Financial

Management
Financial Statement
Analysis
 Financial Statement Analysis
 Financial statement : formal records of the financial activities and performance
over specific time periods that is useful users of financial statements to make
decision
 Objective of Financial statement : to provide financial information about the
reporting entity’s assets, liabilities, equity, income and expenses that is useful to
users of financial statements to make decision
 Liquidity Ratio
 Current ratio =
 Acid-test /quick ratio =
 Average collection period ratio =
 Inventory turnover =
 Profitability Ratio
 Gross margin =
 Operating margin = =
 Return on assets=
 Activity ratio
 Assets turnover =
 Account Receivables turnover =
 Inventories turnover =
 Solvency Ratio
 Debt ratio =
 Debt to equity =
 Interest coverage ratio =
 Market ratio
 Earnings per share =
 Payout ratio =
 Forecasting, Planing, Budgeting
 Forecast in financial management used for to forecast financial needed in the future
 Estimate the revenue
 Estimate income using financial ratio
 Forecast the financial needed (assets) to provide estimated revenue
 Forecast
Forecasting using percentage of sales method
 Estimate the percentage of sales
 Forecast the current assets and noncurrent assets using ratio
 Forecast the liabilities and equity using ratio
 Estimate the revenue increase 20%

Present Assets turnover ratio

Assets Forcasting (2023)
(2022) (2022)
Current Assets $ 2.0 M $ 2.0 M / $ 10 M = 20% 20% x $ 12 M = $ 2.4 M
Non-Current
$ 4.0 M $ 4.0 M / $ 10 M = 40% 40% x $ 12 M = $ 4.8 M
Assets
$ 6.0 M $ 7.2 M
 Forecasting using percentage of sales
method
Liabilities & Present Percentage in Revenue
Forcasting (2023)
Equity (2022) (2022 10M)
Account Payable $ 1.0 M $ 1.0 M / $ 10 M = 10% 10% x $ 12 M = $ 1.2 M
Accrual Payable $ 1.0 M $ 1.0 M / $ 10 M = 10% 10% x $ 12 M = $ 1.2 M
Long-terms
$ 2.5 M N/A $ 2.5 M
Payable
Stocks $ 0.3 M N/A $ 0.3 M
Retained Earning $ 1.2 M $ 1.2 M+ (5% x $ 12 M x 50%)*= $ 1.2 M
$ 6.0 M Available $ 6.7 M
Needed $ 0.5 M
$ 7.2 M

*Income margin 5% of Revenue, Dividend payout ratio 50% (1-50%)

 Discretionary Financing Needed
Projected Projected Projected
DFN t+1 = changes in - changes in - changes in
assets t+1 liabilities t+1 equities t+1

Projected
changes in = x
assets t+1
Projected
changes in = x
liabilities t+1

Projected
changes in =
Equity t+1
 Discretionary Financing Needed
Projected Projected Projected
DFN t+1 = changes in - changes in - changes in
assets t+1 liabilities t+1 equities t+1

Projected DFN t+1 = $ 1.2 M - $ 0.4 M - $ 0.3 M

changes in = x = $ 1.2 M
assets t+1 = $ 500.000

Projected
changes in = x = $ 400.000
liabilities t+1

Projected
changes in = = $ 300.000
Equity t+1
 Income in DFN

NPM Dividend Payout Ratio

30% 50% 70%

1% 716.000 740.000 764.000
5% 380.000 500.000 620.000
10% (40.000) 200.000 440.000
 Sustainability Growth Rate
 SGR = ROE x (1-b)
 ROE = Net Income / Equity = NPM x 1/Assets Turnover x Assets/Equity
 ROA = Net Income / Assets = NPM x 1/Assets Turnover
 NPM = Net Income / Sales
 Assets Turnover Over = Sales / Assets
 Sustainability Growth Rate
 ROA =
 NPM =
 Assets Turnover =
 ROA = = =
 ROE= ROA x
 SGR = ROE x (1-b)
 SGR = NPM x x x (1-b)
 SGR = x x (1-b)
Limitation
 Planning & Budgeting
 The budget shows the timing and amount of financial needs in the future
 The budget becomes the basis for taking corrective action if budgeting not in
accordance with actual
 The budget becomes the basis for evaluating performance
 Cash Budgeting
Working Paper November   December   January   February   March   April

Sales $ 62.000 $ 50.000 $ 60.000 $ 80.000 $ 85.000 $ 70.000

Collection :
t+1 (30%) $ 18.600 $ 15.000 $ 18.000 $ 24.000 $ 25.500
t+2 (70%) $ 38.500 $ 43.400 $ 35.000 $ 42.000 $ 56.000
Total Collection $ 57.100 $ 58.400 $ 53.000 $ 66.000 $ 81.500
Purchasing (60% x Sales t+1) $ 30.000 $ 36.000 $ 48.000 $ 51.000 $ 42.000 $ -
Purchase payment (next month) $ 30.000 $ 36.000 $ 48.000 $ 51.000 $ 42.000

Cash Budgeting                      
Cash in
Collection $ 57.100 $ 58.400 $ 53.000 $ 66.000 $ 81.500

Cash out
Purchasing $ 30.000 $ 36.000 $ 48.000 $ 51.000 $ 42.000
Wages $ 4.000 $ 5.000 $ 6.000 $ 4.000
Rent $ 3.000 $ 3.000 $ 3.000 $ 3.000
Other expenses $ 1.000 $ 500 $ 1.200 $ 1.500
Interest $ 4.000 $ 200
Tax $ 5.200
Equipment $ 10.000
Debt Payment $ 8.000
Total Cash out         $ 58.000   $ 56.500   $ 74.600   $ 50.500
Cash in - Cash out $ 400 $ -3.500 $ -8.600 $ 31.000
Beginning Balance $ 10.000 $ 10.400 $ 10.000 $ 10.000
Interest - short terms Loan $ -   $ -   $ -31   $ -117
$ 10.400 $ 6.900 $ 1.369 $ 40.883
Cash needed $ - $ 3.100 $ 8.631 $ -11.731
Total Cash         $ 10.400   $ 10.000   $ 10.000   $ 29.152
Loan Accumulation $ - $ 3.100 $ 11.731 $ -