Реферат: Accounting and Finance in AS Diena
Table of contents
Analyses used in Annual Report.................................................5
“Accounting is the language of business”.Indeed, like no man without ability
to express his thoughts clearly and understandably can achieve very much in
life, no firm can succeed without a good accounting system. Accounting is a
necessary tool which not only provides information to the owners about how
its money is working, and to the state about how big the taxes are to be
fetched, but, the most important, enables the company to control, to plan and
to trace all the actions, processes and projects. The purpose of this report
is to find out how the accounting is done in a successful company, and how
the principles and methods used there differ from the traditional accounting
theory. In addition, the analysis of the company’s performance will be worked
out using the standard ratios.
The decision to choose AS Diena for the report has been based on several
criteria: it is one of the 100 largest companies in Latvia, it has a leading
position in its branch of industry, and it is a good example of young and
fast-developing Latvian business.
The analyses and findings presented in the paper are based on the information
received from the interview with the chief accountant of AS Diena Inese
Janikovska and from the Annual Report 1997 of the company. The Report mirrors
the financial data of AS Diena and its subsidiaries: publishing house Diena
Bonnier SIA, advertising agency METRO, Bauskas Dzive SIA, agency Agro Apgads
SIA, Kursas laiks SIA, Dzirkstele SIA, Zemgales Zinas SIA. The information
about subsidiaries is included in Annual Report in limits of financial year
starting from the date of acquisition.
Furthermore, the theoretical side was strengthened with the knowledge gained
from the lectures by Elvi Sederlin and Gunnar Lindholm, and from the course
textbooks “Business Accounting” and “The Profitability, Financing, and the
Growth of the Firm”.
To make the key ratio analysis sensible, a similar size enterprise operating
in the same branch of industry was chosen for comparison. For this purpose,
the figures from the final accounts of AS Preses Nams were taken from the
Lursoft database and used in the analysis.
The Latvian-Swedish joint-stock company AS Diena was founded in 1992. In 1996
it was transformed into stock corporation. In fact, it is a group of
companies with parent company and subsidiaries. The share capital of the
company consists of 6000 fully paid ordinary shares, moreover, each share has
a nominal value of LVL 10 and its owner possesses one voting right. The
shares of AS Diena do not participate in stock exchange, and no deals among
the shareholders are allowed. The most important shareholder is a Swedish
company “Expressen AB”, which owns 2940 shares, i.e., 49% of share capital
and votes. In addition, it can be pointed out that the sales turnover at 1997
constituted almost LVL 9.5 mil, and the average number of employees was 847.
The officially registered kinds of activities of AS Diena are as follows:
· printing work and related services
· reproducing of computerized materials
· agents dealing with sales of the wide range of goods
The present strategy of the firm is development as a media and media
infrastructure company. To conclude, AS Diena now enjoys the benefits of the
large market share and solid reputation, and it will undoubtedly try to
maintain and to improve the current position.
Accounting system in AS Diena is fully kept on software and all the
transactions are done automatically. The main software accounting program
used is Mac Hansa. When the record is made, the account is closed
automatically, and the balance is sent to the next stage, i.e., Profit of
Loss Account, Balance Sheet, Cash Flow Statement etc. Printed information of
accounting actions is kept in the company’s archive. As AS Diena is a very
large company, the chief accountant could not tell exactly how many
transactions were recorded per year, but the approximate number is about
50,000. The most common transactions are those in connection to cash and bank
The Annual report is prepared according to legislation of Latvia Republic and
the laws “About Accounting” and “About Annual Reports of the Company”. The
main principles used in accounting are the consistency concept (methods of
valuation of assets and calculation of revenues and expenses are kept
constant from one year to another) and the prudence concept (e.g., stock is
valued taking the lowest from prime cost and market value). Cash flow
statement is prepared by using indirect method.
As per legislation of Latvia Republic, all the company’s books are closed at
the end of the financial year (in this case at December 31 each year), when
the Annual Report has to be made. This report is handed over to auditors and
to financial inspection. Usually, the inspected Annual Report is available
for users in about three months after the end of the financial year. In
addition, a smaller report for internal use of the company is prepared at the
end of each month. This report is handed over to the management of the
As all the reports are made automatically by means of software accounting
program, the problems occur only when transactions are recorded. The main
difficulties outlined by the chief accountant of AS Diena were settling
accounts with debtors and creditors and recording expenditures and revenues
of the company. Difficulties also appear when making records for financial
and tax accounting.
As per Balance Sheet at December 31, 1997, the highest value of the company’s
assets is taken by debtors which in total amount to 1,780,777, i.e., 35.42 %
of the total assets. The biggest amount of debts is observed with regard to
bought goods and subscriptions. Each debtor is examined individually by the
management of the company, and those admitted as bad are included in
provision for bad debts for 100% of the debited amount. Quite impressive are
also figures observed as creditors. Short-term creditors amount to 2,619,142
that is 52% of the total passives of the company.
As it was pointed out by the chief accountant of AS Diena, cash is regarded
as the most important asset of the company because of its liquidity. If the
company runs out of cash, it can easily go bankrupt.
The highest level of revenues is observed from sales of newspapers. The
highest expenses are salaries, purchase of paper and depreciation of fixed
Analyses used in Annual Report
The annual report of AS Diena includes analysis of the current situation and
changes during the year 1997.
There was LVL 5.27 million of total assets in the balance sheet at the end of
1997; of those fixed assets were 30.1%. Current assets were LVL 3.51 mil; of
those debtors comprised of 50.7 %. The most important fact is that trade
debtors have increased by 40.5 % in 1997. The reason behind it is the
increase in net turnover. Unfortunately, previous trade partners
systematically ignore terms of repayment.
27.6 % of all capital plus liabilities was equity. According to Arvils
Ašeradens, the equity has grown to LVL 1.4 millions, which is 2.3 times
more than year before (Annual Report, 1997, p. 5). This was only due to
profit for 1997; share capital and reserves were not altered.
Changes in the profit and loss account were analyzed mostly in the
president’s report. The first item mentioned is the increase in net turnover.
According to Arvils Ašeradens, the net turnover of the whole concern has
increased by 29 per cent reaching LVL 9.5 million, and such a situation is
conventional for the company during last years. The main reason for that is
staff’s excellent accomplishment of their job (Annual Report, 1997, p. 5).
Consequently, also the profit after taxes has been increased to LVL 813
thousand. It is 16 times more than in 1996 (Annual Report, 1997, p. 5), and
there are three crucial factors which determine such a tremendous change. The
first factor is the more efficient use of resources in 1997. As mentioned
above, net income has increased by 29 per cent, but manufacturing cost of
goods sold has increased only by 15% in the same time. These calculations
were made based on the Profit or Loss statement. (Annual Report, 1997, p. 7)
Next, there was a considerable growth in other operating income. Finally,
there was a rapid decrease in effective tax ratio and reduction in interest
Calculating the key ratios, average values were used because profit was made
during the year. There is also an assumption that profit is the same each day
during the year. All the ratios and necessary data are given in Table 1.
This ratio does not depend on the capital structure of the firm (The
Profitability, Financing, and Growth of the Firm, p. 26). Profit before
interest and taxation should be used in order to separate ROA from the
company’s financial policy. The ratio is 28.83 per cent (Table 1) which is
more than the same ratio for AS Preses Nams, thus telling about better
The difference from the previous ratio is that ROE shows the return from the
owners’ point of view; however, here the minority interest is also regarded
as equity. Thus the profit after taxes (with minority interest added back)
has to be applied. In AS Diena’s case ROE is 69.83 % (table 1). The reason
why there is so large difference comparing to AS Preses Nams (17.91%) is
explained under D / E ratio section.
Average cost of debt in 1997 for AS Diena was 2.15 per cent and being 3 times
for AS Preses Nams (Table 1) shows how debt structure affects COD. AS Diena
has higher proportion of non-interest bearing debt, thus, its COD is lower.
D / E
D / E describes the financial policy of firm. It is 2.53 in AS Diena’s case
(Table 1) which shows that concern finances its operations two and half times
more using debt than its own equity. Here an important notice should be made:
LVL 655.7 th (Annual Report, 1997, p. 23) are subscription fees for the next
year which calculating D/E and COD are regarded as debt. The fact that for AS
Preses Nams D / E = 0.52 explains why there is much sharper difference for
ROE than ROA. Equity is less important source of financing for AS Diena, so
the difference in ROE occurs.
It should be noted that effective tax rate can deviate from the statutory tax
rate during years. (The Profitability, Financing, and Growth of the Firm, p.
60) This difference can be seen in AS Diena’s case. The denominator in the
ratio is profit before tax. In 1997 t was 27.47 per cent. (Table 1) However
applying the same formula in 1996 this ratio was 60.32 per cent.
Current ratio; Quick ratio
The quick ratio shows the liquidity in very short terms when it is impossible
to sell stock. Both ratios for AS Diena are similar and larger than 1 (Table
1). Thus, it should not be very hard for AS Diena to get over short-term
problems. Little difference between these ratios indicates the low proportion
of stock in current assets. In contrast, current ratio for AS Preses Nams is
2 times more than quick ratio because it has large amount of stock.
Equity ratio for AS Diena is 33.15 %, and it is 2 times less than for AS
Preses Nams. The reason for this difference is of similar nature as for D / E
Profit margin; Capital turnover
ROA depends on two factors. The first one is profit margin, and it is 13.15
%. (Table 1) The second factor is capital turnover that can indicate the
speed of operations. The decomposition of ROA shows that the difference
between AS Diena and AS Preses Nams in ROA is due to faster capital turnover
in AS Diena’s case.
DE / E0 = ROE0 – Div / E0 + NI / E0
This formula decomposes equity changes. Because there was no new issue of
shares in 1997, only profit and dividends affects equity for AS Diena.
ROE = (1 – t)(ROCE + (ROCE – COD) * D / E)
In this formula only interest-bearing debt should be taken into
consideration. Thus COD was 7.99% (Table 1), and it is similar to COD for AS
Preses Nams, because there COD does not depend on company’s debt structure.
It is fair enough to say that it takes more than just analysing the Annual
Reports to draw serious conclusions about the accounting system and finance
in the firm. However, some important findings can be listed to summarise the
investigation conducted in the report.
First, there is no doubt that the computerised accounting system is the only
one applicable for the company of the similar size because of the immense
number of transactions and complicated structure of the business.
Next, the analysis has revealed some features that characterise the
publishing and printing business:
· operating activities are mainly financed by short-term liabilities,
most of them being non interest -bearing
· debtors are the main component of the current assets of the company,
due to the need in the high level of stock turnover
To conclude, the AS Diena financial indices show an outstanding, if compared
to competitors, business performance.
Annual Report of AS Diena (1997).
Johansson, S. (1998) The Profitability, Financing, and Growth of the Firm,
Sweden: Studentlitteratur, Lund.
The State Register of Enterprises of Latvia (1999, Feb 18). [on-line],