Strategic performance analisys trough Financial Statement and Stock Market Data. The Coca-Cola case

CHAPTER_1. THE FINANCIAL STATEMENTS. GENERAL
PRINCIPLES AND CONSTITUTIVE ELEMENTS
 1.1 INTRODUCTION TO THE FINANCIAL STATEMENTS
The Financial Statements of a private company are regulated by law according to
articles 1 of the Italian Civil Code from law Art. 2423 to 2435-bis (The Italian Civil
Code is part of the Italian Legal System). Pursuant to law Art. 2423 of the Italian
Civil Code, the Financial Statements consist of three parts: the Balance Sheet, the
Income Statement and the notes to the Financial Statements.
Its importance lies in the information contained in this document, i.e. the
photographic description
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 at a certain time window, of the Company's past history,
from which the future history can be seen and interpreted.
Clearly, it is logical and obvious to understand, therefore, how the analysis of the
financial year is possible only with great ability to read the Financial Statements, and
therefore of the indicators that highlight the state or not of economic and financial
health. A fundamental role in their preparation, then, has been assumed by the
legislator, who has intervened to guarantee the informative capacity of the Financial
Statements, according to specific and sanctioned principles
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, and the protection of
permanent interests. The statutory legislator also regulated the structure and content
of the Financial Statements and the valuation methods to be followed in their
composition.
 1.2 TERMS AND PRINCIPLES FOR RELATIONSHIP
The Accounting Department provides accounting standards that have the function of
solving the knots and problems of law application on Financial Statements. The
professional bodies responsible for the matter (the National Council of Chartered
Accountants and Accounting Experts), which are those suitable and responsible for
1 Data taken from the Bibliography [1], [2], [3].
2 There are three cardinal principles to be followed in the composition of the Financial Statements:
clarity, adherence to truth and fairness.
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the preparation of these standards have decreed, therefore, that the accounting, once
blacked out, must provide:
• a reliable knowledge, according to correct accounting principles, of the
economic result achieved during the year and the related valuation of assets;
• additional information documents so as to make the Financial Statements
readable and correct
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. 
In addition, it must be a document that adheres to the truth, as far as possible. In
other words, adherence to the truth requires that all the documents that make up the
Financial Statements include all the information instrumental to the real
interpretation of the working capital structure and the way in which the income for
the period is formed.
Therefore, if we want the Balance Sheet to be a clear and intelligible document
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 to
all, it is necessary to allow third parties to read it, understanding every detail, in order
to have a clear and intelligible document. The framework to be judged, must be the
most clear possible about Company's assets, economic and business situation. The
framework assessed must also be able to provide effective information on the
estimation of management, results and, finally, the reasons that have led to definite
forecasts for the future. From this it is easy to understand how important it is that
descriptions of the Company's history emerge from the Financial Statements that
highlight the performance of activities over time. Additional information (such as the
notes to the Financial Statements), therefore, is also necessary.
 1.3 COMPONENTS OF THE FINANCIAL STATEMENTS
 The Balance Sheet
The Balance Sheet, as well as the notes to the Financial Statements, must also show
the qualitative and quantitative composition of the Company's Assets at a certain
point in time. Therefore, it is an indispensable accounting document that shows the
3 It should be noted that the legislator has not defined the exceptional circumstances to which the
obligation to derogate should relate, just as it has not defined the cases in which the specifications
are not sufficient to give a true and fair view, just as it has not defined the cases in which the
specifications opting for an implicit reference to the technical rules on budgetary matters.
4 The drafting of the Balance Sheet is also regulated from a graphical and syntactical point of view.
For example, the Balance Sheet is based on the civil law (art. 2424 of the Italian Civil Code)
provides for a specific value representation scheme, to be applied in all cases.
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working capital of a company at a given moment in time; and highlights the existing
investments (assets or uses) made by the company and the related financing methods
by way of Debt (Liabilities) or risk (Equity or Net Capital). By its structure,
therefore, it shows the type of resources (assets or rights) used and the sources of
financing used to cover the financial needs generated by the uses, thus allowing the
analysis of the Company Financial and Equity situation. The scheme that materially
represents it is divided into assets and Liabilities (in the Assets section are listed all
the investments necessary for the Company to carry out its activities in a more
profitable way, while in the Liabilities section are listed all the means that the
Company has used to finance those Investments).
The sections are indicated with:
• the Capital letters of the alphabet indicate the structural Assets and Liabilities
groups
• Roman numerals identify gender items, i.e. subgroups within structural
classes;
• Arabic numerals represent the analytical entries of species;
• Lower case letters, finally, for further subdivisions of previous level;
The law stipulates that assets that are to be used on a long-term basis must be
recorded as Fixed Assets
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.
With regard to Liabilities, the classification of items is made on their nature basis,
thus distinguishing sources of financing from Equity.
This document has a Liability side containing the source of the capital used to
acquire the resources shown on the asset side:
(a) Shareholders' Equity
(b) provisions for Liabilities and Charges
(c) Debts 
(d) Accrued Expenses and Deferred Income
5 Art. 2424-bis of the Italian Civil Code, paragraph 1.
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And it also has an active side containing the available resources. It is divided into
four main headings:
(a) Receivables from Shareholders
(b) Fixed Assets
(c) The circulating assets
(d) Accrued Income and Prepaid Expenses and Deferred Charges
 The Profit and Loss Account
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The Income Statement is, like the Balance Sheet mentioned above, a document that
serves to define the cost/benefit dynamics achieved over a given period of time. It is
therefore important in order to define the formation of the economic result of the
management, i.e. the increase or decrease that the initial net Equity has undergone as
a result of the management.
The Income Statement dynamically highlights the management operations that led to
the result for the year. The operations can be of four types:
• Current Management Operations (characteristic)
• Transactions that are not part of normal operations (but in any case related to
operations).
• Financial transactions, which produce profit linked to financial transactions
with banks and other entities;
• Non-Operating transactions
From a formal point of view it is presented with a scalar structure, with an
articulation of voices by letters of the alphabet and, for the subgroups in
themincluding, with the distinction by Arabic numerals.
 Notes to the Accounts
The Notes to the Financial Statements
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, on the other hand, represent the third
6 Data taken from the Bibliography [1],[2], [3].
7 Art. 2423 of the Civil Code. Art. 2427 of the Civil Code is divided into eighteen points, which
explain the information to be expected from the Explanatory Notes and yes group together in:
information on the individual evaluation criteria; analysis of the main criteria items in the Balance
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document of the Financial Statements and see the criterion of its content expressed
by law art. 2427, without specific formal procedures. This has the primary function
of describing and explaining the data contained in the Financial Statements
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 with
additions and 'additions.
In this one it is also possible to argue the valuation criteria adopted for the various
items, often summarized too much in the Balance Sheet and Income Statement;
allowing everyone to interpret the accounting language positively, to understand the
situation, being at the end also in the Notes to the Financial Statements of an Equity,
financial and economic nature, while the information concerning the company's
situation, the reference market, the management performance should instead be
included in the Directors' Report on Operations.
 The Management Report
The Management Report accompanies the Financial Statements with general and
prospective information. Its function is in fact to provide information on the situation
and performance of operations. Its objective is to characterize the Company reality
with the awareness that data and quantitative determinations alone are not able to
give a complete representation of the underlying complexity. The directors must
outline in the report, the management development prospects on the basis of the
values recorded in the Financial Statements and through medium-long and short term
plans and programs.
 The Cash Flow Statement
The Cash Flow Statement (in force since 2015 with retroactivity to the Financial
Statements dated December 31, 2014, inserted as mandatory by Legislative Decree
139/2015 while previously it was provided for among the optional documents) is a
financial document of the Financial Statements, in which a company summarizes all
Cash Flows that have occurred in a given period. It is therefore a document that tends
to facilitate the study of financial dynamics. It is easy to see, therefore, how the NET
Sheet; analysis of the main items in the Income Statement; additional and complementary
information.
8 The Balance Sheet and Income Statement.
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CAPITAL
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 is an element that well describes the Company's ability to deal with
monetary outlays.
The objectives set out in the explanatory note are:
• the financing activity
• investment activity
• sources-uses correlations
• causes of financial changes
The directors, in fact, are also obliged to draw up this document in order to provide
clear informations about Equity, financial and economic nature, while information
concerning the Company situation, the reference market, the management
performance must be included in the Directors' Report on Operations.
 1.4 WHO HAS TO WRITE IT? HOW DO YOU APPROVE? WHEN?
The following are obliged to draw up and publish the Financial Statements
• Joint Stock companies and partnerships (social acronyms of Italian law SRL.
SPA, SAS, SNC)
• Cooperative Societies and Consortium Companies  on limited shares or
liability;
• European Economic Interest Groupings (EEIGs) 
The necessary steps to obtain approval for a budget are:
• Preparation of the Budget in its essential parts (PA, EC, Notes)
• Approval of the Financial Statements to the Control Bodies. The Financial
Statements, together with the report on operations, must be communicated to the
Board of Statutory Auditors at least 30 days before the date set for the Shareholders'
Meeting to approve them.
• A copy of the main documents that make it up, then (including the minutes of
approval) must be filed with the Companies' Register.
9 Size understood in the financial, operational and net of stocks sense. See paragraph 2.1.1, Chap_2.
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