FINANCIAL MANAGEMENT FOR MAED PRIVATE INSTITUTIONS.pptx

Lesson in finacial management

1. FINANCIAL MANAGEMENT IN THE CONTEXT OF PRIVATE INSTITUTION By: EDUARDO T. BAGTANG, CPA, DBM UNIVERSITY PROFESSOR

2. concerned with the maintenance and creation of economic value or wealth. focuses on the decision making with an eye toward creating wealth. deals with financial decisions such as: - when to introduce a new product - when to invest in new assets - when to replace existing assets - when to borrow from banks - when to issue stocks or bonds - when to extend credit to a customer, and - how much cash to maintain. FINANCIAL MANAGEMENT

3. Profit maximization - In microeconomics, stresses the efficient use of capital resources - economist using it to prove how firms behave rationally to increase profit. Maximization of Shareholder Wealth Goal of the Firm

4. The Role of Financial Manager in a Corporation Vice President- Marketing Board of Directors Chief Executive Officer (CEO) Vice President- Finance or Chief Financial Officer (CFO) Duties: Oversee financial planning Corporate strategic planning Control corporate cash flow Vice President- Production and Operations Treasurer Controller Duties: Cash management Credit management Capital expenditures Raising capital Financial planning Management of foreign currencies Duties: Taxes Financial statements Cost accounting Data processing

5. Sole Proprietorship - owned by a single individual 2. Partnership - has more than one owner 3. Corporation - an artificial being, invisible, intangible, and existing only in the contemplation of law. Legal Forms of Business Organization

6. THE FINANCIAL STATEMENTS HOW CAN AN ENTERPRISE COMMUNICATE THE FINANCIAL CONDITION AND RESULTS OF OPERATION TO INTERESTED PARTIES? THIS CAN BE DONE THRU THE FINANCIAL STATEMENTS. FINANCIAL STATEMENTS – THE END PRODUCTS OF THE ACCOUNTING PROCESS WHICH SERVE THE FINANCIAL INFORMATION NEEDS OF VARIOUS INTERESTED PARTIES LIKE THE OWNERS OF THE ENTERPRISE/BUSINESS, PROSPECTIVE INVESTORS, CREDITORS, GOVERNMENT, LABOR AND THE GENERAL PUBLIC

7. THE FINANCIAL STATEMENTS ARE PREPARED PERIODICALLY. It can be one month, quarterly, six months or one year. Typical financial statements are : 1. Balance Sheet – it is a formal statement showing the financial condition of a company as of given date. It is actually accounting report of assets, liabilities and capital Financial condition refers to the ability of the company to pay its obligation when they mature. The company’s liquidity, solvency, and stability are normally reflected in the balance sheet. 2. Income Statement – is a formal statement showing the operating results of an enterprise or business for a given period of time. A gain or loss is reflected in the income statement .

8. EXAMPLES OF FINANCIAL STATEMENTS: INCOME STATEMENT STA ESCOLTA SCHOOL INCOME STATEMENT For the Month Ended July 31, 2014 Income from Tuition Fees P1,000,000.00 Income form Miscellaneous Fess 500,000.00 Total Income P1,500,000.00 Less: Operating Expenses: Salaries and Wages P555,000.00 Supplies Expense 155,000.00 Repairs and Maintenance 145,000.00 Utilities Expense 20,000.00 Gasoline Expense 110,000.00 Travelling Expense 100,000.00 Communication expense 80,000.00 Total Expenses P1,165,000.00 Net Income Before Taxes P 335,000.00

9. BALANCE SHEET STA ESCOLTA SCHOOL BALANCE SHEET July 31, 2014 ASSETS Current Assets: Cash P500,000.00 Accounts Receivables 100,000.00 Notes Receivables 50,000.00 Total Current Assets P650,000.00 Property and Equipment Buildings P1,200,000.00 Less: Accumulated Depreciation 180,000.00 P1,020,000.00 Vehicle P800,000.00 Less: Accumulated Depreciation 50,000.00 750,000.00 Total Property and Equipment P1,770,000.00 Total Assets P1,300,000.00

10. LIABILITIES AND OWNER’S EQUITY Current Liabilities: Notes Payable P250,000.00 Accounts Payable 100,000.00 Total Current Liabilities P350,000.00 Long Term Liabilities: Mortgage Payable P200,000.00 Total Liabilities P550,000.00 Owner’s Equity: Mr. Isko Escolta , Capital P450,000.00 Add: Net Increase in Capital P335,000.00 Less: Drawing 35,000.00 300,000.00 P750,000.00 Total Liabilities & Owner’s Equity P1,300,000.00

11. A. Income Statement the statement of profit or loss for the period, comprised of revenues less expenses for the period. can be expressed as follows: Sales – expenses = profits income statement answers the question, “How profitable is the business?”  

12. Five Broad Areas of Business Activity 1. Revenue (sales) - money derived from selling the company’s product or service. 2. Cost of goods sold - the cost of producing or acquiring the goods or services to be sold. 3. Operating expenses - expenses related to (a) marketing and distributing the product or service, and (b) administering the business. 4. Financing costs of doing business - the interest paid to the firm’s creditors and the dividends paid to preferred stockholders ( but not dividends paid to common stockholders). 5. Tax expenses - the amount of taxes owed based on a firm’s taxable income.

13. Operating income (earnings before interest and taxes) - Profit from sales minus total operating expenses.   Interest expense - Interest paid on a firm’s outstanding debt. A firm’s interest expense is tax deductible.   Earnings before taxes - Operating income minus interest expense.   Net income - A figure representing the firm’s profit or loss for the period. It also represents the earnings available to the firm’s common stockholders.

14. B. Balance Sheet provides a snapshot of the firm’s financial position at a specific point in time, presenting its asset holdings, liabilities, and owner-supplied capital. Total assets = outstanding debt + shareholders’ equity assets represent the resources owned by the firm. Liabilities (debt) and shareholders’ equity indicate how those resources are financed.

15. Current Assets or Gross Working Capital primarily include cash, marketable securities, accounts receivable, inventories, and prepaid expenses. Cash - the amount of the cash balance is determined not only by the volume of sales, but also by the predictability of cash receipts and cash payments. Accounts receivable - consists of payments due from its customers who buy on credit.   Inventories - consists of the raw materials, work-in-progress, and the final products held by a firm for eventual sale.   Prepaid expenses - . those cash payments recorded on the balance sheet as current assets and then shown as an expense in the income statement as they are used. Types of Assets

16. 2. Fixed Assets Include machinery and equipment, buildings, and land. 3. Other Assets are all assets that are not current assets or fixed assets, including, for example, intangible assets, such as patents, copyrights, and goodwill. Accounting book value it represents the historical cost of the asset rather than its current market value or replacement cost.

17. 1. Debt Capital - provided by a creditor. It is divided into: a. current or short –term debt - includes borrowed money that must be paid within the next 12 months. b. long-term debt - includes loans from banks or other sources that lend money for longer than 12 months. Types of Financing

18. a. Accounts payable - represents credit extended by suppliers to a firm when it purchases inventories. - the purchasing firm may have 30 or 60 days before paying for inventory that has been purchased. - this form of credit extension is also called “trade credit”. b. Other payables - include interest payable and income taxes payable that are owed and will come due within the year.   c. Accrued expenses - are short term liabilities that have been incurred in the firm’s operations, but not yet paid. d. Short-term notes - represent amount borrowed from a bank or other lending source that are due and payable within 12 months.   Sources of Current Debt

19. 2. Equity - includes the shareholders’ investment-both preferred stockholders and common stockholders- in the firm.   Preferred stockholders - Receive a dividend that is fixed in amount. - in the event of liquidation of the firm, these stockholders are paid after the firm’s creditors, but before the common stockholders.   Common stockholders - Are the residual owners of a business. - They receive whatever is left over-good or bad- after the creditors and preferred stockholders are paid.

20. Retained earnings- is the cumulative total of all the net income over the firm’s life less the common stock dividends that have been paid over the years. Common equity capital consists of the following: common equity = common stock issued ( less treasury stock repurchased) + cumulative net income over the firm’s life - total dividends paid over the firm’s life Which is shown in the balance sheet as: Common equity= common stock (par value+ paid-in capital- treasury stock) + retained earnings