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Financial

Management
MONEY IS THE
BLOOD OF
BUSINESS.
What is Financial
Management?

╺ Financial Management means planning,


organizing, directing and controlling the
financial activities such as procurement and
utilization of funds of the enterprise.
╺ Hence, it means applying general management principles to
financial resources of the enterprise.

3 © Marc Lauder
HELLO!
I am Jayden Smith

Please take note of these terms.

 income statement  principal


 gross sales  balance sheet

 net sales  net worth


 cash flow statement
 net income
 Break even point
 interest
 Return on investment

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1.
Sources of Funds
Where do we get out money at first?

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“ Continuous
Funds are needed for expenditure, continues
flow of business activity, and expansion.

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Capital
The money that will be allocated by the entrepreneur to
establish a business

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Internal External
Family and Friends
From own pocket (personal Loans & Collateral
savings) Grants
Investors

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Factors affecting
Estimation of Revenue

1. Past Economic Performance


2. Current Global Conditions
3. Current Industry Conditions
4. Rate of Inflation
5. Internal Organizational Changes
6. Marketing Efforts
7. Seasonal Demands

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FINANCIAL
STATEMENTS
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1. Statement of Financial Position (B.Sheet)

2. Income Statement

3. Statement of Cash Flows


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SIMPLE SIMULATION

P 1,540,000
Whoa! That’s a big number, aren’t you proud?

This will be our starting capital

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We have a small office located on a
not so developed province.

P 800,000

We rent a manufacturing warehouse.

P 10,000/month
We bought dozens of equipment for

P 500,000

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Tesla Selling Price

Kiddie Cars P 74,000


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INCOME STATEMENT

Presents the result of the firms operation or


performance for a given time.

It shows whether you have profit or loss

Elements: revenue and expenses


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COMPANY NAME
INCOME STATEMENT
FOR THE YEAR/MONTH ENDED ______

Sales/revenues

Less: Cost of Goods

Gross profit

Less: Operating expenses

Net profit

Less: Tax (12%)

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Net profit
Tesla
Kiddie Cars

Cost of Goods

Steel (P50/kg)

Plastic (P70/kg)

Aluminum
(P120/kg)

Rubber (P80/kg)

Glass
(P1,500/sheet)
Selling Price
Total

P 74,000
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Tesla
Kiddie Cars

Operating Exp

Payroll
4 Employees
H20,
Utilities Electricity,
Internet

Rent

Administrative and
General Expenses

Total

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We sold 3 units of Tesla Kiddie Car…

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COMPANY NAME
INCOME STATEMENT
FOR THE YEAR/MONTH ENDED ______

Sales/revenues

Less: Cost of Goods

Gross profit

Less: Operating expenses

Net profit

Less: Tax (12%)

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Net profit
TESLA KIDDIE
INCOME STATEMENT
FOR THE YEAR/MONTH ENDED DECEMBER 2018

Sales/revenues

Less: Cost of products/services

Gross profit

Less: Operating expenses

Net profit

Less: Tax (12%)

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Net profit
╺ It represents the sales amount – in either unit
(quantity) or sales terms – that is required to
cover total costs, consisting of both fixed and
variable costs to the company.

╺ Total profit at the break-even point is zero.


Break-even
Formula

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Which among the expenses
are fixed and variable?

Cost of Goods

Steel
(P50/kg)

Plastic
(P70/kg)

Aluminum
(P120/kg)

Rubber
(P80/kg)

Glass
(P1,500/sheet)
Cost of Goods Sold
Total Are definitely VARIABLE
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Which among the expenses FIXED VARIABLE


are fixed and variable?
COGS 9,500
Cost of Goods
PAYROLL 100,000
Total

Operating Expenses UTILITIES 4,500

Payroll
RENT 10,000
Utilities
ADMIN AND
8,000
Rent GENERAL
EXPENSE

Administrative and
General Expenses
TOTAL 122,500 9,500
Total
𝑭𝒊𝒙𝒆𝒅 𝑪𝒐𝒔𝒕
𝑩𝑬 =
𝑺𝒆𝒍𝒍𝒊𝒏𝒈 𝑷𝒓𝒊𝒄𝒆 − 𝑽𝒂𝒓𝒊𝒂𝒃𝒍𝒆 𝑪𝒐𝒔𝒕
B.E
Computation 𝟏𝟐𝟐, 𝟓𝟎𝟎𝒑𝒉𝒑
𝑩𝑬 =
𝟕𝟒, 𝟎𝟎𝟎 𝒑𝒉𝒑 − 𝟗, 𝟓𝟎𝟎𝒑𝒉𝒑

𝑩𝑬 = 𝟐 𝒖𝒏𝒊𝒕𝒔 (𝒏𝒐𝒕 𝟏. 𝟖𝟗𝟗)

𝑩𝑬 = (𝟏. 𝟖𝟗𝟗𝟐𝟐𝟒𝟖𝟎𝟔) for checking via Income Statement


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We sold 𝟏. 𝟖𝟗𝟗𝟐𝟐𝟒𝟖𝟎𝟔 units of TESLA Kiddie car.

Sales/revenues

Less: Cost of Goods

Gross profit

Less: Operating expenses

Net profit

Less: Tax (12%)

Net profit
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In case you find the break-even units to be hard to achieve,
Then your price should adjust in order to still achieve breakeven.

Example, what if you can only sell 1 unit of kiddie car a month
How much should be its price?

𝑭𝒊𝒙𝒆𝒅 𝑪𝒐𝒔𝒕 + 𝑩𝒓𝒆𝒂𝒌𝒆𝒗𝒆𝒏(𝑽𝒂𝒓𝒊𝒂𝒃𝒍𝒆 𝑪𝒐𝒔𝒕)


𝑺𝒆𝒍𝒍𝒊𝒏𝒈 𝑷𝒓𝒊𝒄𝒆 =
𝑩𝒓𝒆𝒂𝒌𝒆𝒗𝒆𝒏

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CASH FLOW STATEMENT

is a monthly plan that shows when you anticipate cash


coming into (inflow) the business and when you
expect to pay out cash (outflow).

Presents the summary of the operating, investing,


and financing activities of the firm
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OPERATING ACTIVITIES
Cash Flow from Operations
• Acquiring and selling products in
the normal course of business.
• Principal revenue of the firm. Cash Receipts
P 222,000

Inflows: Cash Paid to (50,100)


Suppliers
╶ Sales to customers
Cash Paid for
╶ Collection of cash from past sales Operating Expenses (122,500)
that were made on credit
Net Increase/Decrease in 49,400
Outflows: cash from Operations

╶ Purchases of merchandise for sale or


materials to manufacture products
╶ Payments for operating expenses
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INVESTING ACTIVITIES Cash Flow from Investment

╺ Cash flows from purchasing or selling


long-term assets, and other long term Purchase of Property
P (800,000)
investments
Purchase of (500,000)
Equipment
Inflows:
Net Increase/Decrease in (1,300,000)
╶ Sale of a property cash from Investments

Outflows:
╶ Purchase of property or asset

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FINANCING ACTIVITIES

╺ Acquiring capital necessary to conduct a Cash Flow from Financing


business activity
Loan from Banks
P 1,000,000
Inflows:
• Contribution from owners
Payment of Loan
(50,000)
• Borrowing from banks or other people Partner Contributions 540,000
Outflows: Net Increase/Decrease in
cash from Financing
1,490,000
• Repayment of notes and bonds

• Payment of dividends
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Cash Flow from Operations
Cash Flow from Investment
Cash Receipts P 222,000

Cash Paid to Suppliers (50,100) Purchase of Property


P (800,000)
Cash Paid for Purchase of (500,000)
Operating Expenses (122,500) Equipment
Net Increase/Decrease in Net Increase/Decrease in (1,300,000)
cash from Operations
49,400 cash from Investments

Cash Flow from Financing

Loan from Banks P 1,000,000 Total Net Increase/


Decrease in Cash
Payment of Loan (50,000)
Partner Contributions 540,000
Net Increase/Decrease in 1,490,000
cash from Financing
STATEMENT OF FINANCIAL POSITION

evaluating liquidity, solvency, financial structure, capacity for


adaptation.

It’s acts as a clear picture/painting of the whole business.

Elements: Assets, Liabilities, and Equity


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ASSET? resources controlled by the entity from which
future economic benefits are expected to flow

CURRENT ASSETS – arranged in order of liquidity


When it is cash or cash equivalent
When the company expects to realize asset within 12 months
(C-R-I-S-P)

NON CURRENT ASSETS – expected to realize the asset in more than


12 months

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LIABILITIES? present obligations of
transactions or events
the firm from past

CURRENT LIABILITIES - expected to pay the liability within its normal


operating period or within 12 months.

NON CURRENT LIABILITIES – expected to pay the liability in more


than 12 months

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EQUITY? the excess of firm’s assets over the firm’s
liabilities.

1. Share Capital – issuance of company’s own share at par or


stated value

2. Retained earnings - accumulated earnings of the


company, prior period adjustment for errors, dividend
declared/paid, effect of changes in accounting policy,
appropriated retained earnings

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TESLA KIDDIE
STATEMENT OF FINANCIAL POSITION
AS OF NOVEMBER 2018
ASSETS LIABILITIES

CURRENT ASSETS CURRENT LIABILITIES

TOTAL TOTAL

NON CURRENT ASSETS NON CURRENT LIABILITIES

TOTAL TOTAL LIABILITIES

OWNER’S EQUITY

TOTAL

TOTAL ASSETES TOTAL LIABILITIES AND EQUITY


THANKS!

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