Mini MBA B10 - 02 Financial Management - Day 02

Financial Management
MINI MBA Program

DAY 02 | 9 Maret 2022
Mini MBA
BINUS BUSINESS
– BINUS SCHOOL
BUSINESS
Executive
SCHOOLEducation
Executive Education 2022
Facilitators In Brief
(An academic with strong professional background and certifications)
Gatot Soepriyanto Ph.D., CA., CPA (Aust.)., CFE
Gatot is an accountant with a passion for higher

education. He earned his Bachelor degree from Gadjah
Mada University, Jogja and post graduate degress
(Master and PhD) in Monash University, Australia.
Before joining BINUS, Gatot was an auditor in Ernst &
Young Indonesia, UNDP and UNICEF Indonesia.
Gatot holds three certifications: Chartered Accountant

(CA) from Indonesia, Chartered Practicing Accountant
(CPA) from Australia and Certified Fraud Examiner
(CFE) from The US.
Apart from teaching in undergraduate and post graduate

degree in BINUS University from 2008, Gatot also works
as a consultant for various projects, including for ”Badan
Kebijakan Fiskal” (BKF) and GIZ Germany.
E: gsoepriyanto@binus.edu
Currently, he serves as Dean of Faculty of Economics @gsoepriyanto
and Communication (FEC) BINUS University for 2018-
2022.
Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 2
This presentation material is strictly for class discussion purpose only, and can not be used, copied and
distributed for other purposes.
Financial Management
Session Day Topic Learning Focus
• Basic Concept of Financial
Management
1 Intro to Financial Management
Day 1 • Accounting vs Finance
Gatot Soepriyanto • Maximizing Shareholder Wealth
8 Maret 2022 • Balance Sheet
Understanding Financial
2 • Incomes Statement
Statements
• Statement of Cash Flows
• Fixed Cost & Variable Costs
3 Cost Structures • Direct Material, Direct Labor and
Manufacturing Overhead
Day 2
Gatot Soepriyanto • Liquidity Ratios
9 Maret 2022 • Debt Management Ratios
4 Financial Ratio Analysis (Solvency)
• Asset Management Ratios
• Profitability Ratios
• Time Value of Money Concept
Capital Budgeting
5 • Discounted Cash Flows
Day 3 (Investments Decision Analysis)
• Cost of Capital (WACC)
Humprey Tjia
10 Maret 2022 • Payback Period
Capital Budgeting
6 • Net Present Value
(Investments Decision Analysis)
• Internal Rate of Return
Session 03
Understanding
Cost Structure
• Fixed Cost
• Variable Cost
• Product vs Period Cost
Cost Structure
• Fixed Cost
• Variable Cost
• Mixed Cost
Source:
https://www.allbusiness.com/raise-prices-without-losing-customers-117179-1.html
Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022
Cost Behavior Analysis
• Cost Behavior Analysis is the study of how specific costs

respond to changes in the level of business activity.
• Some costs change; others remain the same.
• Helps management plan operations and decide between
alternative courses of action.
• Applies to all types of businesses and entities.
• Starting point is measuring key business activities.
Classification of Cost Based on Behavior
• Fixed Cost
• Variable Cost
• Semi Variable Cost (Mixed Cost)
Variable Costs
➢ Costs that vary in total directly and proportionately
with changes in the activity level.
✓ Example: If the activity level increases 10 percent, total variable
costs increase 10 percent.
✓ Example: If the activity level decreases by 25 percent, total
variable costs decrease by 25 percent.
➢ Variable costs remain the same per unit at every level of
activity.
Variable Costs
(a) (b)
Total Variable Costs Variable Costs per Unit
(Cameras) (Cameras)
$ 100 $ 25
Cost (per unit)
80 20
Cost (000)
60 15
40 10
20 5
0 2 4 6 8 10 0 2 4 6 8 10
Tablet Computers Tablet Computers

Produced (in 000) Produced (in 000)
Fixed Costs
➢ Costs that remain the same in total regardless of
changes in the activity level.
➢ Per unit cost varies inversely with activity : As volume
increases, unit cost declines, and vice versa
➢ Examples:
✓ Property taxes
✓ Insurance
✓ Rent
✓ Depreciation on buildings and equipment
Fixed Costs
(a) (b)
Total Fixed Costs Fixed Cost per Unit
(Rent Expense) (Rent Expense)
$ 25 $5
Cost (per unit)
20 4
Cost (000)
15 3
10 2
5 1
0 2 4 6 8 10 0 2 4 6 8 10
Tablet Computers Tablet Computers

Produced (in 000) Produced (in 000)
Classifications of Manufacturing Costs
Direct Direct Manufacturing

Materials Labor Overhead
The Product
Direct Materials
Raw materials that become an integral part of the

product and that can be conveniently traced directly
to it.
Example: The flour in the dough.

Direct Labor
Those labor costs that can be easily traced to

individual units of product.
Example: Wages paid to bakers.

Manufacturing Overhead
Manufacturing costs that cannot be easily traced

directly to specific units produced.
Examples: Indirect materials and indirect labor
Materials used to support

the production process.
Examples: lubricants and
cleaning supplies to
maintain the bakery
equipment.
Product Versus Period Costs
Product Costs:
▪ Direct materials
• Components: ▪ Direct labor
▪ Manufacturing overhead
• Costs that are an integral part of producing the product.

• Recorded in “inventory” account.
• Not an expense (COGS) until the goods are sold.
Period Costs
▪ Charged to expense as incurred.
▪ Non-manufacturing costs.
▪ Includes all selling and administrative expenses.
Illustration 1-3
Product versus period costs
Test Your Understanding
1. Indicate whether each of the following costs of a pencil

manufacturer would be classified as direct materials (DM),
direct labor (DL), or manufacturing overhead (MO).
a. ____ Depreciation of pencil painting machinery
b. ____ Lead inserted into pencils
c. ____ Factory utilities
d. ____ Wages of assembly line worker
e. ____ Salary of supervisor
f. ____ Factory machinery maintenance
g. ____ Wood
h. ____ Eraser compound
Test Your Understanding (2)
2. Identify whether each of the following is classified as a

product cost or a period cost.
______________ 1. Direct labor
______________ 2. Direct materials
______________ 3. Factory utilities
______________ 4. Repairs to office equipment
______________ 5. Property taxes on factory building
______________ 6. Sales salaries
Test Your Understanding (3)
The Bradshaw Law Office has the following monthly telephone

records and costs:
Calls Costs
2,000 $2,400
1,500 2,000
2,200 2,600
2,500 2,800
2,300 2,700
1,700 2,200
Instructions
Identify the fixed and variable cost elements using the high-
low method.
Session 04
Financial Statements
Analysis
• Horizontal & Vertical Analysis
• Ratio Analysis
• Liquidity
• Solvability
• Profitability
4.1 Apply Horizontal Analysis And Vertical
Analysis.
Analyzing financial statements involves:
Comparison
Basic Tools
Bases
◆ Intracompany ◆ Horizontal analysis

◆ Intercompany ◆ Vertical analysis
◆ Industry averages ◆ Ratio Analysis
Horizontal Analysis
Also called trend analysis, is a technique for evaluating a

series of financial statement data over a period.
• Purpose is to determine increase or decrease that has
taken place.
• Commonly applied to the balance sheet and income
statement.
Vertical Analysis
• Also called common-size analysis, is a technique that

expresses each financial statement item as a percent of a
base amount.
• Vertical analysis is commonly applied to the balance

sheet and the income statement.
DO IT! Horizontal Analysis
Summary financial information for Rosepatch Company is as

follows.
Compute the amount and percentage changes in 2017 using

horizontal analysis, assuming 2016 is the base year.
4.2 Evaluate A Company Comprehensively Using

Ratio Analysis.
Analyzing financial statements involves:
Comparison
Characteristics
Bases
▪ Liquidity ▪ Intracompany
▪ Profitability ▪ Industry averages
▪ Solvency ▪ Intercompany
The financial information in Illustrations 13A-1 through 13A-4 will be used

to calculate Chicago’s 2014 ratios.
RATIO ANALYSIS
Ratio analysis expresses the relationship among selected items of
financial statement data.
Financial Ratio Classifications
Liquidity Solvency Profitability
Measures short- Measures the Measures the

term ability of the ability of the income or
company to pay its company to operating success
maturing survive over a long of a company for a
obligations and to period of time. given period of
meet unexpected time.
needs for cash.
LIQUIDITY RATIOS
Measure the short-term ability of the company to pay its maturing

obligations and to meet unexpected needs for cash.
▪ Short-term creditors such as bankers and suppliers are particularly

interested in assessing liquidity.
▪ Ratios include the current ratio, the current cash debt coverage, the
accounts receivables turnover, the average collection period, the
inventory turnover, and days in inventory.
LIQUIDITY RATIOS
Current Ratio
Expresses the relationship of current assets to current liabilities.
What do the measures tell us?
A current ratio of .67 means that for every dollar of current liabilities,
the company has $0.67 of current assets.
Accounts Receivable Turnover

Measures the number of times, on average, a company collects
receivables during the period.
How does Chicago’s turnover compare to General Mills’s?
The turnover of 11.9 times is higher than the industry average of 11.2
times, and slightly lower than General Mills’ turnover of 12.2 times.
Average Collection Period
Converts the receivable turnover ratio into days.
How effective is Chicago’s credit and collection policies?
General rule - collection period should not greatly exceed the

credit term period (i.e., the time allowed for payment).
Inventory Turnover
Measures the number of times average inventory was sold

during the period.
How does Chicago’s turnover compare to General Mills’s?
The ratio of 7.5 times is higher than the industry average of 6.7
times and similar to that of General Mills.
Days in Inventory
Measures the average number of days inventory is held.
How does Chicago’s days compare to General Mills’s?

An average selling time of 49 days is faster than the industry
average and faster than that of General Mills.
SOLVENCY RATIOS
Measure the ability of a company to survive over a long period
of time.
▪ Debt-Paying Ability
▪ Debt to total assets ratio
▪ Times interest earned
▪ Free cash flow
SOLVENCY RATIOS
Debt to Assets Ratio
Indicates the degree of financial leveraging. Provides some

indication of the company’s ability to withstand losses.
Has Chicago’s solvency improved during the year?

Yes. The ratio of 78% says that Chicago would have to
liquidate 78% of its assets at their book value in order to pay
off all of its debts.
Times Interest Earned
Also called interest coverage, indicates the company’s ability

to meet interest payments as they come due.
Is Chicago able to service its’ debt?

Yes, the ratio indicates that income before interest and taxes
was 5.8 times the amount needed for interest expense.
Free Cash Flow
Ability to pay dividends or expand operations.
Cash provided by operations was more than enough to allow

Chicago to acquire additional productive assets and maintain
dividend payments.
PROFITABILITY RATIOS
Measure the income or operating success of a company for a

given period of time.
ILLUSTRATION 13A-13
Relationships among
profitability measures
PROFITABILITY RATIOS
Return on Common Stockholders’ Equity
Shows how many dollars of net income the company earned
for each dollar invested by the owners.
Chicago’s 2014 rate of return on common

ILLUSTRATION 13A-14
Return on common
stockholders’ equity
stockholders’ equity is unusually high at 48%,
considering an industry average of 19% and
General Mills’s return of 25%.
Return on Assets
Measures the overall profitability of assets in terms of the

income earned on each dollar invested in assets.
Note that Chicago’s rate of return on common stockholders’

equity (48%) is substantially higher than its rate of return on
assets (10%). Chicago has made effective use of leverage.
Profit Margin
Or rate of return on sales, is a measure of the percentage of

each dollar of sales that results in net income.
High-volume (high inventory turnover) businesses such as

grocery stores and pharmacy chains generally have low profit
margins.
Asset Turnover
Measures how efficiently a company uses its assets to

generate sales.
The average asset turnover for utility companies is .45, for

example, while the grocery store industry has an average
asset turnover of 3.49.
Return on Assets
You can analyze the combined effects of profit margin and

asset turnover on return on assets for Chicago as shown.
Gross Profit Rate
Indicates a company’s ability to maintain an adequate selling

price above its cost of goods sold.
As an industry becomes more competitive, this ratio declines.
ILLUSTRATION 13A-19
Gross profit rate
Earnings Per Share (EPS)
A measure of the net income earned on each share of

common stock.
ILLUSTRATION 13A-20
Earnings per share
Price-Earnings (P-E) Ratio
Reflects investors’ assessments of a company’s future

earnings.
A lower P-E ratio suggests that the market is less optimistic

about Chicago cereal than about General Mills. It might also
signal that its stock is underpriced.
Payout Ratio
Measures the percentage of earnings distributed in the form of

cash dividends.
This ratio should be calculated over a longer period of time to

evaluate any trends.
Exercise
• Let’s analyze the performance of PZZA.JK

• Quick summary (Yahoo Finance)
• https://finance.yahoo.com/quote/PZZA.JK/financials?p=PZZA.JK
• Detail Report
• https://www.idx.co.id/perusahaan-tercatat/laporan-keuangan-dan-tahunan/
• https://www.idx.co.id/Portals/0/StaticData/ListedCompanies/Corporate_Acti
ons/New_Info_JSX/Jenis_Informasi/01_Laporan_Keuangan/02_Soft_Copy
_Laporan_Keuangan//Laporan%20Keuangan%20Tahun%202020/Audit/P
ZZA/Sarimelati%20Kencana%20Tbk_31Des2020_Released.pdf
Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022

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Financial Management

MINI MBA Program

Gatot Soepriyanto Ph.D., CA., CPA (Aust.)., CFE

Gatot is an accountant with a passion for higher

Gatot holds three certifications: Chartered Accountant

Apart from teaching in undergraduate and post graduate

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 4

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 5

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022

• Cost Behavior Analysis is the study of how specific costs

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 7

Classification of Cost Based on Behavior

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 8

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 9

Cost Behavior Analysis

Tablet Computers Tablet Computers

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 10

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 11

Cost Behavior Analysis

Tablet Computers Tablet Computers

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 12

Direct Direct Manufacturing

Raw materials that become an integral part of the

Example: The flour in the dough.

Those labor costs that can be easily traced to

Example: Wages paid to bakers.

Manufacturing costs that cannot be easily traced

Examples: Indirect materials and indirect labor

Materials used to support

• Costs that are an integral part of producing the product.

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 17

Product Versus Period Costs

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 18

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 19

Test Your Understanding

1. Indicate whether each of the following costs of a pencil

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 20

2. Identify whether each of the following is classified as a

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 21

Test Your Understanding (3)

The Bradshaw Law Office has the following monthly telephone

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 23

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 24

◆ Intracompany ◆ Horizontal analysis

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 25

Also called trend analysis, is a technique for evaluating a

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 26

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 28

• Also called common-size analysis, is a technique that

• Vertical analysis is commonly applied to the balance

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 29

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 30

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 32

Summary financial information for Rosepatch Company is as

Compute the amount and percentage changes in 2017 using

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 33

4.2 Evaluate A Company Comprehensively Using

Analyzing financial statements involves:

The financial information in Illustrations 13A-1 through 13A-4 will be used

Mini MBA – BINUS BUSINESS SCHOOL Executive Education 2022 36

Financial Ratio Classifications

Liquidity Solvency Profitability

Measures short- Measures the Measures the