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+++ entering_financial_data [2024/01/30 14:37] (current) – [How to treat Leased Plant and Equipment] pimsadmin
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 ====== Entering Financial Data ======
-===== Income Statement Data =====
+===== Income Statement =====
 The PIMS Income Statement uses the “Cost of Sales” method to show the Sales value for the year and allocate the associated costs to functional areas (see definitions below). All values should be taken from management accounts to ensure consistency.
 If you use "total cost" accounting you can use the sales value of production: the differences in ratios to sales (e.g. EBIT / sales) are small.
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 The PIMS definitions are as follows:
-Sales revenue	Total revenue from sales of products/services net of bad debts, normal discounts and rebates (also referred to as turnover or sales proceeds). If you use "total cost" accounting you can use the sales value of production.
-Purchases	The cost of purchases of raw materials, energy and inbound freight. Purchases of ancillary products and services (waste disposal, maintenance, travel, legal, rent, office supplies, etc.) are not a direct input to what the customer buys - exclude these here.
-Total direct costs	The cost of manufacturing, distribution and depreciation. This includes (i) wages, salaries, social costs and fringe benefits of direct labour, (ii) manufacturing supplies, (iii) direct overheads and purchased ancillary services such as maintenance, catering and security for manufacturing facilities and warehouses, (iv) transport, logistics and warehousing and (v) annual depreciation on plant and equipment.
-of which Depreciation	The annual depreciation or amortisation charge on your business’s plant and equipment. Also include that portion of lease payments for plant and equipment on long-term leases that corresponds to depreciation.
-Total Sales & Marketing	The total cost of the sales organization, media advertising, sales promotion, customer service, market research and other marketing costs.
+|Sales revenue	|Total revenue from sales of products/services net of bad debts, normal discounts and rebates (also referred to as turnover or sales proceeds). If you use "total cost" accounting you can use the sales value of production.|
+|Purchases	|The cost of purchases of raw materials, energy and inbound freight. Purchases of ancillary products and services (waste disposal, maintenance, travel, legal, rent, office supplies, etc.) are not a direct input to what the customer buys - exclude these here.|
+|Total direct costs	|The cost of manufacturing, distribution and depreciation. This includes (i) wages, salaries, social costs and fringe benefits of direct labour, (ii) manufacturing supplies, (iii) direct overheads and purchased ancillary services such as maintenance, catering and security for manufacturing facilities and warehouses, (iv) transport, logistics and warehousing and (v) annual depreciation on plant and equipment.|
+|of which Depreciation	|The annual depreciation or amortisation charge on your business’s plant and equipment. Also include that portion of lease payments for plant and equipment on long-term leases that corresponds to depreciation.|
+|Total Sales & Marketing	|The total cost of the sales organization, media advertising, sales promotion, customer service, market research and other marketing costs.|
+|Total Research & Development	|The total costs incurred by this business related to future products and processes, plus R&D services purchased from outside.|
+|General & Admin.	|All costs related to general management, planning, accounting, controlling, HR, IT, procurement, legal, HSE, etc. Include people costs, offices, supplies, utilities, outsourced services and relevant charges from corporate HQ.|
+|EBIT	|Earnings before interest and taxes (Net income before interest and tax) = sales minus purchases, operations, sales & marketing, R&D and G&A, before exceptional one-off items, financing or tax effects (also referred to as profit, operating profit, return, income).|
+===== Balance Sheet =====
+On the balance sheet we focus on the operational assets and liabilities - not the financial ones - and therefore look at the business before financing. This means that we do not count cash and overdrafts as part of current assets or liabilities, and we do not include loans in liabilities. If you are in doubt as to whether to include a liability (or asset) test whether they are operational items, e.g. loans are not operational but owing money to your pension scheme is.  Particular issues arise when trading assets that would normally be a regular part of the business are owned by finance companies (e.g. factored receivables, leased plant and equipment).  The more you can recast the accounts as if you owned them, the more accurate will be your comparisons against PIMS benchmarks.
+For all balance sheet items, a year-average number is preferred, but year-end numbers are acceptable if similar.
+The PIMS definitions are as follows:
+|Accounts receivables (net)	|The average value of receivables over the year, net of allowances for bad debts, i.e. money invoiced to customers but not yet received (also referred to as debtors). For all balance sheet items, a year-average number is preferred, but year-end numbers are acceptable if similar.|
+|Total Current Assets	|Total Current Assets is the sum of receivables, total inventory, and other current assets (average prepaid expenses, pre-paid taxes, non-trade debtors, etc.). Do not include cash or overdrafts as we only consider operational assets.|
+|Total Current Liabilities	|Total Current Liabilities is accounts payable plus all other accrued liabilities and taxes falling due within the year. Include customer prepayments for goods not yet invoiced.  Do not include corporate allocation of short-term debt or loans but only operational liabilities.|
+|Working Capital	|Total current assets (receivables plus all inventory items plus other current assets) minus current liabilities. Include current operational liabilities intrinsic to normal business (e.g. progress payments), but not items that result from the choice of financing. Therefore, exclude excess cash not required for the everyday running of the business and do not count bank borrowings as current liabilities.|
+|GBV of Plant & Equipment	|Value at book or historic cost for manufacturing or operating equipment, buildings, communication equipment, computers and transportation equipment. Include tooling etc. Capitalise plant and equipment and buildings that are held on long-term leases.|
+|NBV of Plant and Equipment	|Fixed assets at gross book value minus accumulated depreciation.|
+|Net Capital Employed (Average investment)	|Working capital plus fixed assets at net book value, plus any other trading assets/liabilities that are a normal part of doing business (i.e. operational in nature). "Financial engineering" (e.g. goodwill, exceptional provisions, etc.) should be eliminated so that investment corresponds to EBIT. This is NOT the CAPEX (capital expenditure).|
+===== How to treat Leased Plant and Equipment =====
+Generally speaking, most companies treat leased plant and equipment as an operating lease to avoid it showing on the balance sheet. The annual lease cost is then treated as a rent on the income statement.
+To allow a “like for like” comparison between businesses, PIMS requires that leases are treated as Capital leases and are therefore present on the balance sheet as if they were an owned asset.
+To capitalise a lease for PIMS, firstly make sure that any operating lease payments are removed from the income statement, if present. Lease payments due should also be left out of the liabilities should also be left out of the current liabilities fields on the balance sheet.
+Then, split the lease into principal and interest (if possible). If you do not know the split estimate the interest at 20%.
+If the lease is for 20 years, for example, add 20 x the principal of the lease onto the GBV value on the balance sheet.
+The accumulated depreciation will be the number of years the lease has been in operation * the principal part of the lease, and the NBV will be GBV minus accumulated depreciation.
+On the income statement put the principal part of the annual lease in the depreciation field.
+For the purposes of PIMS we can ignore the interest portion as we are interested in EBIT net of interest and taxes.
+Note: you can still enter data without these corrections, but that will make your EBIT/Sales lower
+than comparable businesses. Your par will also be lower due the lesser impacts of NBV/Sales and
+Depreciation/sales, but the reduction in par will only be roughly half the reduction in actual.
-Total Research & Development	The total costs incurred by this business related to future products and processes, plus R&D services purchased from outside.
+[[Freemium Analysis]]
-General & Admin.	All costs related to general management, planning, accounting, controlling, HR, IT, procurement, legal, HSE, etc. Include people costs, offices, supplies, utilities, outsourced services and relevant charges from corporate HQ.