Business Administration 2257 Study Guide - Final Guide: Fixed Asset, Chinese Professional Baseball League, Cash Out
30 Apr 2018
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Department
Professor
1. Understand Organization
Industry analysis
Consumer Analysis
Competitive Analysis
Corporate Capabilities
2.Financial Size-Up
Statement of CA flow
Ratio Analysis
Contrib Analysis
Segment Reporting
- if not enough info, = 0 (ex: advances,
indebts, CPBL = 0 and BL is same as last
year); Common Stock= same if no new info
given
- under LT liability, differential loan = PLUG
** IF BL (plug) needed = reminder @ next
end of year; assume loan needed= total $ for
entire expansion *could be plug on equity if
too much debt previously taken
Alternative Financing: short term options
(take line of credit to cover short term uses,
sell fixed assets, change credit terms to free
up cash) DECIDE!
Cash Budgeting: For Months / Year of ___
Months/Year Total
Inflows
Sales, CA, Receivables, loan, etc.
Total Cash In
Outflows
Op. exp (inventory, rent, telephone, insurance, supplies, sal
commission, office equip, interest, drawings
Total Cash Out
Surplus or Deficit (cash in minus cash out)
Opening cash Balance (last years)
Closing Cash Balance (projected)
measures solvency + ability to meet cash demands as they fall
due, look for hint “break down from month to month” “short on
cash” make conclusion: need line of credit to keep aflow = loan
= needs to be built into projected balance sheet + might be PLUG
if every month has (+) CA = GOOD, (-) CA will go bankrupt
and company can survive if unprofitable BUT not if NO CASH
Predicting new product lines -- segmenting
3 costs: DIRECT = material, labor, selling exp (VC)
ABSORPTION = direct + fixed product (changes per unit w volume)
FULL = absorption + other expenses = accounts for total op of business
**FC related to Absorp + business OP (Full) must be allocated through
segments FC allocation rate = Total FC / Total proxy (DL
** where proxy is an item spread evenly throughout process overhead
per unit = Fixed cost alloc. Rate X Total Proxy per unit
Interpretation: Direct Costs (min price form could charge w/o loss)
Absorption/Full cost = breakeven analysis (FC / UC) = compares
product/plant efficiencies, profitability of each product, which to promote?
3.Assess Future Opportunities
1.Qualitative
2.Quantitative:
diff analysis **BOLD = must do
contrib analysis
breakeven analysis
segment reporting
CA budgeting
4.MAKE DECISION
Then…A)Projected Statement
SOE (income w Rev + Exp + NIAT)
SFP (balance sheet: A = SE + L)
B) Action + contingency plan
CA Flow Statement
WHY? business w/o cash CANNOT survive (insufficient
$ to pay debts) BUT company unprofitable CAN
are we making smart mgmt. decisions? where $ from?
Operation: Income, Add back NON CA (-gain/+loss, dep),
changes in op (refer to purple box of use / source) includes
a/r, inv, rent, prepaid, current liabilities, accruals, A/P
**ADD SOURCES, SUBTRACT USES
= NET CASH FLOW FROM OPERATIONS
Financing: includes bank loan, mortgage pay, bonds, CP,
stock, dividend (retained earning formula to find dividends)
= NET CASH FLOW FROM FINANCING
Investment: investments/disinvestment (withdrawing invest)
look @ noncurrent assets + record changes (use + source)
net fixed asset formula ( - losses, + gains)
THEN…add all three, and add to beg CA to get END CASH
CA Flow Analysis
Is Net Cash Flow from Op +? must be
engine of business
driven by NI? GOOD if it is!
where are major sources / uses
look at A/P, INV, and A/R (calculate days
+ ratios)
A/P = $ u owe ppl, too high = not good
relationship w suppliers, can A/P be extended
further?
A/R = $ owed to us, use of CA from this
means ppl owe us more (+ could be selling
more so amount ppl paying us more OR – if
ppl take longer to pay us = not good, can we
make them pay us sooner, change credit
terms?)
days of A/R consistent = selling more
BUT if it goes up a lot then ppl taking longer
to pay us
Inv = decreased means selling less b/c
shortage on inv OR better w Inv =not keeping
too much on hand days of INV
Matching
short term sources to short term uses (LT
Bank loan for LT fixed asset = good but if for
A/R, A/P, INV = BAD
Additional Financing?
Debt OR equity (debt preferred b/c lose
ownership w equity but debt has interest)
are there large investments, are we
growing, are assets used effectively (ratios)?,
company expanding operations/ when to get
line of credit / LT loan, Internal Financing?
(A/P, A/R, INV)
Differential Analysis remember:
subtract lost sales of old product,
and add COGS saves of investing in
new product, compare ROI against
hurdle rate –probably interest from
bank, perform sensitivity analysis
(consider variables that are subject to
significant uncertainty)
if business operates for only 120
days, use this instead of 360
SUNK COSTS like research +
development (already paid for)
should not be included
MAKE DECISION!!
based on goals + objectives
then…projected statements (only
low)
**decision: what to do? How to
finance? Debt or equity?
Requirements met? Fit with
analysis? Highlight main risks/
mitigations? Qual vs quan?
Penis☺
Differential Analysis: must be future, affect cash,
different b/w alternatives, recurring (decides: make in
house vs buy, lower / raise prices? Expand vs status quo?
before this, pro vs. con qualitative chart of alternative
then quan: label as inflow, outflow, invest and total
them and do ROI (net ca flow/total diff invest), payback
(total diff invest/net ca flow) **does not include
depreciation b/c non cash **no finance costs
investments: one time expenditures, working capital
(include unless negligible)
Diff Inv = Diff COGS ($) / 360 Days X Days Inventory
Diff A/R = Diff Credit Sales / 360 X Days AR
Diff AP = Diff purchases or COGS X Days AP
If footnote says _ only related to _ then replace diff #
AR = (+) = increasing b/c something (ex: sales)
increasing = ppl taking longer to pay = decrease in CA =
USE of cash
AP =(-)= getting cash=increase in cash = SOURCE
*use suggested days of WC = if new customers acquired
*use current days of WC = if same customers being used
Marketing:
PUSH:
business TO
customers, motivate
retailer to buy product on
shelves & hope they buy
**distribution channels
IMP
PULL:
market to customers &
make THEM demand
product. b/c customers
want = retailers obligated
to give shelf space & ask
us to supply product
** end user IMP
Management:
Environ – trends in
industry /economy?
Company -- $ for
financing? How are we
doing?
Customer – target market,
where to buy + why us?
Competitors – who are
they?
Plan:
4 P’s (product, price,
promotion (ads),
placement (distribution)
Goals:
Increase customer
retention, inc. willingness
to pay, inc # customers
Projected Statements
ONLY LOW / status quo
SOE (IS): look @
original one + follow
format, calc sales change
(same %? Multiply by
new sales), add
differential sales,
depreciation= old + new
deprec = (total fixed A /
UL) + (new Assets/ UL)
for expenses: account for
changes (ex: projected
sales X % of salaries
increase)
SFP: (balance sheet):
look @ original and
follow format, add case
facts (enter same dollar
items unless told
otherwise)
-calculate RE = proj. NI +
last yr RE – div/drawings
-Acc Dep. = old + new
(from IS)
- projected AR, AP, INV:
A/R = diff AR + normal
AR = proj. sales/360 X
current days AR
AP = (COGS from
IS/360) X current days
AP – diff AP (saving $)
OR + diff AP (loss)
Inv= proj. purchases or
COGS X days inv / 360
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