FINANCIAL MANAGEMENT

a) RATIO ANALYSISb) STATEMENT OF SOURCES AND

APPLICATION OF FUNDSc) WORKING CAPITALd) MARGINAL COSTINGe) CAPITAL BUDGETINGf) CASH BUDGET

FINANCIAL MANAGEMENTWORKING CAPITALTYPES OF WORKING CAPITALa) PERMANENT WORKING CAPITALb) VARIABLE WORKING CAPITAL WORKING CAPITAL CYCLE / OPERATING

CYCLE MANAGEMENT OF STOCK LEVELS MANAGEMENT OF DEBTORS MANAGEMENT OF BANK AND CASH

BALANCES MANAGEMENT OF TRADE CREDIT

FINANCIAL MANAGEMENT

WORKING CAPITAL MANAGEMENT INVOLVES:o The level of cash needs to be on call at various dates.o The level of inventory do we need to maintain.o The bank overdraft.o The period of credit do we grant to our debtors.o Suppliers’ payments.o Proportion of Current assets should be financed by short-term funds.o Level of Working Capital.METHODS OF CALCULATION:o Cash Budget Methodo MPBFo Turnover Method

Commercial Paper one source of finance for Working Capital

FINANCIAL MANAGEMENTMARGINAL COSTINGConcept of costs• Fixed Cost• Variable CostSemi Fixed / VariableMarginal Cost = Variable CostContribution = Sales – Marginal CostUSES: More efficient pricing decisions can be made Make or Buy Decisions Close a department or cost centre Accept or Reject an order C-V-P Analysis B-E-P Analysis Margin of Safety

FINANCIAL MANAGEMENTCAPITAL BUDGETING: Capital budgeting involves the entire process of

planning expenditures whose returns are expected to extend beyond one year.

Non discounting Methods Pay Back Method Rate of Return MethodDiscounting Methods based on Time Value of Money• Net Present Value Method• IRR• PI

FINANCIAL MANAGEMENTCASH BUDGET:• Budgets are similar to standards in several ways: They are of the future performance of our organization. They help people within an organization plan the future

and They enable people to know how well they and the rest of the organization have performed.

Budgetary Control:o The comparison of actual results against budget;o The identification, recording and communication of

controllable differences; ando The taking of corrective action either to maintain budget

levels or to re-plan to meet recent developments.

FINANCIAL MANAGEMENT

CASH BUDGET:

• A Cash Budget is arrived at through a projection of future cash receipts and cash disbursements of the firm over various intervals of time. It reveals the timing and amount of expected cash inflows and outflows over the period studied.

FINANCIAL MANAGEMENT

CASH FLOWS STATEMENTS

o Cash flows statement is basically a summary of all the entries that are normally recorded in the cash book.

o Funds flow statement means the funds received by the company and their how it uses.

FINANCIAL MANAGEMENTRATIO ANALYSIS: The term Ratio refers to the numerical or quantitative

relationship between two items / variables, expressed in a simple mathematical form.

Balance sheet Ratios:o Current Ratio or Working Capital Ratioo Liquid Ratio or Quick Assets Ratio or Acid Test Ratioo Proprietory Ratio o Assets – Proprietoryship Ratioo Profit and Loss Account Ratios

FINANCIAL MANAGEMENT

Profit and Loss Account Ratios: Gross Profit Ratio Operating Ratio Expenses Ratio Net Profit Ratio Stock Turnover or Turnover of Inventory

Ratio

FINANCIAL MANAGEMENTBalance Sheet and Profit and Loss Account Ratios: Return on Total Resources Ratio Return on Own Funds Ratio Fixed Assets Turnover Ratio Debtors’ Turnover Ratio Earnings per Share RatioLiquidity Ratios: Current Ratio Net Working Capital Acid Test / Quick Ratio

FINANCIAL MANAGEMENTTurnover Ratios:o Inventory Turnover Ratioo Debtors’ Turnover Ratio ando Creditors’ Turnover RatioLeverage / Capital Structure Ratios:o Debt / Equity RatioCoverage Ratios: Interest Coverage Ratio Dividend Coverage Ratio

Thank you very much

Wish you all the Best