 114–15, 440

value differentiators 333–4, 429

value in use (VIU) 178–9, 180, 181

value-based pricing 332, 333, 334, 430

valued added tax (VAT) 76, 78–9, 80, 387, 389, 493

variable costs 342, 343, 347, 348, 349, 350, 430, 431

variances 21

venture capital (VC) 304, 493

viability statement 257–8, 419, 442–4

volatility, of inherent goodwill 102, 103

Volkswagen, diesel emissions scandal 139

volume discounts 348

The Wates Code 218

weighted average cost of capital (WACC) 368, 493

WhatsApp 290

whistleblowing 216, 218–19, 222, 411–12, 493

Wirecard 197

work in progress (WIP) 110, 115

working capital 12, 41, 51, 121, 151, 415, 417

cycle 241, 242, 243, 244–5, 246, 248, 253, 417

days 245–6

management 240–50, 417, 493

sales ratio 246

YouTube 290

zero-based budgets 358, 434, 493