Quality of earnings report allows the user of financial statements to assess the company’s ability to generate cash flows, as well as to determine for what purposes it directs funds and what needs for their use are.
The Results of Completing Quality of Earnings Reports with VDR
The quality of earnings reports using VDR software is mainly associated with cash flows from the main activities of the company. The separate presentation of cash flows from operating activities allows reporting users to understand how certain operations of the company generate cash. And also to determine whether they will be enough to repay loans, maintain production capacity, pay dividends, make investments without resorting to external sources of financing. In addition, the standard notes that information about specific components of cash flows from operating activities for previous periods can be useful in forecasting future cash flows from operating activities.
The following results are of the independent quality of earnings report importance:
- Substantiation of the structure of cash flows and calculation of the discount rate for the purpose of improving the valuation of the management company business and the market value of the assets it manages.
- Methodological recommendations for assessing the market value of the assets of the fund and the business of the management company, allowing to determine the market value of the assets of the fund and the business of the management company at various stages of its life cycle using methods of cost, income, and comparative approaches.
- Indicators of efficiency and effectiveness of a private equity fund, taking into account changes in the market value of shares in portfolio companies at various stages of the fund’s life cycle.
- Proposals for the development of an information database on the financial condition, efficiency, and effectiveness of private equity funds.
The Principle of Constructing the Report with virtual data room
The principle of constructing the reports with a virtual data room is quite simple: we take all the income for the period and subtract from this amount the expenses that are associated with the receipt of this income and the expenses of the current period. As a result, we get a financial result and, most importantly, we understand the result of the company’s activity for a specific period, whether it worked into profit or received a loss.
The final financial result obtained is transferred to the balance sheet liability and thus ensures the balance of the asset and liability items. The peculiarity of this report is that it shows the result for a period of time, while the balance sheet is a “snapshot” of a specific date of the report. As mentioned earlier, at the moment there are numerous studies in the field of quality of earnings reports, including approaches to the processes of company integration. However, based on the analysis of the available literature, it can be concluded that the project management methodology has not yet found active application in the field of company integration management.
The income statement serves as a link between the balance sheet at the beginning and the balance sheet at the end of a given reporting period. The report explains the changes in financial position caused by financial and business operations (income and expenses). There is no consensus about which items should be included in the income statement, and there are also different points of view about when to recognize income. Part of the problem arises from the fact that profit means different things to different people.