Cooperative Financial Management and Simple Bookkeeping.pptx

Key concepts of financial management for cooperatives, including simple bookkeeping vital to the effective handling and management of the cooperative's financial operations.

1. Financial Management Seminar

2. Part 1 Concepts of Cooperative Financial Management Scope of Financial Management Sources and Uses of Funds Course Outline:

3. Part 2 Financial Standards Reading and Understanding of the FS Tools and Techniques of Financial Analysis Monitoring Financial Performance for Sustainability P.E.S.O.S and P.I.S.O – Meaning and Interpretation

4. Part 3 Annual Plans and Budget Scope of Budgeting Budgeting Process (Roles and Responsibility of the Board and GM) Approval of Plans and Budget (Powers of the GA) Implementation and Monitoring of the Plans and Budget

5. Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise.

6. It refers to the efficient and effective management of funds in such a manner to achieve the goals of the organization. Financial Management

7. Scope of Financial Management Financial Management Investment Decision Financing Decision Dividend Decision Capital Budgeting Working Capital Management Cost of Capital Capital Structure Decisions Leverages Dividend Policy Retained Earnings

8. Scope of Financial Management Financing Decision Investment Decision Dividend Decision

9. 1. Financing Decision Related to the capital structure of the company. It is concerned with the proportion in which debt and equity are to be raised.

10. What is Capital Budgeting? The process a business undertakes to evaluate potential major projects or investments . Is it worth it to put money or “capital” into this project? Is it worth it to use money to buy this machine? Is it worth it to put money in this business?

11. Advantages of Capital Budgeting Helps in making decisions in the investments Promotes understanding of risks and its effects on the business Abstain from Over or Under investment

12. Working Capital Management The process of ensuring a company is using its financial resources in the most effective way possible. Working capital is difference between the current assets and current liabilities. The term “working capital management” primarily refers to efforts of management towards effective management of current assets and current liabilities.

13. 2. Investment Decision Includes investments in assets. These could be short term (working capital decisions) or long term (capital budgeting). Factors affecting investment decisions are: Return on investment Cash flows Availability of capital

14. Cost of Capital It is equal to return, an investor can fetch from the next best alternative investment. It is the opportunity cost of investing the same money in different investment having similar risk and other characteristics.

15. Capital Structure Decisions The particular combination of debt and equity used by a company to finance its overall operations and growth

16. Leverages It is an investment strategy of using borrowed money– specifically, the use of various financial instruments or borrowed capital– to increase the potential return of an investment.

17. 3. Dividend Decision Related to the capital structure of the company. It is concerned with the proportion in which debt and equity are to be raised.

18. Dividend policy Decision on whether the firm should distribute all profits or retain them, or distribute a portion and retain the balance. Dividend decisions will determine the dividend policy in terms of impact to shareholders value. Factors affecting dividend policy: Regularity and stability of earnings Financial needs of the company Desire of shareholders Desire of control Liquidity Position

19. Retained Earnings The sum of a company’s earnings from prior periods, after deducting any dividends paid to the company’s shareholders. Retained earnings formula: RE = Beg. Retained Earnings + Net Income - Dividends Paid

20. Sources of Funds Share Capital Borrowings Donations and Grants Revenues (Sales or Services) Disposal of Fixed Assets Interest on Deposits Other Sources

21. Uses of Funds Capital expenditures Procurement of goods for sale Operating expenses Distribution of interest on share capital and patronage refund Community outreach

22. Uses of Funds Withdrawal of share capital Payment of borrowings Remittances to government agencies – SSS Philhealth , Pag- Ibig and BIR Buy back its own stock – treasury stocks Other uses

23. To ensure regular and adequate supply of funds. 2. To ensure adequate returns to the members which will depend upon the earning capacity of the cooperative. 3. To ensure optimum funds of utilization. Once funds are procured, they should be utilized on a maximum possible way at least cost. Objectives of Financial Management

24. 4. To ensure safety on investments. i.e., funds should be invested on safe ventures so that adequate rate of return can be achieved 5. To plan a sound capital structure. There should be sound and fair composition of capital so that a balance is maintained between debt and equity capital. Objectives of Financial Management

25. Estimate required capital 2. Determine of capital structure 3. Evaluate and select sources of funds (shares, loan, deposit, bonds) 4. Allocate and control funds 5. Distribute profit or surplus 6. Monitoring financial activities Functions of Financial Management

26. Helps organization in financial planning Assists organization in planning and acquisition of funds 3. Helps organization In effectively utilizing and allocating the funds received or acquired 4. Assists cooperatives in making critical financial decisions Importance of Financial Management

27. 5. Helps in improving the profitability of the organization 6. Increase the overall value of the organization 7. Provides economic stability 8. Encourage employees to save money which helps them in personal financial planning Importance of Financial Management

28. End of Part I

29. FINANCIAL STANDARDS

30. Introduction MC 2015-06 Philippine Financial Reporting Framework for Cooperatives It is hereby declared a policy of the Authority to promote the principle of transparency and accountability in the financial reporting of cooperatives to protect the interest and welfare of their members and stakeholders.

31. Objectives of Financial Statements To provide information about the financial condition, performance and cash flows of the cooperative that is useful For economic decision-making. Financial statements also show the results of stewardship and the accountability of management for the resources entrusted to it.

32. Reading and Understanding of: Statement of Financial Operation Statement of Financial Condition Cash Flow Statement Statement of Changes in Equity Notes to Financial Statements

33. Financial Statements are written records that convey the business activities and the financial performance of a company.

34. Basic Financial Statements under PFRF Statement of Financial Condition Statement of Financial Operation Statement of Cash Flows Statement of Changes in Equity Notes to Financial Statements

35. Statement of Financial Operation A subjective measure of how well a firm can use assets from its primary mode of business and generate revenues

36. Statement of Financial Condition A financial statement that reports a company’s assets, liabilities and equity at a specific point in time

37. Statement of Cash Flows A financial statement that outlines the changes in retained earnings over a specified period.

38. Tools and Techniques of Financial Analysis

39. Financial Statement Analysis The process of analyzing a company’s financial statements for decision-making purposes. The process of evaluating, business, projects, budgets and other finance-related transactions to determine their performance and sustainability.

40. To diagnose following parameters Profitability Solvency Liquidity Stability To evaluate Financial Performance Financial Position Prediction of Future Performance Operating Efficiency Need for Financial Analysis

41. On the basis of material used Internal analysis external analysis On the basis of methods of operations Horizontal analysis vertical analysis trend analysis Ratio Analysis Tools and Techniques for Financial Analysis

42. Common Size Statement The figures of financial statements are converted to percentages. Items are expressed as a percentage of base year. It is time series analysis

43. Comparative Statement It is called as Horizontal Analysis. It shows the financial position of an organization at different time periods. Ratio Analysis It is a study of ratios between various items or groups in financial statements.

44. Trend Analysis It is called as Horizontal Analysis. It shows the financial position of an organization at different time periods. Ratio Analysis It is a study of ratios between various items or groups in financial statements.

45. Monitoring Financial Performance for Sustainability

46. P.E.S.O.S and P.I.S.O. Meaning and Interpretation

47. P. E. S. O. S. PESOS are indicators for the financial performance of savings and credit cooperatives and other type of cooperatives with savings and credit services.

48. P. E. S. O. S. The acronym PESOS stands for: P - Portfolio Quality E - Efficiency S - Stability O - Operations S - Structure of Assets

49. Benefits of PESOS A toolkit for good cooperative governance A risk assessment tool A framework for risk-based reviews and assessment of the credit cooperative’s risk management practices

50. Purposes of PESOS Supervisory and Regulatory Tool To ensure safety and stability of credit cooperative through necessary operational and financial discipline that would surely protect the money of the members.

51. Purposes of PESOS 2. Management Tool To ensure that the cooperative is operating efficiently and effectively and satisfying the needs/wants of the members and the community in general and keeping the cooperative viable at all time.

52. RATIOS FORMULA PURPOSE STANDARD P – Portfolio Quality (25%) Portfolio at Risk Balance of loan w/ 1 day miss payment ---------------------------------------- Total Loan Outstanding Measures the risk of default in the portfolio 5% or less Allowance for Probable Losses on Loan Amount of Allowance for Loans over 12 months Past Due --------------------------------------------- Total Outstanding Balance of Loans over 12 months Past Due Amount of Allowance for Loans 1 to 12 months Past Due ------------------------------------------ Outstanding Balance of Loans 1 to 12 months Past Due Measures the adequacy of the allowance for probable losses to loans 100% 35% Financial Performance (PESOS Indicators)

53. RATIOS FORMULA PURPOSE STANDARD E – Efficiency (20%) Asset Yield Undivided Net Surplus --------------------------------- Average Total Assets Measures the ability of the coop’s assets to generate income At least inflation rate Operational Self Sufficiency Interest Income from Loans + Service Fee + Filing Fee + Fines, Penalties, Surcharges --------------------------------------- Financing Cost + Admin Cost Measures the ability of the coop to sustain its operation > 100% Rate of Return on Members’ Share Interest on Share Capital Average Members’ Share Measures the earning power of the members Higher than the inflation rate Financial Performance (PESOS Indicators)

54. RATIOS FORMULA PURPOSE STANDARD E – Efficiency (20%) Loan Portfolio Profitability Interest Income from Loans + Service Fees + Filing Fees + Fines, Penalties, Surcharges ---------------------------------------- Average Total Loans Outstanding Measures how profitable the loan portfolio is More than 20% Cost per Peso Loan Financing Cost + (Admin Cost – Members Benefit Expenses Average Total Loan Outstanding Measures the efficiency in managing the coop’s loan portfolio Php .10 per Php1.00 Loan Administrative Efficiency Administative Cost Average Total Assets Measures the cost of managing the coop’s assets 3% to 10% Financial Performance (PESOS Indicators)

55. RATIOS FORMULA PURPOSE STANDARD S – Stability (30%) Solvency (Assets + Allowances) – (Total Liabilities – Deposits + Past Due Loans + Loans Restructures + Loans under Litigation) ------------------------------------------ Deposits + Share Capital Measures the degree of protection that the coop has for members’ savings and shares in the event of liquidation of the coop’s assets and liabilities At least 110% Liquidity Liquid Assets – Short Term Payables Total Deposits Measures the coop’s ability to service its members withdrawal and deposit on time Not less than 15% Net Institutional Capital (Reserves + Allowance from Probable Losses) – (Past Due Loans + Loans under Litigation + Problem Asset) -------------------------------------------- Total Assets Measures the level of institutional capital after subtracting the losses At least 10% Financial Performance (PESOS Indicators)