Page 367 - SBR Integrated Workbook STUDENT S18-J19

Analysis and interpretation

Additional performance measures

5.1 Additional performance measures (APMs)

Users of financial statements are demanding more information. In response, many
entities present APMs, such as:

 EBIT – earnings before interest and tax

 EBITDA – earnings before interest, tax, depreciation and amortisation

 Net financial debt – gross debt less cash and cash equivalents and other
financial assets

 Free cash flow – cash flows from operating activities less capital expenditure.

5.2 Benefits

Benefits of disclosing APMs include:

 helping users of financial statements to evaluate an entity through the eyes of
management

 enabling comparison between entities in the same sector or industry

 stripping out elements that are not relevant to current or future year operating
performance.

5.3 Drawbacks

APM disclosures have been criticised for:

 overwhelming users with additional information

 presenting an over-optimistic picture of the entity’s performance

 giving undue prominence to figures that are not calculated in accordance with
IFRS Standards

 not reconciling with figures in the primary financial statements.

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