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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.15 09:41:00 -
[1]
I've prepared financial statements for One Stop for the first quarter of operations since I acquired the group from LoW on 1st February 2010. They can be viewed here.
The accounts and financial statements were prepared by me and audited by Magnu Stormhawk. His audit report forms the first page of the document.
The financial statements have been prepared in accordance with generally acceptable accounting principles under the historical cost convention basis, and include balance sheets, profit and loss statements (including retained earnings), and cash flow statements for each month.
The cash flow statement is the only one that can be prepared directly from the API (wallet journal). The others require significant manual adjustments. The worst by far was contracts - that is a serious pain.
Was it worth doing? Absolutely. I'm now satisfied that EVE accounts can be prepared using RL accounting principles, and can be audited by RL auditors. However, the degree of manual effort involved means that this process will not appeal to most. At least not until there exist EVE applications that do away with much of the manual drudgery - and an API for contracts.
I'll continue to prepare monthly accounts for One Stop and issue them on a quarterly basis. Now that I've established a method, I'll also be compiling accounts for my other operations.
I'll be happy to take any questions.
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SetrakDark
Northstar Cabal
R.A.G.E
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Posted - 2010.06.15 10:26:00 -
[2]
That was cool. Good work.
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Magnu Stormhawk
Stormhawk Enterprises
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Posted - 2010.06.15 11:21:00 -
[3]
/Signed
Great work Varo. An astonishing amount of effort went into the calculations behind those numbers.
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Hexxx
Minmatar
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Posted - 2010.06.15 13:47:00 -
[4]
You mention that the "...financial statements have been prepared in accordance with generally acceptable accounting principles under the historical cost convention basis..."
Could you describe the historical cost convention further? Specifically I'm interested in how you calculate it and how that is accounted for in your Profit & Loss Statement (a.k.a. Income Statement). From what I understand, historical cost convention is used for asset valuation on a balance sheet, so how that is tracked and used in computing the P&L/Income Statement is something I'm interested in.
Related to this, what accounting method are you using for cost of inventory? FIFO, LIFO, the average-cost method, or a custom hybrid such as average-costing periods of time (month or week) and then treating the inventory lots under FIFO or LIFO?
Projects Blog |
Dzil
Caldari
Caldari Independent Navy Reserve
OWN Alliance
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Posted - 2010.06.15 13:53:00 -
[5]
The concept of amortization has always been a bit lost on me. I get that it's depreciation applied against the intangible value of your brand, but I guess I don't understand why the One-Shop brand would depreciate. Don't most brands grow stronger and more valuable over time, rather than weaker?
Retired from corp sales. Time to spend some of this on pretty explosions :) |
Krathos Morpheus
Legion Infernal
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Posted - 2010.06.15 14:15:00 -
[6]
 Originally by: Dzil
The concept of amortization has always been a bit lost on me. I get that it's depreciation applied against the intangible value of your brand, but I guess I don't understand why the One-Shop brand would depreciate. Don't most brands grow stronger and more valuable over time, rather than weaker?
Amortization: You make a big expenditure on something that you will use to create revenue along an extended period of time. Then instead of accounting that expenditure right away and get a negative profit, you account for it on successive periods until the full expenditure has been accounted for. On ideal terms, the time it takes to amortize something is the time it would take to pay it from the profits it creates, but accounting elapses that period to avoid reporting zeroed profits and distribute the burden on longer periods.
EVEwatch Sidebar soon
"It is the unofficial force ù the Jita irregulars. " |
Varo Jan
Caravanserai Consulting
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Posted - 2010.06.15 14:21:00 -
[7]
Originally by: Hexxx
You mention that the "...financial statements have been prepared in accordance with generally acceptable accounting principles under the historical cost convention basis..."
Could you describe the historical cost convention further? Specifically I'm interested in how you calculate it and how that is accounted for in your Profit & Loss Statement (a.k.a. Income Statement). From what I understand, historical cost convention is used for asset valuation on a balance sheet, so how that is tracked and used in computing the P&L/Income Statement is something I'm interested in.
In short, it's actual cost. So transactions are recorded at the price ruling at the time, and assets are valued at their original cost - unless net realisable value is lower than cost, in which case that lower figure is used.
Some consequences are:
Stock is valued at cost, not selling price - which is what is often done in MD.
Assets are valued at cost - not a hoped for revalued selling price, which is also often done here.
Quote:
Related to this, what accounting method are you using for cost of inventory? FIFO, LIFO, the average-cost method, or a custom hybrid such as average-costing periods of time (month or week) and then treating the inventory lots under FIFO or LIFO?
Quoting from my report:
Quote:
Stock
Blueprint copies are initially valued at purchase price or production cost as appropriate. FIFO is used to determine the stock valuation of capital component blueprint copies at the end of each month.
Fuels are valued at cost, which is determined using the average costing method.
Horses for courses. LIFO is often used as a tax dodge in RL, and has no place here, I would suggest. I'd also suggest that people be left to choose either FIFO or average as appropriate. I wouldn't get any more complicated than that in EVE.
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Hexxx
Minmatar
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Posted - 2010.06.15 14:32:00 -
[8]
Originally by: Varo Jan
Originally by: Hexxx
You mention that the "...financial statements have been prepared in accordance with generally acceptable accounting principles under the historical cost convention basis..."
Could you describe the historical cost convention further? Specifically I'm interested in how you calculate it and how that is accounted for in your Profit & Loss Statement (a.k.a. Income Statement). From what I understand, historical cost convention is used for asset valuation on a balance sheet, so how that is tracked and used in computing the P&L/Income Statement is something I'm interested in.
In short, it's actual cost. So transactions are recorded at the price ruling at the time, and assets are valued at their original cost - unless net realisable value is lower than cost, in which case that lower figure is used.
Some consequences are:
Stock is valued at cost, not selling price - which is what is often done in MD.
Assets are valued at cost - not a hoped for revalued selling price, which is also often done here.
Quote:
Related to this, what accounting method are you using for cost of inventory? FIFO, LIFO, the average-cost method, or a custom hybrid such as average-costing periods of time (month or week) and then treating the inventory lots under FIFO or LIFO?
Quoting from my report:
Quote:
Stock
Blueprint copies are initially valued at purchase price or production cost as appropriate. FIFO is used to determine the stock valuation of capital component blueprint copies at the end of each month.
Fuels are valued at cost, which is determined using the average costing method.
Horses for courses. LIFO is often used as a tax dodge in RL, and has no place here, I would suggest. I'd also suggest that people be left to choose either FIFO or average as appropriate. I wouldn't get any more complicated than that in EVE.
Your reply strikes perfectly, wrecking my reading comprehension for 1560 points. 
Thanks for the clarification!
Projects Blog |
Varo Jan
Caravanserai Consulting
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Posted - 2010.06.15 14:43:00 -
[9]
Originally by: Dzil
The concept of amortization has always been a bit lost on me. I get that it's depreciation applied against the intangible value of your brand, but I guess I don't understand why the One-Shop brand would depreciate. Don't most brands grow stronger and more valuable over time, rather than weaker?
I paid a premium of 4.3B over the market value of tangible assets to acquire One Stop. That's goodwill, and it's classified as an intangible asset in the balance sheet. It's simply considered good practice (read conservative) to reduce goodwill, no matter what it relates to, to zero over a period of time. So it's not a commentary on the value of the brand.
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cosmoray
Bella Vista Holdings Corp
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Posted - 2010.06.15 14:47:00 -
[10]
Let me start by saying I am no accountant or expert (so I may be reading the statements wrong), but I have a couple of questions.
You released a 175B bond at 4%, which is a payment of 7B a month.
Where is that stated on the P&L and/or cash flow statement.
Secondly on cash flow statement for April I see cash receipts of 13.9B, but in P&L there is:
capital kit sales = 5.6
sales fees = 5.6
research income = 2.1
Total = 13.3
Where is the difference of 0.6B in receipts vs the cash flow
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.15 15:12:00 -
[11]
Originally by: cosmoray
You released a 175B bond at 4%, which is a payment of 7B a month.
Where is that stated on the P&L and/or cash flow statement.
Actually, it's 7.25B in total as the unsecured bonds command a higher rate of interest. But to answer your question, I'll first quote from my report:
Quote:
One Stop Buyout Bonds
Varo Jan raised a bond offering of 150B secured on OS assets and shares owned by Ji Sama, and an unsecured bond offering of 25B in order to fund the purchase of OS. The bonds are a personal liability on Varo Jan that is secured on the assets of One Stop. As such, One Stop has a contingent liability at the balance sheet date of 175 Billion ISK. The interest payments on this debt are partly funded by One Stop by way of profit distributions to Varo Jan. One Stop cash utilised for the payment of interest payments are treated as loans to Varo Jan until such time as they are repaid or cleared by way of a profit distribution.
Consequently, interest is shown in Varo Jan's P&L, not One Stop. Think of it this way. I consider that I have a moral obligation to pay interest to bond holders - whether or not One Stop performs. So it's a personal debt on me.
Quote:
Secondly on cash flow statement for April I see cash receipts of 13.9B, but in P&L there is:
capital kit sales = 5.6
sales fees = 5.6
research income = 2.1
Total = 13.3
Where is the difference of 0.6B in receipts vs the cash flow
Accounts are prepared using a number of conventions, one of which is called the matching principle. Revenues and costs are matched to the correct period. I won't do a full reconciliation here, but I can tell you the types of transactions, such as:
Advances - One Stop received sales advances in April for services rendered in May. So 0.5B will not show up in April profits.
Accruals - The salary for an employee for April was paid in March, so that goes the other way. It shows as a deduction in April profits, but the cash went out after month end.
Prepayments - GTCs purchased in April relate to April and May, so only the portion applicable to April would be charged to the P&L in April.
And so on...
There will always be differences between cash flow and P&L.
If any of that was lacking in clarity, please let me know.
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Magnu Stormhawk
Stormhawk Enterprises
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Posted - 2010.06.15 15:22:00 -
[12]
Originally by: Varo Jan
Originally by: Dzil
The concept of amortization has always been a bit lost on me. I get that it's depreciation applied against the intangible value of your brand, but I guess I don't understand why the One-Shop brand would depreciate. Don't most brands grow stronger and more valuable over time, rather than weaker?
I paid a premium of 4.3B over the market value of tangible assets to acquire One Stop. That's goodwill, and it's classified as an intangible asset in the balance sheet. It's simply considered good practice (read conservative) to reduce goodwill, no matter what it relates to, to zero over a period of time. So it's not a commentary on the value of the brand.
Note that part of the goodwill effectively relates to the benefit of the customer base and future income stream. This does not last forever as people change and businesses change. It is prudent to write off the value of this asset over its estimated useful life. Six months is a fair estimation of how long the original business momentum will benefit Varo.
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RAW23
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Posted - 2010.06.15 16:09:00 -
[13]
Well done on the thorough job!
The only problem I see with accounts prepared with this degree of rigour is that they become opaque to us ill-educated masses through their very precision. Is there any chance (in future) of providing a parallel "idiot's summary" version for people like me?
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.15 16:26:00 -
[14]
Originally by: RAW23
Well done on the thorough job!
The only problem I see with accounts prepared with this degree of rigour is that they become opaque to us ill-educated masses through their very precision. Is there any chance (in future) of providing a parallel "idiot's summary" version for people like me?
Thankee. :) Sure, the accounts are precise to the iskling - but I've tried to keep the presentation as simple as possible (such as rounding to billions - easier on the eye and brain).
Would a commentary and some profit/financial ratios help, perhaps?
Would an explanation of terms help?
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Grendell
Technologies Unlimited
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Posted - 2010.06.15 16:30:00 -
[15]
Nice read Varo, but there was nothing mentioned in the report about my dashing amarrian good looks.
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.15 16:47:00 -
[16]
Originally by: Grendell
Nice read Varo, but there was nothing mentioned in the report about my dashing amarrian good looks.
Dang, I *knew* I'd missed something!
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RAW23
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Posted - 2010.06.15 16:50:00 -
[17]
Originally by: Varo Jan
Originally by: RAW23
Well done on the thorough job!
The only problem I see with accounts prepared with this degree of rigour is that they become opaque to us ill-educated masses through their very precision. Is there any chance (in future) of providing a parallel "idiot's summary" version for people like me?
Thankee. :) Sure, the accounts are precise to the iskling - but I've tried to keep the presentation as simple as possible (such as rounding to billions - easier on the eye and brain).
Would a commentary and some profit/financial ratios help, perhaps?
Would an explanation of terms help?
An accounting textbook would probably help most :-). But short of that, a paragraph or two of commentary would probably be the most useful thing (for me at least).
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.15 17:03:00 -
[18]
Originally by: RAW23
An accounting textbook would probably help most :-). But short of that, a paragraph or two of commentary would probably be the most useful thing (for me at least).
Nah, no need for a textbook. I think familiarisation will demystify the terms.
Cash Flow: The business generated 7.8B in cash in April. We used 0.2B of that to buy some POS modules. We gave Varo 3.3B in loans and 3.9B as a quarterly profit distribution (read dividend). So that left us with half a billion. Add that to what we had on 1st April, and you can see that our wallet balances were 1.9B at month end.
Summat like that?
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Kragaar
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Posted - 2010.06.15 17:24:00 -
[19]
Originally by: Varo Jan
That's goodwill, and it's classified as an intangible asset in the balance sheet. It's simply considered good practice (read conservative) to reduce goodwill, no matter what it relates to, to zero over a period of time. So it's not a commentary on the value of the brand.
Actually it depends. Under Canadian GAAP for example you cannot amortize goodwill, only perform annual (or periodic) tests for impairment. If the goodwill is impaired you may perform a write down, and if the goodwill is not impaired then you cannot write it down.
Now if the intangible asset relates to some identifiable asset such as customer lists or trademarks those can be amortized over a reasonable period of time.
You mentioned you prepared these statements using GAAP, but GAAP under what country?
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.15 17:37:00 -
[20]
Originally by: Kragaar
Originally by: Varo Jan
That's goodwill, and it's classified as an intangible asset in the balance sheet. It's simply considered good practice (read conservative) to reduce goodwill, no matter what it relates to, to zero over a period of time. So it's not a commentary on the value of the brand.
Actually it depends. Under Canadian GAAP for example you cannot amortize goodwill, only perform annual (or periodic) tests for impairment. If the goodwill is impaired you may perform a write down, and if the goodwill is not impaired then you cannot write it down.
Now if the intangible asset relates to some identifiable asset such as customer lists or trademarks those can be amortized over a reasonable period of time.
You mentioned you prepared these statements using GAAP, but GAAP under what country?
I used the term in a generic sense, not intending to be country specific, which is why I didn't use caps. :) There's a practical limit to what can be brought to EVE. That said, I'm English so I'll be inclined to draw on that background.
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RAW23
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Posted - 2010.06.15 17:39:00 -
[21]
Originally by: Varo Jan
Cash Flow: The business generated 7.8B in cash in April. We used 0.2B of that to buy some POS modules. We gave Varo 3.3B in loans and 3.9B as a quarterly profit distribution (read dividend). So that left us with half a billion. Add that to what we had on 1st April, and you can see that our wallet balances were 1.9B at month end.
Summat like that?
Something along those lines would be great.
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cosmoray
Bella Vista Holdings Corp
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Posted - 2010.06.15 17:41:00 -
[22]
Edited by: cosmoray on 15/06/2010 17:41:52
Ok thanks for the answers.
Are the employees Varo's characters, so they are payments to you?
If not then the market needs to pick up as after 3 months One Stop hasn't* generated enough income to pay for the 175B bond.
Inter group transactions (loans to Varo), and dividends have totalled 17.5B yet financing for 3 months totals 21.75B.
Also where on the P&L/cash flow are payments to mercs?
Good job you were able to get financing at 4%, or this would be underwater.
The business looks at about break even after financing.
Any down tick in business or serious damage from a war dec, could cause a lot of harm to the books.
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RAW23
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Posted - 2010.06.15 17:57:00 -
[23]
Originally by: cosmoray
Edited by: cosmoray on 15/06/2010 17:41:52
Ok thanks for the answers.
Are the employees Varo's characters, so they are payments to you?
If not then the market needs to pick up as after 3 months One Stop hasn't* generated enough income to pay for the 175B bond.
Inter group transactions (loans to Varo), and dividends have totalled 17.5B yet financing for 3 months totals 21.75B.
Also where on the P&L/cash flow are payments to mercs?
Good job you were able to get financing at 4%, or this would be underwater.
The business looks at about break even after financing.
Any down tick in business or serious damage from a war dec, could cause a lot of harm to the books.
On profitability, do we need to add in the 10bil growth in assets (and the good-will write-offs?) to get an accurate picture?
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.15 18:19:00 -
[24]
Originally by: cosmoray
Are the employees Varo's characters, so they are payments to you?
My characters show as assets in the balance sheet. The employee who is paid a salary is not one of my characters. He worked for LoW before and continues to provide the same services to One Stop.
Quote:
Also where on the P&L/cash flow are payments to mercs?
A standard charge is made to the P&L (under other operating costs) each month to cover merc fees. Cash paid for merc fees will form part of cash paid to suppliers and employees in the cash flow statement. The subject is also covered in one of my notes in the report.
Quote:
If not then the market needs to pick up as after 3 months One Stop hasn't* generated enough income to pay for the 175B bond.
Inter group transactions (loans to Varo), and dividends have totalled 17.5B yet financing for 3 months totals 21.75B.
The business looks at about break even after financing.
I'll reiterate what I said earlier. Interest, or financing costs as you put it, do not form part of One Stop's accounts as the bonds are being treated as personal liabilities.
Financing costs are paid by me regardless of the level of profitability of One Stop. Specifically, all bond interest payments for the months of February, March, April and May have been paid on or before the due date.
Quote:
Good job you were able to get financing at 4%, or this would be underwater.
Not relevant. Please see above.
Quote:
Any down tick in business or serious damage from a war dec, could cause a lot of harm to the books.
As they would to any business.
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cosmoray
Bella Vista Holdings Corp
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Posted - 2010.06.15 18:27:00 -
[25]
But your financing is secured against One Stop.
If anything happenned to One Stop it may severely impact your ability to pay off the loan.
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.15 19:03:00 -
[26]
Originally by: cosmoray
But your financing is secured against One Stop.
If anything happenned to One Stop it may severely impact your ability to pay off the loan.
Turn it round. If anything happened to me, Grendell and Setrak will liquidate and pay investors. BPOs alone at end April were worth 135B, and have risen since then.
Certainly if anything happened to One Stop, it would have an impact on my overall personal net worth. Whether it would have any impact at all, let alone a severe one, on my ability to service the bonds is unlikely.
The markets One Stop is involved in are erratic, and some segments have not performed as well as anticipated. Equally, sales in 4 days in June amounted to 6B - so profits can fluctuate positively as well. It's an interesting ride. :)
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MailDeadDrop
The Collective
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Posted - 2010.06.15 19:34:00 -
[27]
I have a minor suggestion for the formatting of the report. Rather than listing negative values in red, print them in black but parenthesized. Doing so makes the report friendlier to both colorblind readers and color-incapable printers.
MDD
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Ray McCormack
Nordar Innovations.
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Posted - 2010.06.16 11:58:00 -
[28]
Where do I find the previously mentioned 15b+ income figure?
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.16 12:39:00 -
[29]
Originally by: Ray McCormack
Where do I find the previously mentioned 15b+ income figure?
You're late. I'd been expecting that one since I opened the thread. :)
The 15B+ profit (not income) figure for One Stop's combined activities was a forecast, a target.
It's still doable, just not as soon as I expected. Mea maxima culpa.
Quote:
I have a minor suggestion for the formatting of the report. Rather than listing negative values in red, print them in black but parenthesized. Doing so makes the report friendlier to both colorblind readers and color-incapable printers.
MDD
Good point. Will do.
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DrefsabZN
Caldari
Rage For Order
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Posted - 2010.06.16 12:51:00 -
[30]
Edited by: DrefsabZN on 16/06/2010 12:52:04
Nice report :D
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Hexxx
Minmatar
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Posted - 2010.06.16 12:56:00 -
[31]
Originally by: Varo Jan
Originally by: Ray McCormack
Where do I find the previously mentioned 15b+ income figure?
You're late. I'd been expecting that one since I opened the thread. :)
The 15B+ profit (not income) figure for One Stop's combined activities was a forecast, a target.
It's still doable, just not as soon as I expected. Mea maxima culpa.
Quote:
I have a minor suggestion for the formatting of the report. Rather than listing negative values in red, print them in black but parenthesized. Doing so makes the report friendlier to both colorblind readers and color-incapable printers.
MDD
Good point. Will do.
So you missed your earnings target, what kind of earnings do you speculate for the next report? Earnings per share please! 
Projects Blog |
Varo Jan
Caravanserai Consulting
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Posted - 2010.06.16 13:25:00 -
[32]
Originally by: Hexxx
So you missed your earnings target, what kind of earnings do you speculate for the next report? Earnings per share please!
LOL. I learned the hard way not to speculate on OS's targets. I'll refrain from making that mistake again.
What I will say, and I'm sorry but it is going to be vague, is that there are development plans in action that should improve the bottom line, there are other development plans that I'm assessing which show promise, and there is one proposal that I'm discussing with another player that should prove to be mutually beneficial.
Now that I have an audited set of accounts prepared with RL rigour, I have an excellent foundation to develop budgets and forecasts. That, to me, is the greatest benefit.
Lastly, as I said to RAW23 earlier, I will include some ratios and stats such as margins and returns in my next quarterly report, which is due after the end of July.
On another matter, this degree of rigour is certainly not for everybody. However, I would suggest that any IPO (not necessarily bond) and major corporations would benefit from this approach. EBank is a case in point, and if they want suggestions on how to develop a similar set of statements I'd be happy to oblige.
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Shar Tegral
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Posted - 2010.06.16 14:01:00 -
[33]
I very much like your report sir.
I don't see any reason to challenge your accounting choices as it would be like asking someone why do you like blue? You explain why you've chosen them and the methods appear sound.
Wealth, howsoever got, in Eve makes
Lords of morons and gentlemen of thieves;
Aptitude and intellect are needless here;
'Tis impudence and money that grants fame. |
Ray McCormack
Nordar Innovations.
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Posted - 2010.06.16 16:20:00 -
[34]
Originally by: Varo Jan
Was it worth doing? Absolutely.
How long did it take you to prepare these financials? And now that you have a methodology in place, how long do you envisage them taking you in the future?
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RAW23
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Posted - 2010.06.16 16:28:00 -
[35]
Edited by: RAW23 on 16/06/2010 16:29:57
Ok - here's what I'm having trouble understanding:
Taking April as an example, we have a 7.8bil operating profit (correct term?) or net positive cash flows from operating activity. And we have 7.2bil leaving the group for Varo's pocket. There is a cash or cash equivalent increase of c. 0.5bil.
Now, on the balance sheet we also have an increase in assets within the group amounting to 5.2bil.
So, did One Stop increase in value by 5.2bil as well as sending 7.2bil out of the group (i.e. did One Stop make 13.4bil that month)?
Also, how do the operational cash flow figures relate to the 9.8bil net profit figure on the P&L sheet?
Sorry for all the questions but I'm a bit at sea.
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.16 16:40:00 -
[36]
From another thread:
Originally by: Ray McCormack
But you do raise an interesting point, financials in EVE need to be presented in a much simpler format. While I accept they're a requirement for any business venture, I don't believe they need quite the effort that Varo has put in, nor the complications that arise from going into such detail as proposed by him and Hexxx.
Sure, go for it if that's what gets your goose, but I think its overkill to set such complicated, detailed financials as any sort of standard.
The formats are simple, believe it or not. :)
There's a P&L, a balance sheet and a cash flow statement - the minimum requirements for a complete set of accounts. The P&L tells you how you have performed financially over a given period of time. The balance sheet gives you a snapshot of your net worth at the end of the period, and the cash flow statement shows you how you've used your cash over that period.
Yes, I put a lot of effort in. I wanted to make sure I dotted all the Is and crossed all the Ts first time round. Some of that effort - a large part of it - was and will be necessary for One Stop because of the significance of contracts in our business.
A straight forward mission running business or a trading business, for example, would not need that much effort to comply. Many of the sub-categories I have used simply wouldn't be needed.
The key is the profit and loss account. It's the only way to get an accurate measure of financial performance. Cash flow statements can be grossly misleading. You could have large amounts of cash lying around, and yet have made a significant loss. Take a bank, for example. It could have lots of cash from deposits. If someone looked at cash balances and mistakenly thought cash = profit, they might pay themselves large salaries.
So no, not every business will need my level of detail, but most could use the same principles without too much effort, especially if EVE application developers assist by providing a better level of reporting and amalgamation.
But businesses such as EBank and mine do warrant the full treatment. My offer remains on the table - if you want some (free) advice, ask here or mail me.
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cosmoray
Bella Vista Holdings Corp
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Posted - 2010.06.16 16:43:00 -
[37]
Originally by: RAW23
Edited by: RAW23 on 16/06/2010 16:29:57
Ok - here's what I'm having trouble understanding:
Taking April as an example, we have a 7.8bil operating profit (correct term?) or net positive cash flows from operating activity. And we have 7.2bil leaving the group for Varo's pocket. There is a cash or cash equivalent increase of c. 0.5bil.
Now, on the balance sheet we also have an increase in assets within the group amounting to 5.2bil.
So, did One Stop increase in value by 5.2bil as well as sending 7.2bil out of the group (i.e. did One Stop make 13.4bil that month)?
Also, how do the operational cash flow figures relate to the 9.8bil net profit figure on the P&L sheet?
Sorry for all the questions but I'm a bit at sea.
From my reading the April increase of net assets is due to character re-evaluation, advance payments, stock increase and an increase in cash.
Regarding Ray's 15B it looks like the last time it made the stated performance was when LOW was on baord. At the moment One Stop is losing money for Varo.
Next 3 months reports should be interesting to see after LOW has properly left, and the impact of Tyrannis.
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RAW23
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Posted - 2010.06.16 16:53:00 -
[38]
Originally by: cosmoray
Originally by: RAW23
Edited by: RAW23 on 16/06/2010 16:29:57
Ok - here's what I'm having trouble understanding:
Taking April as an example, we have a 7.8bil operating profit (correct term?) or net positive cash flows from operating activity. And we have 7.2bil leaving the group for Varo's pocket. There is a cash or cash equivalent increase of c. 0.5bil.
Now, on the balance sheet we also have an increase in assets within the group amounting to 5.2bil.
So, did One Stop increase in value by 5.2bil as well as sending 7.2bil out of the group (i.e. did One Stop make 13.4bil that month)?
Also, how do the operational cash flow figures relate to the 9.8bil net profit figure on the P&L sheet?
Sorry for all the questions but I'm a bit at sea.
From my reading the April increase of net assets is due to character re-evaluation, advance payments, stock increase and an increase in cash.
Regarding Ray's 15B it looks like the last time it made the stated performance was when LOW was on baord. At the moment One Stop is losing money for Varo.
Next 3 months reports should be interesting to see after LOW has properly left, and the impact of Tyrannis.
So the distinction is between cash earned, on the one hand, which has not been enough to cover interest payments, and increase in the company's value plus cash earnings, on the other, which total exceeds the interest payments? Varo is paying cash out of his own pocket to make up for the cashflow shortage but is being more than compensated for that personal expenditure through the greater increase in value of his asset (the company)?
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Ray McCormack
Nordar Innovations.
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Posted - 2010.06.16 16:57:00 -
[39]
Originally by: Varo Jan
The formats are simple, believe it or not.
And my argument is that these generally accepted reporting standards are not particularly suited to our little sandbox at its current level of maturity. These layouts exist because they have evolved over time to provide information to relatively well educated analysts (usually for advanced reporting such as gearing, etc), our situation differs from the model we find they have catered for.
In EVE I believe the requirements to be accurate, verifiable measurements of asset value and profit. And whilst that can obviously be achieved by adopting the above model, there is a simpler, much more efficient way of achieving the same goal.
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.16 17:01:00 -
[40]
Originally by: Ray McCormack
Originally by: Varo Jan
Was it worth doing? Absolutely.
How long did it take you to prepare these financials? And now that you have a methodology in place, how long do you envisage them taking you in the future?
It took me ages. Some of the steps were:
1. Refresh my memory on how to account for certain items. Work out if they could/should be used in EVE.
2. Curse CCP for not having a contracts API in language AC would blush at.
3. Build spreadsheets. Revise spreadsheets when I realised that wasn't the way to do things. Build more. Subject Magnu and Mme. Pinkerton to some very tortuous and badly formatted spreadsheets. Revise based on their suggestions.
4. Curse CCP some more.
5. Tear my hair out when I realised I hadn't collected certain data at month end and would have to work backwards to establish a particular number.
6. Curse myself.
7. Rinse, repeat.
What remains to be done is to write some new spreadsheets. I'm well aware that I'm still doing some things the long way - I'm no developer. Some of the manual effort could be eliminated if I had an app that downloaded and summarised some basic data.
I can't tell yet how long it will take in future. I'll let you know when I issue the next set. Ideally, I'd like to spend no more than a couple of hours a month, and a bit more at the end of each quarter.
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.16 17:25:00 -
[41]
Originally by: cosmoray
Regarding Ray's 15B it looks like the last time it made the stated performance was when LOW was on baord. At the moment One Stop is losing money for Varo.
Next 3 months reports should be interesting to see after LOW has properly left, and the impact of Tyrannis.
1. OS never made 15B monthly profits at any time during LoW's tenure.
2. One Stop is not losing money. It has never made a loss under my control. Total profits generated in 3 months amounted to 16.6B before goodwill amortisation.
3. LoW properly left before the end of February. He's not been in-game since then.
4. The impact of Tyrannis will be minimal in the May to July accounts.
5. The future impact of Tyrannis is debatable currently. It could result in lower fuel costs, it could result in higher costs. However, the largest element of a POS's fuel bill is isotopes, and they aren't produced on-planet.
6. I own, am researching, and have built from a number of POS BPOs. Need any large Caldari towers?
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Hexxx
Minmatar
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Posted - 2010.06.16 17:32:00 -
[42]
Originally by: Varo Jan
Some of the manual effort could be eliminated if I had an app that downloaded and summarised some basic data.
Yes...that does sound like a good idea.
Projects Blog |
Varo Jan
Caravanserai Consulting
|
Posted - 2010.06.16 18:40:00 -
[43]
Originally by: RAW23
Ok - here's what I'm having trouble understanding:
Taking April as an example, we have a 7.8bil operating profit (correct term?) or net positive cash flows from operating activity. And we have 7.2bil leaving the group for Varo's pocket. There is a cash or cash equivalent increase of c. 0.5bil.
No, not correct. Cash flow is not the same as profit. OS collected cash from customers and paid cash to suppliers to fund its operation. A couple of examples of the difference between cash and profit. You paid me sales advances in April, but some of that cash was for 2 days in May, so I can't claim it as an April sale. If I pay for a GTC on 1st April, the cash has gone, but only 30 days relates to April's P&L. So 600m would be the cash reduction, while only 300m would be the cost in the P&L.
On 1st April OS had 1.4B in cash. During the month it generated 7.8B from operations. It then used some of that to buy POS modules and to lend to or pay Varo.
Quote:
Now, on the balance sheet we also have an increase in assets within the group amounting to 5.2bil.
So, did One Stop increase in value by 5.2bil as well as sending 7.2bil out of the group (i.e. did One Stop make 13.4bil that month)?
OS increased in value by 5.2B in April by retaining profits of that amount in the business. That's one side of the balance sheet. It did not increase by 13.4B. Part of the 7.2B was repaying Varo for money he had lent. Part was profit distribution/dividend, so that money has left the business.
If you look at the other side of the balance sheet, you see how assets of all types and current liabilities have changed in the month. That total change is 5.2B. For example, stocks of fuels and BPCs went up, POS modules were purchased, money was spent on characters thereby increasing their value, creditors came down be repaying money Varo had lent.
Quote:
Also, how do the operational cash flow figures relate to the 9.8bil net profit figure on the P&L sheet?
Sorry for all the questions but I'm a bit at sea.
No worries. In April, OS made a net profit of 9.8B. It then used some of that - 0.7B to write down goodwill, and 3.9B to Varo as a quarterly profit distribution. What was left (5.2B) was added to retained earnings so that the business cumulatively had kept 10.6B in the business instead of paying it all out as dividends (profit distribution).
The only way to reconcile cash to profit is to go through every line item explaining the differences. What the P&L does is to match sales for a month to costs for those sales. Now sometimes costs are paid in cash for more than one month. At other times they are paid after the month ends. That's the essence of the differences.
Quote:
So the distinction is between cash earned, on the one hand, which has not been enough to cover interest payments, and increase in the company's value plus cash earnings, on the other, which total exceeds the interest payments? Varo is paying cash out of his own pocket to make up for the cashflow shortage but is being more than compensated for that personal expenditure through the greater increase in value of his asset (the company)?
It can be the reverse. For example, cash was higher than profits in February.
Now you can't distribute more profits than you earned, so if cash out to Varo exceeds profits it is treated as a loan, not a distribution.
Interest payments are not accounted for in OS's books. They are a personal liability on me. When OS generates enough profits to pay me a dividend equal to loan interest, I'm a happy teddy. When it doesn't, I fund the balance from my other activities.
And in the meantime One Stop continues to increase in value.
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.16 19:30:00 -
[44]
Originally by: cosmoray
Also where on the P&L/cash flow are payments to mercs?
Any down tick in business or serious damage from a war dec, could cause a lot of harm to the books.
If anything happenned to One Stop it may severely impact your ability to pay off the loan.
You seem worried about war declarations. :)
One Stop provides for possible war costs in its P&L. Yes, we have been decced since I took over. I'm glad we were - I learned a lot, fast. The arrangement we have with our mercs works well - we use pay per kill contracts when appropriate. We haven't lost a single asset. Sales of kits were never interrupted. We have a surplus of defences. Yes, there were costs - but it cost our griefers more.
As to "serious damage from a war dec" in future, nothing that happens would have a long term impact on One Stop. The worst would be a short term interruption. There are contingency plans in place. I'd appreciate it if you wouldn't speculate on those plans here.
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.16 21:58:00 -
[45]
Originally by: Ray McCormack
Originally by: Varo Jan
The formats are simple, believe it or not.
And my argument is that these generally accepted reporting standards are not particularly suited to our little sandbox at its current level of maturity. These layouts exist because they have evolved over time to provide information to relatively well educated analysts (usually for advanced reporting such as gearing, etc), our situation differs from the model we find they have catered for.
There's a clay tablet in the Louvre. It's an annual balance sheet written in cuneiform script in Sumeria, ca. 2040 BCE.
The layout I used is an extremely simple subset of what you'd find RL. EVE accounting just doesn't involve the complexities of taxation and all sorts of other stuff.
Quote:
In EVE I believe the requirements to be accurate, verifiable measurements of asset value and profit.
Yup, agreed.
Quote:
And whilst that can obviously be achieved by adopting the above model, there is a simpler, much more efficient way of achieving the same goal.
How?
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Hexxx
Minmatar
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Posted - 2010.06.16 22:14:00 -
[46]
Originally by: Varo Jan
There's a clay tablet in the Louvre. It's an annual balance sheet written in cuneiform script in Sumeria, ca. 2040 BCE.
/me swoons 
Projects Blog |
Shar Tegral
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Posted - 2010.06.16 22:25:00 -
[47]
Originally by: Varo Jan
The layout I used is an extremely simple subset of what you'd find RL. EVE accounting just doesn't involve the complexities of taxation and all sorts of other stuff.
This is much of what I really enjoyed about the report. Understanding was easy for me due to the fact that it is indeed laid out like many I've read... in RL. Mind you I agree. Not all accounting methods are applicable or sustainable within Eve. However this works for OS/Varo Jan. As for this being applicable to other operations: Yes and no. Obviously applicable but equally it is up to the needs and desires of those producing reports. Without getting into areas of "privacy" it is hubris to think that what is applicable here is as applicable elsewhere.
Wealth, howsoever got, in Eve makes
Lords of morons and gentlemen of thieves;
Aptitude and intellect are needless here;
'Tis impudence and money that grants fame. |
Varo Jan
Caravanserai Consulting
|
Posted - 2010.06.16 23:13:00 -
[48]
I agree that applying this approach, especially the level of detail, is up to the needs and desires of those producing reports. Most would only use it for their own benefit if there was the equivalent of something like QuickBooks in EVE.
However, I'd suggest that EVE investors deserve a better standard of reporting than they get currently. I'm not suggesting that my approach would suit all - far from it. It would be overkill in many circumstances. But a common definition of accounting terms would be a first step, and a common approach to valuing stocks and fixed assets (instead of yer typical Jita sell basis) would be another.
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Dr Slaughter
Minmatar
Sebiestor tribe
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Posted - 2010.06.17 00:40:00 -
[49]
I'm going on a Finance for Non-financial managers course in a couple of weeks run by the IOD as part of their certificate / diploma program.
I intend to bring this along for discussion :)
Would it be possible to get a copy of the underlying excel sheets?
~~~~
There is no parody in this thread. Honest. |
Shar Tegral
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Posted - 2010.06.17 01:35:00 -
[50]
Originally by: Varo Jan
Most would only use it for their own benefit if there was the equivalent of something like QuickBooks in EVE.
Hexxx & I both have long wished for something along these lines. However the inherit problem is that data can be massaged. So we wind up back where we start from. Originally by: Varo Jan
However, I'd suggest that EVE investors deserve a better standard of reporting than they get currently.
I agree but I fear the first steps onto a slippery slope. I have, in the past, done this level of reporting (and beyond actually) for my own projects. I did not always make the data/reports available to the public at large but this is not the first instance of very coherent or detailed reporting. The problem I foresee is simple: Rigorous accounting is work. I mean real work and as such can be an added burden upon people who usually tread a line between enjoyment and burnout. So either you'll have managers pushing themselves too far or you'll have the added cost of a hired accountant. As these things go, if you push this kind of reporting the investors will expect it. Even where it is not cost worthy or, in quite a number of cases, relevant. Like I said before, much kudos to you in the work that you have done. Veer away from pushing an agenda though and simply take your win.
Wealth, howsoever got, in Eve makes
Lords of morons and gentlemen of thieves;
Aptitude and intellect are needless here;
'Tis impudence and money that grants fame. |
Varo Jan
Caravanserai Consulting
|
Posted - 2010.06.17 02:04:00 -
[51]
I'll confess I'm having trouble wrapping my mind around the idea of the IOD discussing accounts for an internet spaceship game. :)
As to the spreadsheets, they're really naff in their present state, so I won't inflict them on you. The main inputs are:
1. Wallet journals contain all the information you need to prepare the cash flow statement.
2. Wallet transactions to determine the cost price of individual elements.
3. Month end jEveAssets runs to determine quantities of stock (such as BPCs and POS fuels) and fixed assets - not value.
4. Far too many laboriously transcribed notes on contracts.
You're welcome to mail me if you have any other questions.
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Hexxx
Minmatar
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Posted - 2010.06.17 02:14:00 -
[52]
Originally by: Varo Jan
I'll confess I'm having trouble wrapping my mind around the idea of the IOD discussing accounts for an internet spaceship game. :)
As to the spreadsheets, they're really naff in their present state, so I won't inflict them on you. The main inputs are:
1. Wallet journals contain all the information you need to prepare the cash flow statement.
2. Wallet transactions to determine the cost price of individual elements.
3. Month end jEveAssets runs to determine quantities of stock (such as BPCs and POS fuels) and fixed assets - not value.
4. Far too many laboriously transcribed notes on contracts.
You're welcome to mail me if you have any other questions.
The Five Inputs into EVE Financial Reporting
Cashflow / Income Statement (Retained Earnings is derived from Income Statement)
Wallet Journal (API)
(determine which types to retain - filter out types where transactions produces more detail)
Wallet Transactions (API)
(determine which types to retain - filter out types where journal produces more detail)
Balance Sheet - Assets
MarketOrders (API) (escrow has cash, an asset)
IndustryJobs (API) (assets are BPO's, and materials only for jobs in process - if job is complete, output is an asset)
Assets (API) (self explanatory)
Projects Blog |
Ray McCormack
Nordar Innovations.
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Posted - 2010.06.17 06:54:00 -
[53]
Originally by: Varo Jan
How?
By having profit as a balancing figure on the balance sheet.
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Krathos Morpheus
Legion Infernal
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Posted - 2010.06.17 07:18:00 -
[54]
Quote:
Related to this, what accounting method are you using for cost of inventory? FIFO, LIFO, the average-cost method, or a custom hybrid such as average-costing periods of time (month or week) and then treating the inventory lots under FIFO or LIFO?
What do you guys think it would be a fair compromise to track FIFO without accounting for every item individually? I'm thinking about grouping items that do not differ more than maybe 5% in cost price over any period of time to avoid small price adjustments, or grouping all items acquired on the same day, isn't grouping over weeks or months excessive?
EVEwatch Sidebar soon
"It is the unofficial force ù the Jita irregulars. " |
the op
Amarr
Royal Amarr Institute
|
Posted - 2010.06.17 09:33:00 -
[55]
Originally by: Varo Jan
I'll confess I'm having trouble wrapping my mind around the idea of the IOD discussing accounts for an internet spaceship game. :)
TBH the course needs some additional light entertainment 
I just found it really interesting that you decided to use GAAP accounting for these reports. I wonder how many years until we get to apply the combined code to eve corporations? 
Anyway thanks for the comments. My interest in the spreadsheets was to see if I could apply the process to a new component of my business (a B2C web service) by integrating the payment processing back-end with the spreadsheets and generate consolidated reports on the fly with minimal additional input on my part (I think the hosting company has a billing API I can access and our online banking supports XML transaction downloading).
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.17 10:32:00 -
[56]
Originally by: the op
Originally by: Varo Jan
I'll confess I'm having trouble wrapping my mind around the idea of the IOD discussing accounts for an internet spaceship game. :)
TBH the course needs some additional light entertainment
I just found it really interesting that you decided to use GAAP accounting for these reports. I wonder how many years until we get to apply the combined code to eve corporations?
Anyway thanks for the comments. My interest in the spreadsheets was to see if I could apply the process to a new component of my business (a B2C web service) by integrating the payment processing back-end with the spreadsheets and generate consolidated reports on the fly with minimal additional input on my part (I think the hosting company has a billing API I can access and our online banking supports XML transaction downloading).
The accounting principles I used were the most basic ones, and all revolve around using the accruals concept and accounting for stock/fixed assets at cost. Accounting for alts was the only one from memory that doesn't exist in RL. :)
For your RL business, have you considered using an Open Source accounting package?
Originally by: Ray McCormack
Originally by: Varo Jan
How?
By having profit as a balancing figure on the balance sheet.
Ouch. You'll never know how you made a profit if you do it that way. You'd never be able to have your accounts audited. It's also quite possible that errors would go undetected. I wouldn't recommend it, Ray.
Originally by: Krathos Morpheus
Quote:
Related to this, what accounting method are you using for cost of inventory? FIFO, LIFO, the average-cost method, or a custom hybrid such as average-costing periods of time (month or week) and then treating the inventory lots under FIFO or LIFO?
What do you guys think it would be a fair compromise to track FIFO without accounting for every item individually? I'm thinking about grouping items that do not differ more than maybe 5% in cost price over any period of time to avoid small price adjustments, or grouping all items acquired on the same day, isn't grouping over weeks or months excessive?
One Stop has a small number of items to account for - capital ship & component BPCs and POS fuels - so I don't know how much more effort would be involved if it was trading in 100+ items, say.
However, I suspect that you could end up spending just as much time tracking each of your groupings, so I'd still be inclined to use FIFO per item. Someone like Hel O'Ween could probably give you a better idea on how to do it with minimal manual input.
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Hexxx
Minmatar
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Posted - 2010.06.17 11:08:00 -
[57]
Originally by: Krathos Morpheus
Quote:
Related to this, what accounting method are you using for cost of inventory? FIFO, LIFO, the average-cost method, or a custom hybrid such as average-costing periods of time (month or week) and then treating the inventory lots under FIFO or LIFO?
What do you guys think it would be a fair compromise to track FIFO without accounting for every item individually? I'm thinking about grouping items that do not differ more than maybe 5% in cost price over any period of time to avoid small price adjustments, or grouping all items acquired on the same day, isn't grouping over weeks or months excessive?
A hybrid approach...cost-average groups of materials on a periodic basis (weekly?) so that FIFO becomes much easier to do by hand. However, if the span of time bothers you too much, then group on a daily basis I would say.
Just my opinion.
Projects Blog |
Krathos Morpheus
Legion Infernal
|
Posted - 2010.06.17 11:10:00 -
[58]
Originally by: Varo Jan
One Stop has a small number of items to account for - capital ship & component BPCs and POS fuels - so I don't know how much more effort would be involved if it was trading in 100+ items, say.
However, I suspect that you could end up spending just as much time tracking each of your groupings, so I'd still be inclined to use FIFO per item. Someone like Hel O'Ween could probably give you a better idea on how to do it with minimal manual input.
I was thinking more about software and the api, so it would not be manual. My question would be: which degree of accuracy is needed to properly account for transactions? And how do you adjust it to different items? (ie:Capital Parts vs Ammunition). I ask it here because I understand that this report's purpose is to promote proper accounting in eve, if you feel it doesn't belong here, just tell me and I'll move to another thread.
EVEwatch Sidebar soon
"It is the unofficial force ù the Jita irregulars. " |
Varo Jan
Caravanserai Consulting
|
Posted - 2010.06.17 11:23:00 -
[59]
Originally by: Krathos Morpheus
My question would be: which degree of accuracy is needed to properly account for transactions? And how do you adjust it to different items? (ie:Capital Parts vs Ammunition).
I ask it here because I understand that this report's purpose is to promote proper accounting in eve, if you feel it doesn't belong here, just tell me and I'll move to another thread.
Here is good. :)
Do it by item to fully/properly account for transactions - that's clean and simple. However, there is a principle in accounting called materiality. It basically means that you can ignore/estimate insignificant stuff.
Could you explain what you mean by "adjust it to different items," please?
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Krathos Morpheus
Legion Infernal
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Posted - 2010.06.17 13:10:00 -
[60]
Edited by: Krathos Morpheus on 17/06/2010 13:10:05
Originally by: Varo Jan
Here is good. :)
Do it by item to fully/properly account for transactions - that's clean and simple. However, there is a principle in accounting called materiality. It basically means that you can ignore/estimate insignificant stuff.
Could you explain what you mean by "adjust it to different items," please?
Well, maybe I've mixed questions oriented to the two different concepts that I'm considering. Having little financial background and experience, after learning the concept of FIFO and thinking on how to reduce the handled data (ie: to avoid keeping all transactions), I thought of grouping items with the same cost. But cost varies constantly when you are trading and adjusting orders, although in small increments; so I thought of grouping a fixed number of items. But different items have different relative costs and volumes, so to account for the relative change and differentiate between items I'd group items with fixed percentile differences in price. This has the benefit of giving you a known margin of error. I'd like to know what is the max percentile that you think it would be appropriate to group items and any other opinions on this method that you could think of. Then I stumbled on Hexxx post and now I think that maybe my old method is too complicated; grouping items over time gives you the nice option of presenting the data as a cost over time graph on individual items. Now, Hexxx is talking about weekly and monthly periods, I think the minimum period to account for the items would be the turnover time, but you can't reliably use that to fix periods. And which one would be the maximum? I mean to avoid excessive deviations from the real performance. My thought now is that maybe daily grouping is overkill, but it gives you a grain fine enough to cover any need you could have on analyzing data in addition of reports, what do you think?
EVEwatch Sidebar soon
"It is the unofficial force ù the Jita irregulars. " |
Varo Jan
Caravanserai Consulting
|
Posted - 2010.06.17 14:12:00 -
[61]
Originally by: Krathos Morpheus
I thought of grouping items with the same cost. [Then]I thought of grouping a fixed number of items.
But different items have different relative costs and volumes, so to account for the relative change and differentiate between items I'd group items with fixed percentile differences in price. This has the benefit of giving you a known margin of error. I'd like to know what is the max percentile that you think it would be appropriate to group items and any other opinions on this method that you could think of.
I like to keep things as simple as possible, so I wouldn't use that method. :)
Quote:
Then I stumbled on Hexxx post and now I think that maybe my old method is too complicated; grouping items over time gives you the nice option of presenting the data as a cost over time graph on individual items. Now, Hexxx is talking about weekly and monthly periods, I think the minimum period to account for the items would be the turnover time, but you can't reliably use that to fix periods. And which one would be the maximum? I mean to avoid excessive deviations from the real performance. My thought now is that maybe daily grouping is overkill, but it gives you a grain fine enough to cover any need you could have on analyzing data in addition of reports, what do you think?
I started life on EVE as a trader. I used to take a print of my assets every day and work out my profits using jEveAssets, EVE Trader and others. I was poor. :) It became too much work fast. Eventually I was happy just knowing my wallet had increased by X each week and I'd spot check the profitability of individual items. Now I'm content to prepare accounts on a monthly basis, but then I trade a very small pool of items and a lot of my business is manufacturing and research. But that's me. I don't think it is worth preparing rigorous financial statements on a shorter time scale than a month. If I were trading a large pool of items that changed frequently, I'd still only prepare accounts monthly - but I'd monitor item profitability more frequently using an app such as EVE Trader. Also, I'd have the experience to know intuitively when profitability on a particular item starts to cause alarm.
Accounting per item is simplest, I believe. Take an example. Say you have 100 Robotics at the beginning of the month that you bought at 6K on the last day of the preceding month. During the month you buy another hundred, but at wildly different prices. Your transactions will tell you the average cost you paid for those items, say 8k. You sell 100 Robotics during the month at an average price of 10K, so you're left with 100 units at month end. This is what you'd see:
Opening Stock 100 at 6K = 600,000
Purchases 100 at 8K average = 800,000
Cost of Sales 100 at 6K = 600,000
Closing Stock 100 at 8K = 800,000
So stock in your balance sheet is worth 800,000. You've averaged your purchases and used FIFO to decide which to show as cost of sales. You could average the lot at 700K. Either method is acceptable. Use the simplest for you.
Sales 100 at 10K 1,000,000
Cost of Sales 100 at 6K 600,000
Gross Profit 400,000
And in your P&L you've made a profit of 400K
I'd suggest you leave sales taxes and broker fees out, and just monitor them on a global basis. It's easier.
In your cash flow statement you received 1B, paid 800K, so cash is up by 200K
Your balance sheet would show on one side:
Stock +200K
Cash +200K
Total +400K
And on the other side:
Profit +400K
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Ray McCormack
Nordar Innovations.
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Posted - 2010.06.17 15:37:00 -
[62]
Originally by: Varo Jan
Ouch. You'll never know how you made a profit if you do it that way. You'd never be able to have your accounts audited. It's also quite possible that errors would go undetected. I wouldn't recommend it, Ray.
The only requirements for an audit would be to prove the original value of the assets and their current valuation.
The other stuff just isn't necessary in our infant market; or is achievable through other, more effective means (such as analysing profitability of specific aspects of your business).
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Magnu Stormhawk
Stormhawk Enterprises
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Posted - 2010.06.17 15:45:00 -
[63]
Originally by: Varo Jan
Originally by: Ray McCormack
Originally by: Varo Jan
How?
By having profit as a balancing figure on the balance sheet.
Ouch. You'll never know how you made a profit if you do it that way. You'd never be able to have your accounts audited. It's also quite possible that errors would go undetected. I wouldn't recommend it, Ray.
It can be enough in some instances. As long as that balance sheet is prepared with sound accounting principles applied. The problem is that common eve reporting tends to value assets and stock at current market value, and that ends up with taking profit on stock that hasn't sold yet, and taking unrealised gains on revalued assets as profit.
I would like to think there is some compromise here. A system of reporting that is valuable to everyone will have to be accessible and usable by all and not just by accountants, so it has to be simplified and understandable. I believe there is a potential to create a framework for standardised eve reporting but it needs to be written from the right perspective.
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Ray McCormack
Nordar Innovations.
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Posted - 2010.06.17 15:49:00 -
[64]
Originally by: Magnu Stormhawk
The problem is that common eve reporting tends to value assets and stock at current market value, and that ends up with taking profit on stock that hasn't sold yet, and taking unrealised gains on revalued assets as profit.
Write a contra to your liabilities/equity for unrealised appreciation/depreciation.
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.17 15:51:00 -
[65]
Originally by: Magnu Stormhawk
The problem is that common eve reporting tends to value assets and stock at current market value, and that ends up with taking profit on stock that hasn't sold yet, and taking unrealised gains on revalued assets as profit.
Exactly.
Quote:
I would like to think there is some compromise here. A system of reporting that is valuable to everyone will have to be accessible and usable by all and not just by accountants, so it has to be simplified and understandable. I believe there is a potential to create a framework for standardised eve reporting but it needs to be written from the right perspective.
I agree.
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.17 16:13:00 -
[66]
Originally by: Ray McCormack
Originally by: Magnu Stormhawk
The problem is that common eve reporting tends to value assets and stock at current market value, and that ends up with taking profit on stock that hasn't sold yet, and taking unrealised gains on revalued assets as profit.
Write a contra to your liabilities/equity for unrealised appreciation/depreciation.
No. Value stock and fixed assets at cost and you avoid the problem altogether.
What you're suggesting presents an inflated value. Now IPO managers like to do that because it inflates NAV and their share price.
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Ray McCormack
Nordar Innovations.
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Posted - 2010.06.17 16:19:00 -
[67]
Originally by: Varo Jan
What you're suggesting presents an inflated value. Now IPO managers like to do that because it inflates NAV and their share price.
It presents a realistic value. Investors should be aware of the true or potential value of the assets.
Remember, all I'm interested in displaying is the asset-backed value of a corporation and its profitability. That is key to what I see as being our current requirements, others may arise with time.
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Shar Tegral
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Posted - 2010.06.17 16:36:00 -
[68]
The battle of "I like Blue" and the "I like Red's".
Filmatleven
Wealth, howsoever got, in Eve makes
Lords of morons and gentlemen of thieves;
Aptitude and intellect are needless here;
'Tis impudence and money that grants fame. |
Ji Sama
Caldari
Tash-Murkon Prime Industries
manufacturing disaster
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Posted - 2010.06.17 16:43:00 -
[69]
Originally by: Varo Jan
Originally by: Ray McCormack
Originally by: Magnu Stormhawk
The problem is that common eve reporting tends to value assets and stock at current market value, and that ends up with taking profit on stock that hasn't sold yet, and taking unrealised gains on revalued assets as profit.
Write a contra to your liabilities/equity for unrealised appreciation/depreciation.
*SNIP* Now IPO managers like to do that because it inflates NAV and their share price.
Hey :(
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Hexxx
Minmatar
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Posted - 2010.06.17 16:57:00 -
[70]
Personally, I'd prefer to value things at cost unless I can't account for their value through records (things received through contract, trade, or picked up from a random can outside a station, etc).
Avoid market valuation unless you can't avoid it, because while the potential value may be X, you don't really KNOW until you start selling it.
As was mentioned, this is more about personal choice than who's right vs. wrong.
Projects Blog |
Ji Sama
Caldari
Tash-Murkon Prime Industries
manufacturing disaster
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Posted - 2010.06.17 16:59:00 -
[71]
Well it is simple, as a businessman i value everything i own at cost, UNLESS, its value have decreased, since the purchase. (then it is rightfully devalued to current value.)
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Ray McCormack
Nordar Innovations.
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Posted - 2010.06.17 17:03:00 -
[72]
I agree with valuing current assets at cost, but fixed assets that will see a significant price variation over their lifetime should be treated differently. You have to appreciate/depreciate them.
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.17 17:12:00 -
[73]
Originally by: Ray McCormack
I agree with valuing current assets at cost, but fixed assets that will see a significant price variation over their lifetime should be treated differently. You have to appreciate/depreciate them.
I'll concede that. :) And there are circumstances in RL where it's permissible to revalue fixed assets. Depreciation rules cover the reverse.
However, my concern is how that's applied in EVE. Revaluing researched T1 BPOs is easier - there's a large enough sample. Revaluing T2 BPOs is much trickier. I think they are the two main fixed asset classes which could have a material impact on a business's finstats.
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Ray McCormack
Nordar Innovations.
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Posted - 2010.06.17 17:18:00 -
[74]
Consider artwork as their RL counterpart, I think that's the closest example we'll find. Someone phone all those Asian companies that bought Van Goghs and the like in the late eighties / early nineties and ask them how they're listed on their balance sheets.
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Krathos Morpheus
Legion Infernal
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Posted - 2010.06.17 17:44:00 -
[75]
What about accounting for both?
Volatile Assets 1:
Acquisition cost: 40M
Market valuation: 35M < (lowest value)
Valuation change: +3M (from last report)
Volatile Assets 2:
Acquisition cost: 20M < (lowest value)
Market valuation: 28M
Valuation change: -2M (from last report)
Fixed Assets:
Acquisition cost: 120M
Market valuation: 135M < (always at market value)
Valuation change: +12M (from last report)
Improved Assets:
Acquisition cost: 54M
Market valuation: 65M < (always at market value)
Valuation change: +2M (from last report)
TOTAL Value: 155M (35M+20M+135M+65M)
EVEwatch Sidebar soon
"It is the unofficial force ù the Jita irregulars. " |
Hexxx
Minmatar
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Posted - 2010.06.17 17:56:00 -
[76]
Originally by: Ray McCormack
I agree with valuing current assets at cost, but fixed assets that will see a significant price variation over their lifetime should be treated differently. You have to appreciate/depreciate them.
Ah, in that case I agree. Point.
Projects Blog |
MailDeadDrop
The Collective
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Posted - 2010.06.17 21:55:00 -
[77]
Originally by: Krathos Morpheus
TOTAL Value: 155M (35M+20M+135M+65M)
Uh, my calculator shows that at 255M.
As far as "accounting for both", listing both might add clarity. It might also make a complex document nearly impenetrable. And it surely adds work (for the writer) to what is already drudgery.
MDD
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.17 22:58:00 -
[78]
Originally by: MailDeadDrop
As far as "accounting for both", listing both might add clarity. It might also make a complex document nearly impenetrable. And it surely adds work (for the writer) to what is already drudgery.
MDD
Agreed. Accounting works on conservative principles - the glass is half empty - such as valuing stuff at the lower of cost or net realisable value, not "Well, I hope I can get oodles more if I were to sell it now, and no CCP would never, eber nerf it, and my mate told me he'd pay twice as much, and..."
The most I would do for T2 BPOs would be to pay to have them valued by an experienced, independent valuer such as Grendell and add a note to the accounts stating that T2s may be worth x more. That's my view. I accept it won't coincide with the views of others. So long as there's clarity in a set of accounts, it's up to individual investors to decide if their shares are worth more or less than the figure derived from the accounts. Valuing a business is not the same as accounting for its activities.
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.18 17:09:00 -
[79]
I'm going to try to set out some explanations and definitions of terms. I'd appreciate feedback from accountants (to make sure I haven't missed anything) and from non-accountants (for their views on clarity).
I'll start with the cash flow statement. It's by far the easiest to prepare and it is the only one where the numbers come from a single API - the wallet journal.
There are two ways to prepare a cash flow statement - the direct and indirect methods. I've used the former - it's simpler.
Cash flows in and out of a business for three reasons:
1. To run the day to day operations
2. To invest in the business
3. To finance the business.
In reverse order:
Cash flows from/used in financing activities
Financing activities include the inflow of cash from investors such as banks and shareholders, as well as the outflow of cash to shareholders as dividends. Typically, these are the items you'd expect to see in EVE:
Loans/Bonds/Capital - cash in
Loan Interest - This will include interest paid on bonds and/or interest paid to a bank/individuals for loans.
Dividends paid to shareholders
In your wallet journal they will appear either as corporation account withdrawals or as player donations. Chances are you'll have to segregate them manually. I use corp wallets to make it easier.
Cash flows from/used in investing activities
Capital expenditure (money spent on acquiring fixed assets) - in RL this includes land and buildings, plant and machinery, vehicles and so on. The equivalents in EVE are items like POS structures, BPOs, ships and modules for your ships.
Asset sales - the reverse of the above
Purchase or sale of marketable securities (shares and bonds)
Dividends/interest received on shares and bonds.
These will appear under a variety of headings in your wallet journal, and you'll need to cross-reference to wallet transactions to get some details. Again, using different corp wallets can simplify matters.
What you're left with after you've dealt with those two categories is operational activities. Everything else goes there.
Cash flows from/used in operating activities
Cash receipts from customers - clear enough?
Cash paid to suppliers and employees - all other outgoings including broker fees and sales tax.
And that's it. The bottom line will agree to the movement on your wallet journal(s) from the beginning of a month to the end of the month.
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Kragaar
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Posted - 2010.06.18 20:43:00 -
[80]
Originally by: Varo Jan
I'm going to try to set out some explanations and definitions of terms. I'd appreciate feedback from accountants (to make sure I haven't missed anything) and from non-accountants (for their views on clarity).
What you're left with after you've dealt with those two categories is operational activities. Everything else goes there.
Cash flows from/used in operating activities
Cash receipts from customers - clear enough?
Cash paid to suppliers and employees - all other outgoings including broker fees and sales tax.
And that's it. The bottom line will agree to the movement on your wallet journal(s) from the beginning of a month to the end of the month.
Seems ok, but the top section on operating activities isn't technically correct. Net income should be the first item and then everything else reconciles down to the final cash position. So for example in February you should start off with net income for February, subtract non cash income statement items and then have an increase or decrease due to operating activities. As it stands now there is no tie from the income statement to the cash flow statement.
Nitpicking from this point on, or continuing:
- you state the financials are in billions but have decimal points. Either report in millions or wipe out the decimals.
- many totals don't foot, if you manually add the lines they don't agree to your totals. Likely just due to rounding, but is sloppy. Stating the figures in millions would give you more wiggle room to plug an extra digit or two when rounding errors persist.
- a year to date column on the income statement would be welcome.
- balance sheet format is a bit hinkey (to me). Standard formatting is to have most liquid items at the top (cash) and least liquid at the bottom (goodwill/characters?). Also, seems odd to have net assets balancing to equity rather than total assets balancing to total liabilities plus equity which is standard.
- income statement: below gross margin you do not segregate the research income and sales fees from the expenses below, there should be some additional subtotal lines to split them as current formatting indicates they should be all added together. Similar formatting inconsistencies on the other statements.
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.18 21:27:00 -
[81]
Thanks for the feedback, much appreciated. :)
Originally by: Kragaar
Seems ok, but the top section on operating activities isn't technically correct. Net income should be the first item and then everything else reconciles down to the final cash position. So for example in February you should start off with net income for February, subtract non cash income statement items and then have an increase or decrease due to operating activities. As it stands now there is no tie from the income statement to the cash flow statement.
I accept that the indirect method is much more widely used - and it is the way I'd prepare one RL. However, as I said in my post, I used the direct method because it's simpler and more easily understood by non-accountants.
Quote:
- you state the financials are in billions but have decimal points. Either report in millions or wipe out the decimals.
- many totals don't foot, if you manually add the lines they don't agree to your totals. Likely just due to rounding, but is sloppy. Stating the figures in millions would give you more wiggle room to plug an extra digit or two when rounding errors persist.
I chose billions (to one decimal :)) for clarity. Too many numbers don't help a reader. Other businesses may need or prefer to show more numerical precision. But you're absolutely right - the rounding errors should have been eliminated.
Quote:
- a year to date column on the income statement would be welcome.
Agreed. I'll probably change the format next time to quarterly plus YTD.
Quote:
- balance sheet format is a bit hinkey (to me). Standard formatting is to have most liquid items at the top (cash) and least liquid at the bottom (goodwill/characters?). Also, seems odd to have net assets balancing to equity rather than total assets balancing to total liabilities plus equity which is standard.
Two reasons. It's an older style that I like, so personal preference came in there. It's the format most often seen (implicitly) in EVE, so I kept to what was familiar to folks here. My ordering within current assets and liabilities could be off.
Quote:
- income statement: below gross margin you do not segregate the research income and sales fees from the expenses below, there should be some additional subtotal lines to split them as current formatting indicates they should be all added together. Similar formatting inconsistencies on the other statements.
I'm not quite sure what you mean here. Only capital kit sales have costs directly (and relatively easily) attributable to them. Or have I missed your point?
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Kragaar
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Posted - 2010.06.18 21:51:00 -
[82]
Originally by: Varo Jan
Quote:
- income statement: below gross margin you do not segregate the research income and sales fees from the expenses below, there should be some additional subtotal lines to split them as current formatting indicates they should be all added together. Similar formatting inconsistencies on the other statements.
I'm not quite sure what you mean here. Only capital kit sales have costs directly (and relatively easily) attributable to them. Or have I missed your point?
Basically two problems, you're displaying multiple line items together without a subtotal separation and displaying both revenue and expenses for example with the same sign but no consistency as to whether they should be added or subtracted...if that makes sense. To use February as an example, the proper use of subtotal lines should look like the below, sorry for poor formatting.
Feb 2010
13.3 Sales
-----
10.1 Cost of sales
0.1 Fees and taxes
-----
10.2
-----
3.1 Gross profit
-----
2.1 Staff and related
1.3 Fuels
1.0 Other
0.7 Amortization
-----
5.1
-----
Other revenue and expenses
2.1 Research income
1.1 Cost of production?
0.0 Sales fees
-----
3.2
-----
1.2 Net income
0.0 Distribution
-----
1.2 Retained Earnings
====
If a revenue and expense item are not separated by a subtotal line they should have opposite signs or brackets to distinguish them. It's ok to have subtotals with the same sign but some as revenues and some as expenses since the titles should indicate that you should be adding or subtracting.
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.19 13:34:00 -
[83]
Thanks for the clarifications, I can see where you're coming from now. However, I don't necessarily agree with some of your suggestions.:)
Some of our differences of opinion very likely arise from from where and even when we trained. I passed my last CIMA exam in England when it was still called the ICMA. Rather than get bogged down in detail at the moment, I'd like to stick to general principles if possible. Perhaps we could work towards using IFRSs as a common framework, suitably adjusted for simplicity and applicability to EVE?
I'll post balance sheet definitions of terms next and leave the P&L/Income statement till last.
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Kragaar
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Posted - 2010.06.19 21:41:00 -
[84]
Originally by: Varo Jan
Perhaps we could work towards using IFRSs as a common framework, suitably adjusted for simplicity and applicability to EVE?
/me bursts into flame
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Varo Jan
Caravanserai Consulting
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Posted - 2010.06.20 11:09:00 -
[85]
Originally by: Kragaar
Originally by: Varo Jan
Perhaps we could work towards using IFRSs as a common framework, suitably adjusted for simplicity and applicability to EVE?
/me bursts into flame
Let's not get into a ****ing contest on which country's standards are best. Pragmatism and simplicity are the name of the game here - not textbook theory.
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