Business Administration 2257 Study Guide - Final Guide: Fixed Asset, Chinese Professional Baseball League, Cash Out

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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
- 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
Sales, CA, Receivables, loan, etc.
Total Cash In
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
diff analysis **BOLD = must do
contrib analysis
breakeven analysis
segment reporting
CA budgeting
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
Financing: includes bank loan, mortgage pay, bonds, CP,
stock, dividend (retained earning formula to find dividends)
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
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
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
short term sources to short term uses (LT
Bank loan for LT fixed asset = good but if for
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
based on goals + objectives
then…projected statements (only
**decision: what to do? How to
finance? Debt or equity?
Requirements met? Fit with
analysis? Highlight main risks/
mitigations? Qual vs quan?
business TO
customers, motivate
retailer to buy product on
shelves & hope they buy
**distribution channels
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
Environ trends in
industry /economy?
Company -- $ for
financing? How are we
Customer target market,
where to buy + why us?
Competitors who are
4 P’s (product, price,
promotion (ads),
placement (distribution)
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
SFP: (balance sheet):
look @ original and
follow format, add case
facts (enter same dollar
items unless told
-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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