Financial Consolidation and Working Capital Management

Unit 3: Financial Consolidation Methods

Global Integration (Consolidation)

• Non-current investments: 0
• Share capital and reserves: Parent company only
• Profit/loss: % Parent + (% Subsidiaries × Profit of subsidiaries)
• External shareholder: % Remaining purchase × (Share capital B + Reserves B + Profit/loss B)
• Goodwill: Price paid - (Share capital B × % B)
• Non-controlling interest: % Remaining purchase × (Share capital B + Reserves B + Profit/loss B)
• Non-current assets: Goodwill + PPE (A and B)
• Investment in A: 0 (due to consolidation)

Proportional Integration (Joint Ventures)

• Non-current investments: 0
• PPE, Current Assets, Liabilities, and Profit/loss: Parent + (Subsidiary × % Purchased)
• Share capital and reserves: Parent company only
• Negative differences from consolidation: Price - (Capital and reserves B × % B)
• Non-controlling interest: 0

Equity Method (Associates)

• Adjustment: Profit B × % Purchased
• Investment in A: Price + Adjustment
• Liabilities: Parent company only
• Non-current investment related to parties: Parent + Adjustment
• Profit/loss: Parent + Adjustment
• Negative differences from equity: Price - (% × Capital reserves B)
• Non-current investment from equity: Price + (Negative differences from equity) + (% × Profit B)

Operating Cycle and Working Capital

Financial Periods and Ratios

1. RM Period: (360 × Average RM) / Cost of consumption
2. Production Period: (360 × SFG Average) / Cost of production
3. FG Storage Period: (360 × FG Average) / Cost of sales
4. Collection Period: (360 × Average Clients) / Sales
5. Payment Period: (360 × Average Suppliers) / Supplies

Cost Calculations

• Cost of consumption: Supplies - RM variation
• Cost of production: Cost of consumption + Production expenses - Semi-FG variation
• Cost of sales: Cost of production - FG variation
• Contribution margin: Sales - Cost of sales

Key Financial Metrics

• Turnover: Activity / Average balance
• Period: 360 / Turnover
• Operating cycle: Sum of periods 1, 2, 3, and 4
• Financial operating cycle: Sum of periods 1, 2, 3, 4, and 5
• Working Capital (WC): Current Assets - Current Liabilities
• Minimum Working Capital: Sum of all average balances - Payment to suppliers
• RM Turnover: Cost of consumption / Average RM