Professional Documents
Culture Documents
M Syed Kunmir
email – kunmir@yahoo.co.uk
“Financial management involves the
application of general management
principles to particular financial
operation”.
-Measurement problems
-Uncertainty
-Temporal spread
Phases of capital budgeting
1) Planning
2) Analysis
3) Selection
4) Implementation
5) Review.
• Levels of Decision Making
-Operating decisions
-Administrative decisions
-Strategic decisions
o Profitability Study important facets are
-Market analysis
-Technical analysis
-Financial analysis
-Economic analysis
-Ecological analysis
The basic characteristic of a capital
project is that it typically involves
- Cash credit
- Overdraft
- Billsdiscounting
- Commercial papers and
- Trade credit.
Short term & long term cash forecasts
Balance Sheet
Income Statement
Fund flow statement
Basic concepts while preparing balance sheet
- Entity concept
- Money measurement concept
- Going concern concept
- Cost concept
- Consevatism concept
- Dual aspect concept
- Accounting period concept
- Accrual concept
- Realisation concept
- Matching concept
What is revenue reserve & capital reserve?
Sources and
Uses Statement
The letters labeling
the boxes stand for
Uses,
U ses,
ses SSources,
ources,
ources A L
Assets,
A ssets,
ssets and
Liabilities
L iabilities (broadly
defined). The pluses
(minuses) indicate
S - +
increases
(decreases) in
assets or liabilities.
U + -
7-7
Debtors 1600 2000 400
Stock 770 1090 320
Bills Receivable200 300 100
Cash 150 100 -- 50
Bank 100 80 20
Liabilities
Creditors 550 830 280
B/P 200 160 40
Net Increase in
working capital 510
860 860
• Accounts payable-These are current liabilities
payable within one year from date of balance
sheet.
• Fund Flow Statement-It shows the sources
and uses of funds during a given accounting
period.
• Horizontal analysis and Vertical analysis-
Horizontal analysis is comparing the
operations over a time period ie.comparing
past performance with current position for
predicting the future performance.
In vertical analysis we use percentages to show
the relationship between various items in the
balance sheet.
a)X contributes Rs.10,000 to his properietory
concern and the amount is deposited in the
bank.What is the nature of liability?
i)Owner’s equity
ii)Loan
iii)Short term finance
iv)Fixed Asset.
Cost of goods sold and Cost of production
refer to the same amount(T/F)
Net profit is calculated before tax(T/F)
Balance sheet and Income statement can
be prepared every quarter for internal
use(T/F)
A loss is shown as asset in the balance
sheet(T/F).
• Provisions for taxes and accrued expenses
to be paid within a year are current
assets(T/F)
• Debtors(also known as accounts
receivable)represent the amount of money
to be paid by the firm to the suppliers(T/F)
• Fund Flow statements can be prepared
without the basis of balance sheets(T/F).
• Fund flow statements represent only bank
borrowing and trade credit(T/F)
• State whether following are sources or uses
-Buying materials
-Payment of dividend to shareholders
-Advance received from buyer of goods
-Investment in machinery
-Issue of debentures
-Retained earnings
-Increase in Inventories
-Sale of old machinery
Tools of Analysis
Horizontal Analysis
Comparing a company’s financial condition
and performance across time
Time
Horizontal Analysis
Now, let’s
look at some
ways to use
horizontal
analysis.
Time
The term horizontal analysis arises from
left-to-right (or right-to-left) movement of
our eyes as we review comparative
financial statements across time.
CLOVER CORPORATION
Comparative Balance Sheets
31-Dec
Dollar Percent
2004 2003 Change Change
Assets
Current assets:
Cash and equivalents $ 12,000 $ 23,500
Accounts receivable, net 60,000 40,000
Inventory 80,000 100,000
Prepaid expenses 3,000 1,200
Total current assets $ 155,000 $ 164,700
Property and equipment:
Land 40,000 40,000
Buildings and equipment, net 120,000 85,000
Total property and equipment $ 160,000 $ 125,000
Total assets $ 315,000 $ 289,700
Comparative Statements
Calculate Change in Dollar Amount
160
150
140
Percentage
130
Revenues
120
Cost of Sales
110 Gross Profit
100
2000 2001 2002 2003 2004
Year
Vertical Analysis V
e
r
t
Vertical Analysis is also called as i
common-size analysis c
a
l
A
n
a
l
The term vertical analysis arises from the up- y
down (down-up) movement of our eyes as we s
review common-size financial statements. i
s
Common-Size Statements
Calculate Common-size Percent
a)Accept NPV>0
b) Accept NPV<0
c) Accept NPV=0
d) none of the above
Criterion for IRR(Internal Rate of Return)
a) Change in wealth
b) Change in income
c) Change in profit
d) none of the above
THANK YOU
Email – kunmir@yahoo.co.uk