Business Administration 2257 Study Guide - Final Guide: Cash Flow, Net Income, Financial Statement
30 Apr 2018
School
Department
Professor
Claire Blewett – 250865406
1. Understand the Organization
a) Business Size-Up: Industry, consumers, comp, corp capabilities
• Case Fact & Implication: why is it important? What does it mean?
Connect to goals? How do you feel about the decision (after the
qualitative [1a] and quantitative analysis
• Consumers: who are they? What do they want? Primary ones?
Target who? What are/how to meet the demands?
• Competitors: competitive advantage? Primary competitors? Who
are they? strengths/weaknesses? Can we compete? How?
• Corporate Capabilities: strengths/weaknesses, mature or new?
b) Financial Size-Up
Statement of Cash Flows: operations, financing, and investing
(shows current finances - i.e. can they fund new things?)
i. Operating Activities: From BS: net income after tax (current year),
add noncash (depreciation, loss on sale) or subtract noncash (gain on
sale); use current A/L (AP, taxes payable, AP) - unless it’s with loans/$;
and record the differences between current/previous years
Assets: Increase = use = subtract & decrease = source = add
Liabilities: Increase = source = add & decrease = use = subtract
Net Cash Flow from Operating (incl. cash at end, not here)
ii. Financing Activities: Anything with money (loans, advances,
indebtness, CS); record
the difference between
current/previous years
Include Dividends by
using:
Net Cash Flow from
Operations
iv. Investing Activities:
All the fixed assets are
used here 1) Calculate
Net Purchases
2) Net Cash Flow
(increase between current/previous years cash on BS = add difference
to the SoCF, decrease = subtract difference)
3) O/B Cash Balance = previous year # from BS
4) E/B Cash Balance = current year # from BS (will tell you if correct)
5) Analysis: Major cash sources/uses 4 each; matching; only recent yr
Ratios (listed on back) & Analysis: Look for the 3-5 most important
from SoCF (if unsure what to do, look at industry ratios), do a minimum
comparison of 2 years (current/previous), AVERAGE DAILY = divide
by 360, if similar to comp (qual) = compare to them + industry
• Meaning? +/-? Why’s it happening? Future goals?
Contribution Analysis: CM = UC/SP or (Rev-Cost of Sales)/Rev = %
UC = SP – VC or rev-cogs; this is base, give more context though!
• Weighted average contribution = weighted avg price –
WAVC)/weighted average price (if required, didn’t do 4 comp case)
o or WAC = [(cont. margin rate of product1) x (expected
revenue product 1)] + same thing but for product 2, 3,..
• Weighted avg price = SP product 1 x expected % units sold for p1..
• Weighted avg VC = C product 1 x expected % units sold for p1…
• Sales of Product A, B; less VC, total product contrib. (chart)
Segment Reporting
2. Assess Future Opportunities
a. Qualitative: Before each option’s math, pros vs. cons of doing it
b. Quantitative: Label as inflow, outflow, or invest as you go through
paragraph (Depreciation not included in any of differential – only proj
SOE, BS, and SoCF)
• Differential Analysis: must be future, affect cash, different
between alternatives, recurring (haven’t spent $ on it before)
o Diff inflows, total diff inflows, diff outflows (X), total diff outflows,
net cash flow, diff invest, total diff invest, ROI (net cash
flow/total diff invest), Payback (total diff invest/net cash flow),
decision thus far?
o Differential Investments: one-time costs; always include AR, AP,
and inventory (unless negligible)
AR = (Diff sales/360) x Days AR, AP = (Diff purchases or
COGS/360) x Days AP, Inventory = (diff cogs/360) x days
o If footnote says _ is only related to _ then replace diff #
o AR = positive = increasing because something is increasing
(ex. sales) = people taking longer to pay = decrease in cash =
use of cash
o AP = negative = = increase in cash = source of cash
o Inv = positive = buying more = use of cash
• Explain why suggested (new) days or current days (same) used
Contribution Analysis: same as before but compare each option
Breakeven Analysis
Risk Assessment
Segment Reporting: most important? Then decide which to focus
• Allocated by age = years in op/total years = % to allocate
• Two features valued? = calc. option w/higher margins
• Then do contribution analysis with these numbers
• 80% split evenly, 20% split based on other store sales = [(expense X
20%) x(specific store sales)]/ total sales–stores in the 80%
• Implications: Plan? Compare to industry ratios? Overall? Segments?
Cash Budgeting: only cash items, can see idle cash/shortages;
▪ Businesses =
unprofitable = survivable
▪ Insolvency (unable to pay
debts) could = fail
Analysis: can we secure it?
How much needed? Overall
+/-? If neg, how to fix?
Largest uses of cash?
Sensitivity? Main cause?
LT or ST problem? Best type of financing to alleviate the problem?
3. Make a Decision: What to do? How to finance? Debt or equity?
Requirements met? Fit with analysis? Highlight main risks/mitigations?
Qualitative vs. Quantitative?
4. Evaluate the Effectiveness of Your Strategy
a) Projected Statements: only do the low scenario or status quo
• S of Earnings (IS): follow original, add differential X and sales
o X = same %? Multiply by sales not diff. Sales
o Deprec = old (total fixed A/UL) + new deprec (total new A/UL)
• S of Financial Position (BS): follow original one, add Cfacts
o A/R = diff AR + normal AR = (proj sales/360) x days AR
o AP = (COGS from IS/360) x Days AP - diff AP (saving $) or +
diff AP (loss)
o Inv = diff inv + projected inv formula
o Acc. Depreciation = old + new (from IS)
o Not enough information? = 0 (ex. Advances, indebtness, CPBL
= 0 and BL is same as last year); CS = same if no new
information
o Under L/T liability, differential loan = PLUG
o RE = proj. Net income + last year RE
o BL (plug) needed = remainder @ end of year; assume loan
needed = total $ for entire expansion; is it possible?
b) Action and Contingency Plan: Recommendations to exec
committee? How to finance? When to do it? Risks/mitigations?
Financial statements audited by consultants?
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
How: corporate capabilities: strengths/weaknesses, mature or new, financial size-up. Assets: increase = use = subtract & decrease = source = add. Liabilities: increase = source = add & decrease = use = subtract. Net cash flow from operating (incl. cash at end, not here: financing activities: anything with money (loans, advances, indebtness, cs); record the difference between current/previous years. All the fixed assets are used here 1) calculate. Contribution analysis: cm = uc/sp or (rev-cost of sales)/rev = % Uc = sp vc or rev-cogs; this is base, give more context though: weighted average contribution = weighted avg price . Segment reporting: assess future opportunities, qualitative: before each option"s math, pros vs. cons of doing it, quantitative: label as inflow, outflow, or invest as you go through paragraph (depreciation not included in any of differential only proj. Ar = (diff sales/360) x days ar, ap = (diff purchases or.
