Reviewer in BF (1st PT -22-23)

1. Businesses or firms when needed funds obtain from external sources, such as Financial institutions, Financial
market & Financial instruments, these are the components of Financial Management.
2. The primary goal of the financial manager is to maximize the wealth of the business which could be obtain
through earnings per share.
3. Financial managers in evaluating decision alternative or potential actions must consider risk, return, and the
impact on share price.
4. Profit maximization as a goal is not ideal because it does not directly consider risks in earnings per share.
5. The wealth of the corporate owners are represented by earnings per share in which they received as realizable
return through cash dividends.
6. The most traded securities in the capital market are preferred shares.
7. Working capital management:
Working capital management - concerns decisions about a firm’s current assets and current liabilities wherein the
company controls the flow of working capital accounts to ensure adequate liquidity for the firm.
Cash management - involves the maintenance of cash and marketable securities investment level to enable the
company meets its cash requirements.
The reasons for holding cash by the management are for:
Transaction motive, Precautionary motive, Speculative motive
Receivable collection period - is the average length of time involved from the payment of raw materials to the
collection of accounts receivable. You will get it when you divide accounts receivable from the
Sales per day.
Payables deferral method - divide payables from the Purchases per day.
8. Study the Cash flows activities
Operating – source of cash/ use of cash
Investing – source of cash/use of cash
Financing – source of cash/ use of cash
Sample problems:
1) The following data are projected by the Z Company for their last quarter operation in 2022.
Expected Sales in units 1,500 Selling price per unit P20/unit
Beginning inventories 900 Desired ending inventories 400
Unit cost P15/unit
Projected Operating Expenses:
a) Selling expense is 10% of peso Sales, and b) Administrative expense is 12% of peso Sales.
The budgeted or forecasted Sales in pesos for the last quarter: (Expected Sales in units 1,500 x P20/unit = P30,000)
The budgeted or forecasted Cost of Sales in pesos for the last quarter:
Beginning inventories 900
Add: Purchases 1,000 units
Goods available for Sale 1,900
Less: Desired Ending Inventory 400
Budgeted Cost of Sales 1,500 units x P15/unit
Php22,500
The budgeted or forecasted Gross Profit in pesos for the last quarter: Budgeted Sales less Budgeted Cost of Sales
(Php30,000 - Php22,500 = Php7,500)
The budgeted or forecasted Selling Expenses for the last quarter: Budgeted Sales x selling expense rate
(Php30,000 x 10% = Php3,000)
The budgeted Administrative Expenses for the last quarter: Budgeted Sales x Administrative exp. rate
(Php30,000 x 12% = Php3,600).
Total budgeted or forecasted Operating Expenses for the last quarter: Selling Exp + Adm. Exp
(Php3,000 + Php3,600 = Php6,600)
The budgeted Net Income for the last quarter: Budgeted Gross Profit less Budgeted Operating Expenses
(Php7,500 - Php6,600 = Php900)
2) The Income Statement of X Corporation are the ff: Sales-Php25,000; Cost of Sales-Php17,000.
If there’s no other expenses, the Taxable income would be? Sales less Cost of Sales (Php25,000 - Php17,000 = Php8,000)
If the tax rate is 32%, the Tax expense would be? : Net income x tax rate (Php8,000 x 32% = Php2,560)
The Net Income after Tax would be? Taxable Net Income less tax expense (Php8,000 - Php2,560 = Php5,440)
If there are Operating Expenses amounting to Php2,500, the Net Income(taxable) would be?
Solution: Sales less Cost of Sales less Operating Expenses (Php25,000 - Php17,000 - Php2,500 = Php 5,500)
If there’s a projected growth rate of 18% in Sales, the expected Sales would be? Sales x growth rate of (18%+ 100%)
(Php25,000 x 1.18 = Php29,500
3) Jade Manufacturing Corp. has variable expense for Product A, Php0.63/unit and variable labor expense,
Php2.02/unit; Selling price is Php5.50/unit; Production is 250,000 units, Fixed expenses is Php415,000.

What is the Total Variable expense per unit: variable expense for Product A + variable labor expense
(Php0.63+ Php2.02 = Php2.65)
The Fixed expense per unit: Fixed expenses / Production units (Php415,000 / 250,000 units = Php1.66)
The total Sales would be: 250,000 units X Selling price is Php5.50/unit = Php1,375,000
The total expenses for Product A: Total Variable Expense (Php2.65 x250,000 = Php662,500) + Fixed Expenses
(Php662,500 + 415,000 = Php1,077,500)
4) Y Industry has an inventory conversion period of 60 days, receivables conversion period is 35 days and its
payment cycle is 28 days.
The length of the firm’s cash conversion cycle: Inventory conversion period + receivables conversion period - payment cycle
(60 days + 35 days - 28 days = 67 days)
If Sales are P927,000, what is the firm’s investment in receivables? (P927,000/ 360 days) x 35 days = Php90,125
5) Working Capital & Ratio Analysis:
Cash, P4,000, Accounts Receivable, P10,000, Marketable Securities; P8,000, Inventories, P12,000,
Prepaid expenses, P2,000; Accounts Payable, P5,000; Accrued expenses, P5,000.Net credit sales, P24,000
The working capital:
(Cash + Accounts Receivable + Marketable Securities + Inventories + Prepaid expenses) – (Accounts Payable + Accrued
expenses) or Current Assets – Current Liabilities = Working Capital
(P4,000 + P10,000 + P8,000 + P12,000 + P2,000) – (P5,000 + P5,000) = P26,000 or (P36,000 – P10,000 = P26,000)
The Current ratio: Current Assets / Current Liabilities (P36,000 / P10,000 = 3.6:1)
The Receivable turnover: Net credit sales /Accounts Receivable (P24,000/ P10,000 = 2.4:1)
The inventory turnover: Net credit sales/ Inventories (P24,000/ P12,000 = 2:1)
The total current assets: Cash + Accounts Receivable + Marketable Securities + Inventories + Prepaid expenses
(P4,000 + P10,000 + P8,000 + P12,000 + P2,000 = P36,000)
6) Cash Flow
Z rendered services to customers and collected P15,000, bought office supplies, P6,500. Paid miscellaneous
expenses P1250. Received P35,000 for the issuance of Bonds and withdraw P6,000 for personal use.

The cash provided (used) from her financing activities: P35,000 - P6,000 = P29,000
The cash provided (used) from her operating activities: P15,000 - (P6,500+P1,250) = P7,250

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