Financial Management I_Chapter 9

7/27/2019 Financial Management I_Chapter 9

1/17

Financial Management I

BBAP3103Chapter 9

Financial Planning


2/17

Introduction

Financial plan should have the followingcriteria:- Objective, strategy & operational plan must

be clear Assumption that are used in thepreparation of financial plans

Budgets that are classified according to thetype and time period

Projects financing that are classifiedaccording to the type and time period Pro forma financial statement throughout

the financial period


3/17

Cash Budget

Summary of receiving and paymentof cash that is expected for a shortperiod such as 6 months and 1 year

Can assist the company to know thecash status to ensure that the cashlevel is strong and stimulating


4/17

Cash Flow (Cont.)

Several terms that are often used in cashbudget:- Receiving of cash (cash inflow) : Cash sales,

cash collection from debtors

Payment of cash (cash outflow) : Purchase ofequipments, wages, rental etc. Change in net cash : Differences between cash

inflow and cash outflow Cash surplus @ additional financing

requirement : To ensure either the companyneed to make loan or notCash inflow > Cash outflow SurplusCash inflow < Cash outflow Need loan


5/17

c

Example 9.1 :Prepare the cash budget forNuri Company based on the followinginformation Actual sales for January and February

Sales forecast for the months of March, Apriland May

Cash sales are 25% and credit sales are 75%.80% of credit sales will be collected in the nextmonth and 20% will be collected in two

months after sales The raw materials is predicted at 60% of sales

and the payment will be made a month later Office and warehouse rental are RM4,500 per

month


6/17


7/17

Cash Flow (Cont.)

Nuri Company information (cont.)

Sales for month of January - May

Month Sales (RM)January 45,000

February 65,000

March 60,000

April 90,000

Mei 85,000


8/17

Cash Flow (Cont.)

Solution

Step 1 : Prepare cash received for January May

Jan Feb Mac Apr Mei

Total sales 45,000 65,000 60,000 90,000 85,000

Credit sales (75%) 33,750 48,750 45,000 67,500 63,750

Collection :

Cash sales (25%) 11,250 16,250 15,000 22,500 21,250

80% from last monthcredit sales

- - (Feb)39,000

(Mac)22,500

(Apr)21,250

20% from last two

months credit sales

- - (Jan)

6,750

(Feb)

9,750

(Mac)

9,000

Total Cash Inflom 11,250 16,250 60,750 68,250 84,250


9/17

Cash Flow (Cont.)

Step 2 : Prepare cash payment for January - May

Jan Feb Mac Apr Mei

Total purchase of raw materials 27,000 39,000 36,000 54,000 51,000

Credit purchase of raw materials 27,000 39,000 36,000 54,000 51,000

Payment :

Payment of raw materials - 27,000 39,000 36,000 54,000

Rental 4,500 4,500 4,500 4,500 4,500

Wages 5,000 5,000 5,000 5,000 5,000

Insurance premium - - 2,800 - -

Purchase of new asset - - 25,000 - -

Total cash outflow 9,500 36,500 76,300 45,500 63,500


10/17

Cash Flow (Cont.)

Step 3 : Prepare cash budget

Mac Apr Mei

Total receiving of cash (a) 60,750 68,250 84,250

Total payment of cash (b) 76,300 45,500 63,500Change in cash flow (c) = (a) (b) (15,550) 22,750 20,750

Opening balance (d) 15,000 10,000 22,200

Closing cash balance without loans (c) (d) (550) 32,750 42,950

Cummulative cash flow (550) 32,750 42,950Minimum cash required 10,000 10,000 10,000

Financing requirement (repayment) 10,550 (10,550) -

Closing Cash Balance 10,000 22,200 42,950


11/17

Pro Forma Income Statement

Provide to forecast net profit that can beobtain at a specific period of time.

There are 2 step in preparing a pro forma

financial statement Step 1 : Preparing Sales Forecast

Sales forecast refer to unit sales and amount salesforecasted in the future

Several sources are needed to make sales forecasting Any sales trend expected based on previous trend. If

the sales increase 10% in every month, the salesforecast must increase 10% for every month

Any factors that effect on the sales trend such aseconomic situation, inflation, product introduction andchange in marketing strategy


12/17


(Cont.)

Step 2 : Forecasting FinancialVariables Financial variable refer to expenditure,

current assets, fixed assets, liabilities and

equity Then, company must determine the effect of

this increase in sales on theses financialvariable

For example, the labor wages will increasewhen the company want to increase theproduction level to ensure that the sales willincrease


13/17


(Cont.) There are several processes to prepare

pro forma financial statement Step 1 : Prepare the sales forecast Step 2 : Determine the production schedule

and requirement for materials, labor andexpenditure (overhead) Determine the total unit that will be produces

Production Requirement= Expected Unit Sales + Closing Inventory

Beginning Inventory Determine the production cost per unit

Cost per unit = Material + Labor + OverheadTotal Cost = Unit Produce x Cost Per UnitCost of Good Sold = Sales Unit x Cost Per Unit


14/17


(Cont.)

Calculate the closing inventory

Closing Inventory

= Beginning Inventory

+ Total Production Cost- Cost of Good Sold

Step 3 : Calculate other expenditure

Admin and general expenses

Interest espenses


15/17

Step 4 : Prepare pro forma financial statement

RM

Sales revenue xxx

(-) Cost of good sold xxx

Gross profit xxxx

(-) Expenses

Depreciation xxx

Admin and general expenses xxx

Operating Profit (Profit Before Interest and Tax) xxxx

(-) Interest expenses xxx

Profit Before Tax xxx(-) Tax xxx

Nep Profit (Loss) / Earning After Tax xxx

(-) Dividend of Ordinary Share xxx

Increase (decrease) in retained earning xxx


16/17


(Cont.)

Example 9.2 : Based on NuriCompany information, prepare proforma financial statement based on

the following additional information Total fixed asset = RM300,000

Depreciation = 10%

Inventory at 30 April = RM20,000

Inventory at 31 May = RM40,000

Tax rate = 30%


17/17

Nuri CompanyPro Forma Income Statement for the month of May

RM RM

Sales revenue 85,000

(-) Cost of good sold

Opening inventory 20,000

Purchases (60% x 85,000) 51,000

71,000

Losing inventory (40,000)Cost of good sold (31,000)

Gross Profit 54,000

(-) Operating expenses

Depreciation (10% x RM300,000 12) 2,500

Office and warehouse rental 4,500Wages 5,000

Total operating expenses (12,000)

Profit Before Interest and Tax 42,000

(-) Tax (30% x 42,000) (12,600)

Profit After Tax 29,400

Financial Management I_Chapter 9

Documents

Transcript of Financial Management I_Chapter 9