Interpret financial statements and reports

Interpret financial statements and reports
D2.TFA.CL7.02 Trainer welcomes students to class.

Subject elements This unit comprises three Elements: 1 2 3 1 2 3
Determine action to be taken on the basis of interpretation of financial information Interpret financial information Determine the context for financial information 1 2 3 1 2 Trainer advises this Unit comprises three Elements, as listed on the slide explaining: • Each Element comprises a number of Performance Criteria which will be identified throughout the class and explained in detail • Trainees can obtain more detail from their Trainee Manual • At times the course presents advice and information about various protocols but where their workplace requirements differ to what is presented, the workplace practices and standards, as well as policies and procedures must be observed. 3

Assessment Assessment for this unit may include: Oral questions
Written questions Work projects Workplace observation of practical skills Practical exercises Formal report from supervisor Trainer advises that assessment for this Unit may take several forms all of which are aimed at verifying they have achieved competency for the Unit as required. Trainer indicates the methods of assessment that will be applied to them for this Unit.

Element 1: Determine the context for financial information
Introduce topic. Class Activity – General Discussion Ask general questions: Why is financial information important? What types of financial information do you need? How can you get it? How is financial information normally displayed?

Determine the context for financial information
Performance Criteria for this Element are: Identify the financial statements and reports used by the organisation Define financial terminology commonly used by the organisation Identify financial indicators commonly used by the organisation Identify the frequencies with which financial information is required to be interpreted 1 2 3 Trainer identifies the Performance Criteria for this Element, as listed on the slide. 4

Determine the context for financial information
Performance Criteria for this Element are: Identify the personnel responsible for providing financial information, reports and statements Describe the non-financial indicators to be considered when interpreting financial information Describe the operational areas to which the interpretation of financial information applies Trainer identifies the Performance Criteria for this Element, as listed on the slide.

Importance of finance Aspects of financial success
In order to be successful a good business should: Earn a satisfactory profit for its owners Use its short term and long term assets efficiently Be able to pay its short term debts on time Maintain adequate cash stocks to meet requirements Provide a return on investment Class Activity – Discussion Ask general questions: Discuss the importance of these points Are there any additional aspects you think are important? How can you measure these aspects?

Accounting Role of accounting
All organisations record their financial activities and consolidate this information: In reports That convey their financial achievements Over arbitrary time periods Of equal length Class Activity – Discussion Ask general questions: Who undertakes ‘accounting’ activities in a travel and tourism business? (Remember that it is not just the accounts/finance department) What financial activities do they perform?

Accounting Role of accounting
Accounting is often referred to as the “language of business” Principles and terminology that provide the structure for the information system Reports that summarise financial activities Class Activity – Discussion & Review finance department roles and functions Ask general questions: What ere examples of financial activities? Review job roles in the finance department and the functions they perform

Accounting Common accounting terms and definitions Accounting Asset
Liability Proprietorship Debtor Creditor Operating cycle Revenue Expense Class Activity – Discussion Ask general questions: What do these accounting terms and definitions mean? Please refer to the section Glossary of the Trainee Manual.

Accounting Financial accounting
Financial accounting includes the preparation, review and interpretation of financial reports or statements that accurately represent what the business own and owes This is called the financial position of the business Class Activity – Discussion Ask general questions: What are examples of financial reports or statements? What information is contained within? Why are they important?

Financial statements & reports
A financial statement is a formal record and summary of the financial transactions of a company. It is the end product of the accounting process or cycle: What are examples of commonly used financial statements and reports? Refer to TM Pages 11-13 Class Activity – Discussion & Show examples of financial statements / reports Ask general questions: Discuss the question in the slide.

Financial statements & reports
Purpose of financial statements The objectives of financial statements are to provide information about the company’s: Financial position Financial performance Changes in financial position Cash flow Class Activity – Discussion Ask general questions: What reports / statements provide this information?

Types of financial information
Range of financial information The range of financial information potentially available to management is diverse and can be manipulated in many ways to create a variety of reports, statements and documents: What types of financial information exist in a travel and tourism business? Class Activity – Discussion Ask general questions: Discuss the question in the slide.

Source documents Invoices Receipt books Cash register audit tapes Internal vouchers and promotional vouchers Daily takings sheets Credit card imprints and vouchers Time / wages sheets Purchase orders Receipts Class Activity – Discussion & Show examples of financial information Ask general questions: What information is found in this information / document? Who prepares it? How can this information be used?

Journals A journal is any internal book or record-keeping system that records entries and figures of daily financial transactions, in chronological order. Provide a complete list of all transactions in the one place: Cash Receipts Journal Cash Payments Journal Sales Journal Petty Cash Journal Class Activity – Discussion & Show examples of financial information Ask general questions: What information is found in this information / document? Who prepares it? How can this information be used?

Accounts Current Assets Fixed Assets Current Liabilities Long-term Liabilities Operating Revenues Cost of Goods Sold Operating Expenses Class Activity – Discussion & Show examples of financial information Ask general questions: What are examples of each type of account? What information is found in this information / document? Who prepares it? How can this information be used?

Trial balance Lists all the ledger accounts in the following order with their current balances: Assets (current and non-current) Liabilities (current and non-current) Owners Equity Revenue Expenses Class Activity – Discussion & Show examples of financial information Ask general questions: What information is found in this information / document? Who prepares it? How can this information be used?

Statement of Financial Position / Balance Sheet A balance sheet is a financial statement that summarises at a specific point of time a company's: Assets Liabilities Equity Class Activity – Discussion & Show examples of financial information Ask general questions: What information is found in this information / document? Who prepares it? How can this information be used?

Statement of Financial Performance / Profit and Loss Statement Statement of comprehensive income or profit & loss statement is a financial statement that measures a company's financial performance over an accounting period: Revenue Less Cost of Goods Sold = Gross Profit Less Operating Expenses = Net Profit Class Activity – Discussion & Show examples of financial information Ask general questions: What information is found in this information / document? Who prepares it? How can this information be used?

Cash flow reports Critical in the operation of any business, the cash flow report indicates the present financial liquidity of the property Class Activity – Discussion & Show examples of financial information Ask general questions: What information is found in this information / document? Who prepares it? How can this information be used?

Invoices These documents come from suppliers and show stock delivered by: Quantity Type, size Unit cost Total for the particular delivery Class Activity – Discussion & Show examples of financial information Ask general questions: What information is found in this information / document? Who prepares it? How can this information be used?

Budgets A statement of management’s planned outcomes for the business, expressed in dollars or quantities to achieve its objectives for a precise period of time: What types of budgets are there? Class Activity – Discussion & Show examples of financial information Ask general questions: What information is found in this information / document? Who prepares it? How can this information be used?

Types of budgets Sales budgets Labour budgets Material budgets Inventory budget Overhead budgets Capital expenditure budgets Budgeted Financial Performance statement Cash budgets Budgeted statement of Financial Position Class Activity – Discussion & Show examples of financial information Ask general questions: What information is found in this information / document? Who prepares it? How can this information be used?

Purchase summary reports These reports group purchases by supplier and category Present an overview of where the purchases are being made, and how much is being spent Class Activity – Discussion & Show examples of financial information Ask general questions: What information is found in this information / document? Who prepares it? How can this information be used?

Variance reports This report provides an overview of all variances that have been identified throughout the property Variances between ‘budget’ figures and ‘actual’ figures Cover both the positive and the negative variances, and will present both dollar figures and percentages Class Activity – Discussion & Show examples of financial information Ask general questions: What information is found in this information / document? Who prepares it? How can this information be used?

Wastage reports These reports will highlight: Stock that has not been used as intended, to produce revenue Situations where too much perishable stock is being bought Storage practices that are sub-standard and thus causing product loss Class Activity – Discussion & Show examples of financial information Ask general questions: What information is found in this information / document? Who prepares it? How can this information be used?

Sales reports This report condenses revenue figures from all the revenue areas into one detailed document Set out and compared to budgeted figures Comparisons with the same time last year, together with a running year-to-date total Class Activity – Discussion & Show examples of financial information Ask general questions: What information is found in this information / document? Who prepares it? How can this information be used?

Supporting information Number of actual enquiries Number of customers Units sold Types of packages or tours booked Actual products and services booked Average spends of customers Staff wage costs Productivity Class Activity – Discussion & Show examples of financial information Ask general questions: What information is found in this information / document? Who prepares it? How can this information be used?

Banking information Bank statements Bank Reconciliations Bank deposit documentation Merchant statements Cheque books Credit card transaction statements Class Activity – Discussion & Show examples of financial information Ask general questions: What information is found in this information / document? Who prepares it? How can this information be used?

International Air Transport Association (IATA) reports The International Air Transport Association (IATA) is a trade association of the world’s airlines: What topics are covered in their reports? Class Activity – Discussion & Show examples of financial information Ask general questions: What information is found in this information / document? Who prepares it? How can this information be used?

Billing and Settlement Plan (BSP) documentation IATA BSP documentation includes: Standard Traffic Documents (STDs Standard Administrative Forms (SAFs) Forms raised by airlines BSP Calendar BSP Manual for Agents BSPlink Manuals COMPLETE ACTIVITY 1 Class Activity – Discussion & Show examples of financial information & Complete Activity 1 Ask general questions: What information is found in this information / document? Who prepares it? How can this information be used?

Financial indicators Financial indicators or benchmarks
Many business use financial indicators or benchmarks to judge the way the business is performing: What is a benchmark? What in an indicator? Class Activity – Discussion Ask general questions: Discuss the questions in the slide.

Financial indicators Types of financial indicators and benchmarks
Financial indicators and benchmarks may be based on: Costs Sales Profit Operating performance What are examples of indicators & benchmarks for each category? COMPLETE ACTIVITY 2 Class Activity – Discussion Review financial indicators & Complete Activity Ask general questions: Discuss the question in the slide Complete Activity 2

Frequencies for financial information
Financial accounting period Every accounting entity must collate transactions into financial reports in a timely manner This requires that all organisations set specific time periods of equal length for reporting and measuring financial results Each financial report must clearly state the time period being reported, known as the accounting period Class Activity – Discussion Ask general questions: Why is this important?

Financial accounting period The accounting period is the period with reference to which accounting books of any company are prepared. It is the period for which accounting books are: Closed Balanced Financial statements are prepared Class Activity – Discussion Ask general questions: What are the common ‘financial periods’?

Financial accounting period Generally, the accounting period will be: Daily Weekly Monthly Quarterly Half-yearly Annually Class Activity – Discussion Ask general questions: What types of reports or information are prepared for each of these ‘financial periods’?

Financial accounting period What impacts the frequency of financial information, statements or reports to be prepared? COMPLETE ACTIVITY 3 Class Activity – Discussion & Complete Activity Ask general question: Discuss the question in the slide Complete Activity 3

Financial information personnel
Personnel involved in preparing and using financial information It is important to identify personnel responsible for: Providing financial information Users of financial information Class Activity – Discussion Ask general question: Who provides financial information? Who uses financial information?

Personnel responsible for providing financial information Accounting staff Departmental heads Managers Supervisors Head office Providers, suppliers and carriers Class Activity – Discussion Ask general question: How are each of these people involved in the production of financial information?

Users of financial information Managers Shareholders or current investors Potential investors Financial institutions Suppliers Customers Class Activity – Discussion Ask general question: What information does each of these people need? What are they trying to determine by reviewing financial information?

Users of financial information Potential Employees Existing Employees Competitors General Public Government COMPLETE ACTIVITY 4 Class Activity – Discussion & Complete Activity Ask general question: What information does each of these people need? What are they trying to determine by reviewing financial information? Complete Activity 4

Non-financial indicators
Importance of non-financial indicators Whilst financial indicators will be the primary focus on analysing the financial success of a travel and tourism operation, it is essential that non-financial indicators are also taken into account. What are examples? How do they differ from financial indicators? How can they be beneficial? Class Activity – Discussion Ask general questions: Discuss the questions in the slide.

Types of non-financial indicators Customer service levels Customer satisfaction levels Safety Condition of property, systems, equipment and facilities Ambience of the property Cleanliness Class Activity – Discussion Ask general questions: What are examples of indicators you would have for each category? How are these non-financial indicators measured? What are benchmarks for these indicators?

Types of non-financial indicators Staff training Complaints Community participation User friendly experience Employee satisfaction Repeat customer business Awards COMPLETE ACTIVITY 5 Class Activity – Discussion & Complete Activity Ask general questions: What are examples of indicators you would have for each category? How are these non-financial indicators measured? What are benchmarks for these indicators? Complete Activity 5

Operational areas requiring financial information
Each travel and tourism establishment will have different structures to meet the needs of their operations and the types of products and services they provide to their customers Regardless of the organisational structure established, it is essential that financial information is captured and assessed in relation to every unit within the business Class Activity – Discussion Ask general questions: What are operational areas in a travel and tourism operation?

Segments of an organisation The financial statements are prepared for the company and business units. Logical element or segment of a company are called: Business units Departments Divisions Cost centres Class Activity – Discussion Ask general questions: Provide examples for a travel and tourism operation?

Types of business units Outlets Geographical offices Specific sales related areas Types of customers / market segments Accounting Production Marketing Research & development Human resources, and Sales and marketing COMPLETE ACTIVITY 6 Class Activity – Discussion & Complete Activity Ask general questions: How else can you divide a travel and tourism business for financial purposes? Complete Activity 6

Element 2: Interpret financial information
Introduce topic. Class Activity – General Discussion Ask general questions: What does the term ‘interpret’ mean? Why is it important to interpret financial information?

Interpret financial information
Performance Criteria for this Element are: Review the financial information provided Verify information contained within the material provided Undertake statistical analysis of the financial information provided Draw conclusions from the financial information provided 1 2 3 Trainer identifies the Performance Criteria for this Element, as listed on the slide. 4

Review financial information
From a management perspective there is an ongoing need to review financial information in terms of its day- to-day impact on work operations and the attainment of organisational goals Why is it important to review financial information? Class Activity – Discussion Ask general questions: Discuss the question in the slide.

Reasons to review financial information Ascertain accuracy of information collected Determine importance of information Meet legally imposed taxation and other business requirements Demonstrate due diligence in the operation of the business Develop a growing resource to help evaluate the performance of the business Class Activity – Discussion Ask general questions: Discuss these reasons.

Reasons to review financial information Compare actual business performance to budgeted/expected figures Identify strengths and opportunities Identify problems in a timely manner Identify areas requiring improvement Assist in making future decisions Identify its current financial position Class Activity – Discussion Ask general questions: Discuss these reasons.

Reviewing financial information Reading the material Gaining a general appreciation of what the information contains Comparing statistics to previous periods Identifying trends Determining if any trigger points or red flag situations have arisen Clarifying queries Class Activity – Discussion Ask general questions: Discuss the processes associated with each of these activities

Verify financial information
Importance of verifying financial information One of the first things to do when reviewing financial records is to view the documents with a view to convincing yourself the data they contain is accurate and complete: Why is this important? How can you verify financial information? Class Activity – Discussion Ask general questions: Discuss the questions in the slide.

Financial maintenance policies and procedures Each organisation will need to have established policies and procedures in order to ensure financial information collected, collated and included in statements or reports is verified and determined to be an accurate reflection of actual activities: What are examples of policies and procedures used to ensure financial reporting is done accurately? Class Activity – Discussion Ask general questions: Discuss the question in the slide.

Financial maintenance policies and procedures The records to be created and maintained Naming protocols for budgets and budget lines Timelines for updating records Frequency of report generation Identification of types of reports to be produced Type of accounting system to be used Qualifications of people Distribution list for records and reports Class Activity – Discussion Ask general questions: Why are these important? What would be some standards for these policies and procedures?

Financial maintenance policies and procedures Storage and security protocols for the data Accounting standards to be applied Reviews and evaluations of the policies and procedures Triggers (red flags) for individual statistics, KPIs or data Auditing requirements Class Activity – Discussion Ask general questions: Why are these important? What would be some standards for these policies and procedures?

Activities associated with verifying financial information Checking source documentation Ensuring all relevant documentation, including source documentation has been provided Verifying ‘brought forward’ figures from previous documentation Ensuring only charges relevant to the business/unit have been posted Class Activity – Discussion Ask general questions: Why are these important? What would be some tasks associated with each activity?

Activities associated with verifying financial information Ensuring all revenue for the business/unit has been posted Checking extensions and calculations within the documentation Ensure financial information has been 'balanced' Class Activity – Discussion Ask general questions: Why are these important? What would be some tasks associated with each activity?

Identifying discrepancies What are common types of discrepancies? What causes them? How can they be identified? Class Activity – Discussion Ask general questions: Discuss the questions in the slide.

Undertake statistical analysis
Importance of financial information analysis Interpretation of financial information is required to measure the success or otherwise of trade for the period in question and to plan future action: How can you do it? What would you analyse? How can you measure financial success or failure? Class Activity – Discussion Ask general questions: Discuss the questions in the slide.

Why analyse financial information? Interpretation and analysis of financial information is required to: Measure the success or otherwise of trade/operations for the period in question Plan future action Class Activity – Discussion Ask general questions: Discuss the importance of these points

Why analyse financial information? The key in interpreting and then analysing financial information is to be able to: Explain what is happening Understand why it has happened How you can fix it (if required)? Class Activity – Discussion Ask general questions: Discuss the importance of these points

Objectives of financial analysis Evaluate past performance Assessment of current position Prediction of future business position and strategies Class Activity – Discussion Ask general questions: How can you achieve these objectives?

Undertaking analysis Analysis involves comparing the actual performance against: Budget Forecast Industry leaders Industry average Class Activity – Discussion Ask general questions: Why is this important?

Measuring the financial position Select financial analysis method Conduct financial analysis Identify significant variances Determine the cause of significant variances Take corrective action as required Class Activity – Discussion Ask general questions: Introduce these points They will be the main focus for the next few sections.

Financial analysis methods
Select financial analysis method The 3 common analysis methods are as follows: Horizontal Vertical Ratio Class Activity – Discussion Ask general questions: What is the difference between these methods? What are the benefits of using each method? How do you use each method?

Horizontal Analysis Methods of financial statement analysis generally involve comparing certain information: Across periods Across companies Against benchmarks Measured: Dollar analysis Percentage analysis Class Activity – Discussion Ask general questions: Trainer to demonstrate use of horizontal analysis

Vertical analysis Vertical analysis is most often used in tourism organisations to monitor and control expenses that appear on an income or profit and loss statement The amount of each expense is divided by total revenue and converted to a percentage COMPLETE ACTIVITIES 7 & 8 Class Activity – Discussion & Complete Activities Ask general questions: Trainer to demonstrate use of vertical analysis Complete Activities 7&8

Ratio Analysis Ratio is a mathematical way of expressing one number in terms of another A ratio is regarded as a statistical yardstick Relationship between two or various figures can be compared or measured using ratio. Total Current Assets Total Current Liabilities Class Activity – Discussion Ask general questions: Trainer to explain why ratios are common method of analysis

Ratio Analysis Ratio analysis uses a number of different measuring devices: Ratios – such as ‘working capital ratio of 2:1’, or ‘the ratio of FITs (Fully Independent Travellers) to group tour guests is 4.5:1’ Rates – such as ‘debtors turnover is 6.8 times per year’ Percentages – such as ‘the gross profit margin for the department is 37%’ Class Activity – Discussion Ask general questions: Trainer to provide examples

Liquidity (short term stability) ratios
These ratios show us whether or not we can meet our short term debts and how speedily we can pay them. Current ratio = Current assets Current liabilities Quick asset ratio = Current assets – (stock + prepaid expenses) Working capital = Current assets – current liabilities Class Activity – Discussion Ask general questions: Trainer to provide examples

Activity ratios Asset turnover ratio
This ratio tells us how efficiently we use our assets to provide us with income: Asset turnover ratio: Total sales Total assets Class Activity – Discussion & prepare ratios Ask general questions: Trainer to provide examples Prepare ratios based on financial statement in Section 2.3 of the Trainee Manual.

Average daily credit sales
Activity ratios Average Inventories Turnover (Stock Turnover) This calculation shows how long it takes to “turnover” or sell the inventory of the organisation Debtors turnover ratio This ratio tells us how skilful we are at collecting our debtors It shows the number of days it takes to collect in monies from our customers Debtors turnover ratio = Average debtors Average daily credit sales Class Activity – Discussion & prepare ratios Ask general questions: Trainer to provide examples Prepare ratios based on financial statement in Section 2.3 of the Trainee Manual.

Profitability ratios Gross Profit ratio
Gross profit ratio demonstrates the direct relationship between Sales and the Cost of Goods Sold Gross profit ratio = Gross profit x100 Net sales Class Activity – Discussion & prepare ratios Ask general questions: Trainer to provide examples Prepare ratios based on financial statement in Section 2.3 of the Trainee Manual.

Profitability ratios x100 Net profit after tax* Net Profit ratio
This shows how much of each sales dollar becomes profit Net profit after tax* x100 Net sales Class Activity – Discussion & prepare ratios Ask general questions: Trainer to provide examples Prepare ratios based on financial statement in Section 2.3 of the Trainee Manual.

(Net operating profit + tax + interest)
Profitability ratios Return on Investment (ROI) ROI indicates the efficiency of management’s decisions regarding the purchase and use of assets (Net operating profit + tax + interest) x100 Average total assets Class Activity – Discussion & prepare ratios Ask general questions: Trainer to provide examples Prepare ratios based on financial statement in Section 2.3 of the Trainee Manual.

Long term solvency ratios
Leverage (Gearing) ratios These ratios test an entity’s financial stability from a longer term point of view COMPLETE ACTIVITIES 9 & 10 Debtor to equity ratio Total liabilities x100 Total assets Proprietorship ratio Owners equity (shareholders funds) x100 Total funds or total assets Class Activity – Discussion & prepare ratios & Complete Activities 9&10 Ask general questions: Trainer to provide examples Prepare ratios based on financial statement in Section 2.3 of the Trainee Manual.

Draw conclusions Process of drawing conclusions
Once the complex task of analysing financial information has been completed, conclusions will be made regarding the current financial status of the organisation and strategies for further activities will be identified How do you draw conclusions? What do you do with these conclusions? Class Activity – Discussion Ask general questions: Discuss the questions in the slide.

Draw conclusions Process of drawing conclusions
Determining if current position is within acceptable parameters Noting aspects of the information for investigation or attention Identifying operational aspects of the business for investigation or attention Determining if one-off special events gave rise to exceptional results Seeking input from relevant others Checking and confirming statistics Class Activity – Discussion Ask general questions: Discuss the process.

Draw conclusions Provide reasoning for variances COMPLETE ACTIVITY 11
Determine the cause of significant variances Identify significant variances Class Activity – Discussion & review statements in Section 2.3 for variances Ask general questions: Discuss the importance of identifying variances Refer back to the financial statements in Section 2.3. Identify and explain variances

Element 3: Determine action to be taken on the basis of interpretation of financial information
Introduce topic. Class Activity – General Discussion Ask general questions: Why is it important to take action where financial issues exist? Who should be involved in taking action? What are the processes involved in taking action?

Determine action to be taken on the basis of interpretation of financial information
Performance Criteria for this Element are: Identify whether or not action needs to be taken Consider options available to address identified need Select the most appropriate option(s) for action Share information and proposed action with relevant personnel 1 2 Trainer identifies the Performance Criteria for this Element, as listed on the slide. 3 4

Determine action to be taken on the basis of interpretation of financial information
Performance Criteria for this Element are: Apply the proposed course(s) of action Monitor the results of the changes Review remedial action and revise as required Trainer identifies the Performance Criteria for this Element, as listed on the slide.

Identify need for action
Identify the need to take action Variances may be large or small on both monetary and percentage terms. Some may be so small they are deemed not to be a problem, whilst others may require further investigation: How can you decide when action needs to be taken? Class Activity – Discussion Ask general questions: Discuss the question in the slide.

The tolerance limit Organisations have policies that managers can follow detailing the size of the variance that is acceptable and variances that should be investigated further. This is called a tolerance limit. Tolerance limits are generally expressed as percentages What is acceptable tolerance limits? Class Activity – Discussion & use examples from financial statements in TM REFER TO FINANCIAL STATEMENTS IN SECTION 2.3 AS A REFERENCE AND TO PROVIDE EXAMPLES. REFER TO DIFFERENT LINE ITEMS FOR SPECIFIC EXAMPLES. Ask general questions: Discuss the question in the slide. Identify tolerance levels for travel and tourism countries Refer back to statements in 2.3 and determine your own tolerance levels

Identifying need to take action Determining whether or not to allow the situation to continue unchanged or whether to take remedial action Determining if action needs to be taken on revenue, costs or both Confirming the need for action with relevant others Class Activity – Discussion & use examples from financial statements in TM REFER TO FINANCIAL STATEMENTS IN SECTION 2.3 AS A REFERENCE AND TO PROVIDE EXAMPLES. REFER TO DIFFERENT LINE ITEMS FOR SPECIFIC EXAMPLES. Ask general questions: Discuss activities associated with these points

Identifying business trends Variances may be a one-off event It may be some once off occurrence or be part of a pattern or trend that is emerging Most properties ignore one-off variances, but will explore trends Class Activity – Discussion & use examples from financial statements in TM REFER TO FINANCIAL STATEMENTS IN SECTION 2.3 AS A REFERENCE AND TO PROVIDE EXAMPLES. REFER TO DIFFERENT LINE ITEMS FOR SPECIFIC EXAMPLES. Ask general questions: Identify one off events or trends that may affect line items in financial statements

Identify trigger points A trigger can be seen as a pre-determined point at which action must be taken or investigation must be undertaken to identify the reason for ‘actual’ performance As with trends, this trigger may exist for both positive and negative results Class Activity – Discussion & use examples from financial statements in TM REFER TO FINANCIAL STATEMENTS IN SECTION 2.3 AS A REFERENCE AND TO PROVIDE EXAMPLES. REFER TO DIFFERENT LINE ITEMS FOR SPECIFIC EXAMPLES. Ask general questions: Identify common trigger points for each line item

Identify trigger points An adverse report or audit from some authority A one-off critical incident that is significant in nature Customer complaints that have reached a certain level An adverse internal audit that identifies failure to comply with in-house policies and procedures COMPLETE ACTIVITY 12 Class Activity – Discussion & Complete Activity Ask general questions: What are other examples of trigger points? Complete Activity 12

Consider options to address need
Identify options When a need to take action has been identified, it is now time to determine options that can be taken in response to the trend or trigger: What are different options to address a need? Class Activity –Use examples from financial statements in TM REFER TO FINANCIAL STATEMENTS IN SECTION 2.3. REFER TO SPECIFIC LINE ITEMS FOR SPECIFIC EXAMPLES AND AS A REFERENCE TO IDENTIFY OPTIONS Ask general questions: Discuss the question in the slide.

Critical points about identifying options to address trends and triggers Your contributions to this process must be: Made only when you are in full possession of all the relevant facts Able to be seen as ‘part of the solution and not part of the problem’ Practical and able to be readily implemented Able to demonstrate the required changes will occur of your suggestions are followed Fully-costed Talked through with management Class Activity –Discussion Ask general questions: Discuss critical points

Identify options Your contributions to this process must be: Select line items in TM Financial Statements in Section requiring action Identify range of options that can be applied to address problem Refer to options in Section 3.2 as a reference Class Activity –Activity Ask general questions: Conduct activity as explained in the slide

Income and expense related options What are examples of: Income related options? Expense related options? Refer to options in Section 3.2 as a reference COMPLETE ACTIVITY 13 Class Activity –& Complete Activity Ask general questions: Answer questions in the slide. Complete Activity 13

Select appropriate option
Select the most appropriate option(s) for action Now that a range of possible options, whether focused on income, expenses or operational systems, have been identified it is now time to select the most appropriate options or group of options that can be implemented to address the identified trend or trigger: How can you identify the best option? Who needs to be part of the selection process? Class Activity – Discussion Ask general questions: Discuss the questions in the slide.

Selecting the most appropriate options for action Ensuring the options selected align with business objectives Ensuring compliance with legislated requirements Ensuring a cost-benefit analysis has been undertaken to support the decision(s) taken Ensuring the decisions taken can be supported by the resources available Making relative comparisons with alternatives available. Class Activity – Discussion Ask general questions: Discuss these options and the activities associated with each.

Identify corrective action to be undertaken Name of the account or item investigated Actual monetary amount Budgeted monetary amount Variance – indicating if it is favourable or unfavourable Causes, reasons and suggested corrective action COMPLETE ACTIVITY 14 Class Activity – Discussion & Complete Activity Ask general questions: Discuss these options and the activities associated with each. Complete Activity 14

Share information Share information and proposed action
It is important that relevant financial information is shared with other colleagues in a timely manner. It is important to determine who to share this information with and what information is allowed to be shared: Who needs information? What information do they need? How can information be communicated to them? Class Activity – Discussion Ask general questions: Discuss the questions in the slide.

Share information Sharing information activities
Explaining rationale for proposed action Describing potential alternatives available Explaining rationale for selection of chosen course of action Describing costs and benefits of implementing proposed course of action Class Activity – Discussion Ask general questions: Discuss these activities

Share information Sharing information activities
Describing implementation details relating to the proposed course of action Setting trigger points and key performance criteria in relation to the revised course of action Developing implementation plans for the proposals Obtaining approval/authorisation to implement the proposed course of action Class Activity – Discussion Ask general questions: Discuss these activities

Share information Sharing information considerations
Audience of financial information Reporting periods Confidentiality Location of audience Methods of communication Class Activity – Discussion Ask general questions: What other considerations would you have when sharing financial information? How can you address these considerations?

Preparing a financial report
Writing a financial report Executive summary Introduction Resources Methodology Detailed Analysis Recommendation Conclusion Class Activity – Discussion & review financial report Ask general questions: What is covered in each of these points? Trainer to show examples of financial reports

Factors to consider for a good financial analysis report Clearly understood Understand the needs of the readers Clear framework and analysis Integration of financial analysis with operations Timeliness Accuracy Class Activity – Discussion Ask general questions: Discuss importance of these factors

Prepare explanatory notes Notes almost always accompany financial statements. These notes provide users with information such as: Source of financial information such as external data Detailed activities Explanations for movements or changes The basis for any calculations Class Activity – Discussion Ask general questions: Why are these required?

Sharing financial information
Ways to share financial information Printed copies Conduct meeting / discussion Conduct presentation Distribute electronically Class Activity – Discussion Ask general questions: When should each method be used? What are the benefits of each method? What needs to be considered and prepared before using each method?

Sharing financial information
Sharing information Make the sharing timely Maintain confidentiality Keep to the facts Produce the information with users in mind Indicate further action required COMPLETE ACTIVITY 15 Class Activity – Discussion & Complete Activity Ask general questions: How can you ensure you meet these points? What other factors would you have? Complete Activity 15

Apply proposed actions
Apply the proposed course(s) of action Planning for the implementation of actions is essential to ensure all aspects relating to the proposed actions have been considered, planned and have clear plans for implementation: What needs to be considered? What needs to be planned? Class Activity – Discussion REFER TO LINE ITEM EXAMPLES USED IN SECTION 3.2. Ask general questions: Discuss the questions in the slide.

Implementation considerations Legal liability exposure Integration with other aspects of the business Timing issues Resources Changes to policies and procedures Documentation & record keeping Service delivery Class Activity – Discussion REFER TO LINE ITEM EXAMPLES USED IN SECTION 3.2. Ask general questions: What other considerations would you have? How can you address these considerations?

Implementation planning inclusions Details of intended actions to be taken Allocation of responsibilities for action to nominated persons Determination of accountability for actions taken Timelines for completion of nominated actions Details of the budget and resources allocated Description of the processes for monitoring progress Details and timelines for reviewing progress Class Activity – Discussion REFER TO LINE ITEM EXAMPLES USED IN SECTION 3.2. Ask general questions: Apply points to your example.

Budgeting resources Staff Training Time Feedback Physical resources Class Activity – Discussion REFER TO LINE ITEM EXAMPLES USED IN SECTION 3.2. Ask general questions: Determine resources requirements based on your example.

Identify and communicate action strategies Key vision of the action Reasoning or purpose behind the action Background information End objectives How the action will be implemented Roles and responsibilities of key stakeholders Timelines Support mechanisms Class Activity – Discussion REFER TO LINE ITEM EXAMPLES USED IN SECTION 3.2. Ask general questions: Determine resources requirements based on your example.

Monitor changes Importance of monitoring
In order for a tourism organisation to be successful in being able to overcome financial issues that have been identified, it is essential that plans that have been implemented in the hope of overcoming these problems, are being undertaken as planned: Why is it important to monitor? How can you monitor? Class Activity – Discussion Ask general questions: Discuss the questions in the slide.

Monitor changes Importance of monitoring
Activities must be monitored to find out: What is being done correctly What needs improvement, by identifying causes and remedy Class Activity – Discussion Ask general questions: Discuss importance of these points

Monitor changes Aim of monitoring courses of action
Tracking changes to sales and costs Tracking attainment of projected figures against actual results Monitoring reactions to changes Identifying areas which are being done well and rewarding accordingly Identifying where areas of operations can be improved Class Activity – Discussion Ask general questions: Discuss importance of these points

Monitor changes Monitoring and evaluation methods
Reviewing updated financial information, statements and reports Obtaining customer feedback Use of checklists Staff input and review Observation Benchmarking COMPLETE ACTIVITIES 16 & 17 Class Activity – Discussion & Complete Activities Ask general questions: What other methods can be used? What are the benefits of each of these monitoring methods? Complete Activities 16&17

Review remedial action
Review remedial action and revise as required It is important that all remedial action is reviewed on a regular basis This should be done, as far as possible, using verifiable data and also feedback from stakeholders Class Activity – Discussion Ask general questions: Why is this important?

Timing of reviews Weekly, monthly or quarterly reviews Performance reports Financial reports New trends or triggers Class Activity – Discussion Ask general questions: Trainer to provide examples

Undertaking reviews Identify the extent to which financial issues have been addressed and overcome Identify the areas in which issues may still exist Identify the precise areas within areas where issues are still occurring and steps being taken to address them Identify the precise nature of any outstanding problems Class Activity – Discussion Ask general questions: Discuss importance of these review activities Provide examples.

Undertaking reviews Identify the staff involved and gather first hand information that may be helpful in understanding and overcoming financial issues Discover what can be done to improve a less than optimum situation Identify what needs to be done to improve remedial courses of action Class Activity – Discussion Ask general questions: Discuss importance of these review activities Provide examples.

Providing feedback and recommendations
Any feedback and recommendations must: Be positive and constructive Respect the feelings of the person you are providing advice to Be fair and accurate Be based on facts Not be personal in nature Restrict your comments to only those things that can be changed Class Activity – Discussion Ask general questions: Discuss importance of these review activities Provide examples.

Methods of providing feedback and recommendations Informal discussions Holding team meetings Providing hard copy information Sharing information via the intranet Disseminating information at staff briefings Class Activity – Discussion Ask general questions: When would each method be used?

Feedback and recommendation information Explaining if the remedial actions and efforts worked Identifying the reasons why they worked or not work. Identifying significant variations and the factors associated with the changes. Discuss unusual results and determine their causes Class Activity – Discussion Ask general questions: Discuss importance of these points

Feedback and recommendation information Identifying areas of strength Identifying weaknesses and potential areas of improvement Outlining implications of the results and conclusions on financial and operational performance Outlining suggested recommendations to improve remedial actions COMPLETE ACTIVITY 18 Class Activity – Discussion & Complete Activity Ask general questions: Discuss importance of these points Complete Activity 18

Interpret financial statements and reports

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Interpret financial statements and reports

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