|




 |

|  
 

 
 OUTLINE
ë INTRODUCTION
ë CLARIFICATION
ë FINANCIAL MANAGEMENT
ë BUDGETING PROCESS
ë CONCLUSION
 INTRODUCTION
ë Every human activity consumes resources.
Usually, it is normal to expect that the benefit
derived from the expenditure of such resources
will be worth it.
ë Financial Management seeks to ensure the
resources are beneficially used.
ë It therefore covers all functions concerned in
attempting to ensure that financial resources are
obtained and used in the most effective way to
secure attainment of the objectives of the
organization
 DEFINITION OF TERMS
ë Financial Management refers to planning, acquisition and
effective utilization funds in the acheivement of an
organization͛s goal.
ë A budget may be defined as a financial and quantitative
statement, prepared and approved prior to defined period of
time, of the policy to be pursued during that period for the
purpose of achieving the given objective.
ë Break - even analysis: Volume of activity at which total income
just equals total variable and fixed costs
 WH
  H 
  H |

ë The goal of the organiZation will depend on its

nature and objective
Î For profit
Î Not for profit
ë Commercial organization exist for profit and their
goal is usually maximization of profit or
maximization of Shareholder Wealth!
ë Not for profit and Government organizations
exist to meet some socially desirable need and
their goal is to provide the required
goods/service with optimal amount of resources
 EY ACTIVITIES IN FINANCIAL MANAGEMENT

ë Financial planning
ë Financial control
ë Financial decision making
 EY ACTIVITIES IN FINANCIAL MANAGEMENT
Financial planning
ë Determining the project financial position
under specified future conditions
ë Where indication of surplus funds exist,
determine how they will be deployed
ë Where indication of deficits exist determine
how they will be funded
ë Considered varied options in the process of
decision making
 EY ACTIVITIES IN FINANCIAL MANAGEMENT
Financial planning : Levels
ë Financial planning can take place at different
levels
Î Strategic
ë Start up of new practice
ë Expansion
ë Scale-down of operations or Spin-offs
Î Operation
ë Increase/Decrease in volume
ë New Tests
ë Scale- down of operations
 EY ACTIVITIES IN FINANCIAL MANAGEMENT
Financial Planning Tools
ë Plan that document intentions including the
rationale for proposed action
ë Financial forecast to show financial implication
 EY ACTIVITIES IN FINANCIAL MANAGEMENT
Financial Planning Tools
ë Projected Finance performance
Î Trading, profit and loss Accounts ( Private sector), shows
profit or loss for a defined period
Î Income and expenditure ( Public sector and Not for
profit), shows surplus or deficits for a defined period
ë Projected Financial Position
Î Balance Sheet, State of affairs as at a particular date.
Showing assets and liability and the sources of funding
ë Financial Analysis of projected position
Î Profitability ratios
Î Liquidity ratios
Î Asset Turnover
 EY ACTIVITIES IN FINANCIAL MANAGEMENT
Financial Planning Tools
ë Trading account - to calculate gross profit (the
profit earned on the buying and selling of
goods - before all other expenses have been
deducted)
ë Profit and loss account - to calculate net profit
(the profit after all overhead expenses have
been deducted from the gross profit - this is
the overall profit earned by the firm)
 Financial Planning
Tools : Financial Tools
Finance performance: Trading, profit and loss
Accounts
Financial Planning Tools
Format of Profit and Loss Accounts
Financial Planning Tools
Format of Balance Sheet
 
  

 
 
   ! l
ë Financial controls are the means by which an organization͛s resources are
directed, monitored, and measured.
ë Objectives: ensures that the organization is meeting its objectives through
Î Efficiency in the use of assets
Î Security of assets
Î Managing action in the interest of owners
Î Observation of ethical rules
ë Tools
Î Setting up a bookkeeping system
Î Financial Policies
Î Budgeting and budgetary control
Î Roles in financial control & accountability
Î The Audit
Î Financial analysis
 EY ACTIVITIES IN FINANCIAL PLANNING
Financial control: Budget & Budgetary control

ë An important instrument of the financial management used

as aid in planning, programming and control

ë A budget may be defined as a financial and quantitative

statement, prepared and approved prior to defined period of

time, of the policy to be pursued during that period for the

purpose of achieving the given objective.

 EY ACTIVITIES IN FINANCIAL PLANNING
Financial control: Budget & Budgetary control

ë A budget is a quantitative statement of a plan

ë It involves converting a plan into revenue and cost
items and showing the profit/surplus or Loss/Deficit.
ë Budgetary control involves using the budgeted
figures as a standard for measure performance for a
defined period
 EY ACTIVITIES IN FINANCIAL PLANNING
Financial control: Budget & Budgetary control

ë Types of budget
Î Capital
Î Recurrent
 EY ACTIVITIES IN FINANCIAL PLANNING
Financial control: Cost control
1. Sound economic sense
2. It does not mean compromising quality
3. Promote awareness amongst staff
4. Practice cost monitoring: analyze actual expenditure against
budget and standards , find reasons for variations, work on them
5. Cost management: establish systems with responsibility and
accountability
 EY ACTIVITIES IN FINANCIAL PLANNING
Financial Decision Making
ë Investment decision:
Î What assets should the company hold? This determines the left-hand
side of the balance sheets
Î considering various investment options based on the ROI, the
availability of funds, the needs for funds, etc
ë Financing Decision:
Î How should the company pay for the investments? This determines
the right-hand side of the balance sheets
Î Decisions concerning the management of balance sheet.
Î Considering various source of finance, eg capital market, banks,
contributions
ë Dividend :
Î What should be done with profits of the business
Î The dividend payment ratio and
Î dividend retained for future investment
 EY ACTIVITIES IN FINANCIAL PLANNING
Financial Decision Making: Break-Even Point
ë Break-even point :This point is achieved when the total costs for a test are equal to
the total revenue received for performing the test.
ë When revenue received is greater than this value, you will see a profit.
ë When revenue is less than the break-even point, you will experience a loss.
ë example, where fixed costs are $300, variable costs are $1 per test, and assuming a
revenue of $4 per test, the break-even point (assuming no profit or loss) can be
determined using the following variables [7]:
ë X = volume of tests at breakeven breakeven
The level of output or sales necessary to cover fixed expenses. Companies in
industries that have high fixed costs and, consequently, high breakevens, such as
automobile and steel manufacturing, are likely to exhibit large fluctuations point
R = revenue per test
V = variable cost per test
F = fixed cost per test
C = net income.

ë
 EY ACTIVITIES IN FINANCIAL PLANNING
Financial Decision Making: Break-Even Point

ë The equation to find the break-even point using

these variables is as follows [7]:
RX = F + VX + C
X = (F+C)/(R-V)
Now, input the values from the previous example:
X = ($300 + $0)/($4 - $1)
X = 100 tests
 EY ACTIVITIES IN FINANCIAL PLANNING
Financial Decision Making: Break-Even Point
ë The break-even point for this example is 100 tests. A test volume of less than 100 will result in a financial loss, and a volume
of greater than 100 tests will show a profit. Note that in this example, the income value used is zero because the exact
volume of testing where the total costs equal total revenue is the desired figure. Another way to use this formula is in the
determination of what volume would be required to obtain a defined income. If a minimum income level of $1200 were
desired, the equation would look like this:
X = ($300 + $1200)/($4 - $1)
X = 500
To cover total costs and achieve a profit of $1200, a test volume of 500 is necessary.
In addition to the applications described above, a break-even analysis Break-even analysis
An analysis of the level of sales at which a project would make zero profit. can be used to determine what price must be
charged when the volume of testing is fixed. The break-even analysis is a useful tool that can predict what effect a change in
cost, volume, or revenue may have and can help the supervisor to predict the success or failure of introducing a new test
system.
 
  

 
 
 "  |#$%  " & '( )""

An economic technique and formalized way of comparing the

cost and benefit of undertaking an activity / project

 
  

 
 
 "  |#$% *+
 ! &   , 
 " &  $
 
  

 
 
 "  |#$%  " "-$ !"

1. Streamlining of services e.g. laboratory, OT, indoor

2. Purchases : planning, budgeting, bargaining, group purchasing
3. Preventive maintenance
4. Planning stage: quality manpower and machines, planned recruitment,
up gradation
5. Good accounting practices: automation, internal audit
6. Energy audit