Desa Petrovic - Financial management

FINANCIAL MANAGEMENT

AREAS:

Financial reports Ratio analysis Accounting control Business plan Sources of financing

1. FINANCIAL REPORTS

BALANCE SHEET INCOME STATEMENT CASH FLOW ANALYSIS

BALANCE SHEETASSETS

1.Current assets (1.1.+…+1.7.) 20.000

1.1. Cash and equivalent Counter, account, papers of value 20.000

1.2. Requirement of customers Yield that customers owe according to deal

1.3. Reserve: raw material Bought meterial

1.4. Reserve: production in progress

Costs of material and work for goods

1.5. Reserve: final products Final products ready for sale

1.6. Beforehand paid obligations Rent, insurance

1.7. Other current assets

2. Fixed assets ( 2.1.+ 2.2.+2.3) 520.000

2.1. Land Purchase cost of land

2.2. Business buildings Purchase cost of objects

2.3. Machines and equipment Purchase cost of machines and equipment

520.000

3. Amortization Amortization of fixed assets 0

4. Net value of fixed assets (2-3) 520.000

5. TOTAL ASSETS ( 1+4) 540.000

BALANCE SHEETLIABILITIES

6. Current liabilities (6.1.+..+6.5.) 0

6.1. Liabilities according to providers

Yield which you owe to providers

6.2. Outstanding taxes Taxes of accounted salaries, immoovable property and owing gain

6.3. Outstanding interests Not paid interests

6.4. Short-term credits Principal of credits

6.5. Other short-term liabilities Not implied items previously

7. Long-term liabilities 100.000

7.1. Long-term credits Principal of credits 100.000

8. Total liabilities (6+7)

9. Capital (9.1.+9.2.+9.3) 440.000

9.1. Owners equity Initial owners equity 440.000

9.2. Investment capital New owners capital

9.3. Reinvestment gain Previously reinvestment gain

TOTAL LIABILITIES (8+9) 540.000

INCOME STATEMENTTotal sales 210.000

Basic and industrial costs 90.000

Salaries+overtime+special bonus and additions 15.000

Taxes and contributions of net salaries (social, health, literacy) 10.800

Items used in production, but not object of sales 1.800

Repair and preserve, renovation, whitening and other 1.000

Advertising 1.000

Cars expences 0

Traveling and representation expences 3.000

Accounting, juristical, management consalting 1.500

Rent; phone, fax and internet; electricity, water, gas, heating 5.700

Property and employees insurance 450

Immoovable property taxes 0

Interests costs 0

Amortization of elementary means 13.000

Previously not implied liabillities 0

Amotrtization of fixed assets 143.250

66.750

Accounted taxes on valid metre of tax on gain 13.350

53.400

CASH FLOW ANALYSIS

Jan.’07 Feb.’07 Mar.’07

1. Cash on Hand (beginning of period) 20.000 20.000 20.000

2. Cash receipts

2.1. Cash sales 40.000 45.000 50.000

2.2. Initial owners capital 420.000 0 0

2.3. Loan cash 100.000 0 0

2.4. New owners investment capital 0 0 0

2.5. Other cash receipts 0 0 0

TOTAL CASH RECEIPTS 560.000

45.000 50.000

CASH FLOW ANALYSIS3. Cash paid out Jan.’07 Feb.’07 Mar.’07

3.1. Flux according to operative activity (OA)

3.1.1. Material (basic + auxillary) 20.000 20.000 20.000

3.1.2. Salaries 5.000 5.000 5.000

3.1.3. Taxes and contributions of salaries 3.600 3.600 3.600

3.1.4. Office material 0 1.800 0

3.1.5. Repairs & maintenance 1.000 0 0

3.1.6. Advertising 500 500 0

3.1.7. Car park 0 0 0

3.1.8. Travel expences and representation 1.000 1.000 1.000

3.1.9. Audit consultancies 500 500 500

3.1.10. Rent 2.100 0 0

3.1.11. Phone, fax and internet 700 700 700

3.1.12. Municipals 500 500 500

3.1.13. Insurance 450 0 0

3.1.14. Taxes 0 0 0

3.1.15. Other liabilities 0 0 0

TOTAL FLUX – OPERATIVE ACTIVITY 35.350 33.600 31.300

CASH FLOW ANALYSIS3.2. Flux according to financial activity (FA) Jan.’07 Feb.’07 Mar.’07

3.2.1. Principal of credits 0 0 5.000

3.2.2. Interests 0 0 2.500

TOTAL FLUX – FINANCIAL ACTIVITY 0 0 7.500

3.3. Flux according to investment activity (IA)

3.3.1. Purchase of elementary means 520.000 0 0

3.3.2. Start-up expences 21.000 0 0

TOTAL FLUX – INVESTMENT ACTIVITY 541.000 0 0

3.4. Cash withdrawal by owner 0 10.000 0

3. TOTAL CASH PAID OUT (3.1. + ... + 3.4.) 576.350 43.600 38.800

4. Total cash (2-3) -16.350 1.400 11.200

5. Total cash in the end of the period (1+4) 3.650 5.050 16.250

2. RATIO ANALYSIS

Liquidity ratios Solvency ratios Efficency ratios Profitability ratios Productivity ratios Net capital turnover analysis

RATIO ANALYSIS

BALANCE SHEET

ASSETS LIABILITIES

Fixed assets 60.000Own sources (owner’s equity)

102.000

Current assets:- reserve- requirement- cash

96.00046.50034.50015.000

Long-term credits

12.000

Short-term credits

42.000

TOTAL 156.000 TOTAL 156.000

LIQUIDITY RATIOS

Measure the ability of a firm to meet its short-term financial obligations. It is used:

Current ratio Quick ratio (Acid Test ratio) Cash ratio

Current ratio

CURRENT ASSETSCR = ------------------------------------ SHORT-TERM OBLIGATIONS

96.000CR = ------------------- = 2,29 1

42.000

Quick ratio (Acid Test ratio)

CASH + REQUIREMENTQR = -------------------------------------

SHORT-TERM OBLIGATIONS

15.000+34.500QR = --------------------- = 1,21

42.000

Cash ratio

CASHCR = ------------------------------------ SHORT-TERM OBLIGATIONS

15.000CR = ------------------ = 0,351

42.000

SOLVENCY RATIO

Sources structure of financing ratio shows real abilities of business

Debt ratio shows the level of owing

Sources structure of financing ratio

OWNER’S EQUITYSSFR = -----------------------------

BORROWED EQITY

102. 000SSFR = ------------ = 1,891 54. 000

Debt ratio

BORROWED FINANCING SOURCES DR = ------------------------------------------

TOTAL BUSINESS ASSETS

54.000 DR = ------------ x 100 = 34,6 % 156. 000

EFFICENCY RATIO

Usually it is used:Reserve turnover ratioRequirement ratio (from buyers)Obligation ratio (toward provider)

Reserve turnover ratio

PRICE OF REALISED PRODUCTSRTR = ----------------------------------------------- AVERAGE TOTAL RESERVE

150.000RTR = ------------------------------ = 3,2

1/2 ( 46.500 + 47.400)

360 DAYS

AVERAGE PERIOD OF RESERVE KEEPING = ----------------------------------

RESERVE TURNOVER RATIO

Requirement ratio

INCOME OF REALISED PRODUCTS

TURNOVER BUYERS RATIO = -------------------------------------------------------- AVERAGE TOTAL BUYERS

360 DAYSAVERAGE PERIOD OF PAYMENT = --------------------------------- TURNOVER BYERS RATIO

Obligation ratio

PRICE OF REALISED PRODUCTSTURNOVER PROVIDERS RATIO = --------------------------------------------------

---------- AVERAGE TOTAL PROVIDERS

360 DAYSAVERAGE PERIOD OF RECONCILE OBLIGATIONS =

-------------------------------------- TURNOVER PROVIDERS

PROFITABILITY RATIO

It is used:Meter of net gainMeter of yield on total assets

Meter of net gain

NET GAIN MNG = ------------------------------------------------- INCOME OF PRODUCT REALISATION

45.000MNG = --------------- = 15%

300.000

Meter of yield on total assets

NET GAIN METER OF YIELD ON TOTAL ASSETS = ----------------------- .

. AVERAGE ASSETS

45.000 METER OF YIELD ON TOTAL ASSETS= -------------------- = 29%

. . 156.000

NET CAPITAL TURNOVER ANALYSIS

NCT = ( R + RE + C ) – STO R - reserve RE - requirement C - cash STO - short-term obligations

Break-even point

Break-even point can be shown by following formula: TFC BEP = ------------- U – VC/Uwhere is: TFC – total fixed costs, U – unit selling price, VC/U variable costs per unit

total profit (TP) = total costs (TC)

TP = unit selling price (U) x quantity of product (P) and TC = total fixed costs (TFC) + total variable costs (TVC) U x P = TFC + TVC TVC = VC/U x U U x P = TFC + ( VC/U x U) P ( U - VC/U) = TFC TFC P = -------------- U - VC/U

3. ACCOUNTING CONTROL

TARGETS

RELEVANT ASPECTS OF COST MANAGEMENT

WHAT’S THE TARGET OF: MANAGEMENT CONTROL

MANAGEMENT CONTROL TARGETS

WHAT’S MANAGEMENT CONTROL?

IT’S A DEFINED SYSTEM WITH:

* PROCEDURES* RESULTS

IT HAS NOT TO BE CONSIDERED A “UNA TANTUM ANALYSIS” OR A SUBPRODUCT OF GENERAL LEDGER

PRINCIPAL FEATURES OF MANAGEMENT CONTROL

HOW CAN YOU PROJECT A MANAGEMENT CONTROL SYSTEM

IT HAS TO BE DEFINED AS “SPECIFIC” SYSTEM FOR EACH COMPANY IT HAS TO BE DEFINED ACCORDING TO THE DECISONS

COSTS CLASSIFICATION WE WILL HAVE TO KNOW THE DIFFERENT WAYS TO CLASSIFY COSTS

RELEVANT ASPECTS FOR COMPANY MANAGEMENT

AN EFFICIENT COMPANY MANAGEMENT

1.1. SKILLS TO MANAGE THE DIFFERENT “AREAS” IN SKILLS TO MANAGE THE DIFFERENT “AREAS” IN THE COMPANYTHE COMPANY

2.2. AN INFORMATION SYSTEMAN INFORMATION SYSTEM

3.3. HUMAN RESOURCES ABLE TO REACH ECONOMICAL HUMAN RESOURCES ABLE TO REACH ECONOMICAL TARGETSTARGETS

SKILLS TO MANAGE THE DIFFERENT “AREAS” IN THE COMPANY

SALESSALES

NOT ONLY SALES, BUT

MARGINS

OPTIMIZE PRODUCTION COSTS :

* MAKE OR BUY* MANUFACTURING DEVELOPMENTPRODUCTIONPRODUCTION

ANALYSE GENERAL EXPENSES AND DECIDE

WHO WILL BE RESPONSABLE OF THEMGENERAL GENERAL EXPENSESEXPENSES

INFORMATION SYSTEM (IS)THE FAST EVOLUTION OF MARKET

ASK FOR

INFORMATION SYSTEMINFORMATION SYSTEM

WHICH GIVES THE POSSIBILITY OF

ANALYSE

RESULTSSUPPORT DECISIONS

INFORMATION SYSTEMINFORMATION SYSTEMINFORMATION SYSTEM

GENERAL LEDGERGENERAL LEDGER MANAGEMENT MANAGEMENT CONTROLCONTROL

•IT’S FOR LAW

•ONLY AMOUNTS

•IT’S FOR INTERNAL MANAGEMENT

* AMOUNTS AND QUANTITY UNIT SALESUNITS PRODUCTION

OVERHEADSEFFICIENCY AND PRODUCTIVITYAND SO ON ………

INFORMATION SYSTEM

ECONOMICS RESULTS ANALYSISECONOMICS RESULTS ANALYSISECONOMICS RESULTS ANALYSISECONOMICS RESULTS ANALYSIS

CAN BE DONE WITH

GENERAL GENERAL LEDGERLEDGER

MANAGEMENT MANAGEMENT CONTROLCONTROL

INCOME STATEMENT

IN UE FORMAT

INCOME STATEMENT

COST OF SALES

FORMAT

ECONOMICS REPORTS

INCOME STATEMENT

ACCOUNTING ACCOUNTING CONTROLCONTROL

GLOBAL GLOBAL RESULTSRESULTS

PRODUCT LINE PRODUCT LINE RESULTSRESULTS

HUMAN RESOURCES ABLE TO REACH ECONOMICAL TARGETS

RESULTSRESULTS TOTALTOTAL COMPANYCOMPANY

•SELLING

•PRODUCTION

MANAGERSMANAGERS

SALES MANAGER

FACTORY MANAGER

VARIABLEVARIABLECOSTSCOSTS

GROSS MARGIN

•RESEARCH & DEVELOPMENT

•SELLING

•ADMINISTRATIVE

AND GENERAL

SELLIN AND ADMINISTRATIVE

MANAGERS

FIXEDFIXEDCOSTSCOSTS

SALES MANAGER

GENERAL MANAGER

INCOME STATEMENT

THE INCOME STATEMENT FOR MANAGEMENT ACCOUNTING

THE PRINCIPAL AIMSTHE PRINCIPAL AIMS

OF INCOME STATEMENT FOR MANAGEMENT ACCOUNTING ARE

TO GIVE A SYNTHETICAL VISION OF ECONOMICAL RESULTS TO SUPPORT DECISIONS1

TO GIVE EVIDENCE TO :- OPERATING RESULTS- NOT OPERATING RESULTS

TO ANALYSE MARGING OF DIFFERENT PRODUCT LINES OR BUSINESS AREAS3

TO DEFINE DIFFERENT LEVELS OF MARGINS TO EVALUATE :- CONTRIBUTION MARGIN- MANUFACTURING MARGIN AND EBIT- CASH FLOW (OPERATING AND FINAL)

DIFFERENT MARGINS AND RESULTS

CONTRIBUTION MARGIN

GROSS MARGIN/PROFIT

OPERATING PROFIT (EBIT)

GENERAL EXPENCES

DEPENDS BY VARIABLE AND FIX COSTS

IT DEPENDS BY ALL MANUFACTURING COSTS

IT DEPENDS BY ALL THE OPERATING COSTS

NOT OPERATING COSTS

FINANCIAL

EXTRAORDINARY

FISCAL

TYPE CONTENTS

BANK INTEREST AND CHARGES

NON RECURRENT INCOMES OR COSTS

TAXES ON PROFITS

DIFFERENT METHODS FOR “COSTING”

COSTING METHODCOSTING METHODCOSTING METHODCOSTING METHOD

THE COICE OF

IT’ S BASED ON

RECEIVERS AND USE

MANUFACTURING

PROCESS

COMPANY

ORGANIZATION

THE DIFFERENT METHODS WE CAN USE FOR

CAN BE SINTHETYZED IN

FULLFULLCOSTINGCOSTING

MANUFACTURING MANUFACTURING COSTINGCOSTING

DIRECT DIRECT COSTINGCOSTING

EVALUATE COSTSEVALUATE COSTS

COST CALSSIFICATION

ACCORDING TO WHAT YOU HAVE TO

EVALUATE:

• PRODUCT

• COST CENTRE

DIRECT COSTSDIRECT COSTS

OBJECTIVELY IMPUTABLE TO PRODUCT OR COST CENTRE

I.E.: RAW MATERIALS, DIRECT LABOUR COST

INDIRECT COSTSINDIRECT COSTS

SUBJECTIVELY IMPUTABLE WITH “LOGICAL METHODS”

I.E.: GENERAL EXPENSES, FINANCIAL COSTS

ACCORDING TO THE RELATION WITH VOLUMES

•PRODUCTION

•SALES

VARIABLE COSTSVARIABLE COSTS

THEY CHANGE PROPORTIONALLY, IN RELATION WITH VOLUMES

I.E.:RAW MATERIALS, DIRECT LABOUR COST, COMMISSIONS

FIXED COSTSFIXED COSTS

THEY DO NOT CHANGE IN RELATION WITH VOLUMES, BUT THEY ARE LINKED TO TIME

I.E.:EMPLOYEES LABOUR COST., AMMORTISATION, SHOWS AND EXIBITION, …..

COSTS CLASSIFICATIONCOSTS CLASSIFICATION DESCRIPTIONDESCRIPTION

FULL COSTING

FULL COSTINGFULL COSTINGFULL COSTINGFULL COSTING

CAN BE DONE ON TWO LEVELS

MANUFACTURING

COSTTOTAL COST

MANUFACTURING COSTS

MANUFACTURING COSTMANUFACTURING COSTMANUFACTURING COSTMANUFACTURING COST

THE METHOD OF

IS BASED ON THE PRODUCT EVALUTION WITH ALL

COSTS CONCERNED WITHCOSTS CONCERNED WITH

MANUFACTURING PROCESSMANUFACTURING PROCESS

TOTAL COSTS

TOTAL COSTTOTAL COSTTOTAL COSTTOTAL COST

THE METHOD OF

IS BASED ON THE PRODUCT EVALUTION WITH

MANUFACTURING COSTSMANUFACTURING COSTS GENERAL EXPENSESGENERAL EXPENSES

DIRECT COSING

VARIABLE COSTVARIABLE COSTVARIABLE COSTVARIABLE COST

THE METHOD

IS BASED ON THE PRODUCT EVALUATION WITH

DEPENDING ONDEPENDING ON

SALESSALESDEPENDING ONDEPENDING ON

PRODUCTIONPRODUCTION

DIRECT COSTING

VARIABLE COSTS

DIRECT COSTING METHODDIRECT COSTING METHOD

THE PRODUCT IS EVALUATED WIYH ONLY

LIMITS:LIMITS:

1. POSSIBLE DIFFICULTIES IN DIVIDING COSTS INTO VARIABLE AND FIXED

2. PRODUCT IS EVALUATED WITH ONLY “FEW” COSTS

DIRECT COSTING

VARIABLE COSTS

ADVANTAGES:ADVANTAGES:

1. THE VARIABLE COST IS THE “MINIMUM LEVEL” TO ACCEPT A SALES PRICE

2. DIRECT COSTING CORRECTLY SUPPORT STRATEGIES FOR INCREASING SALES VOLUMES

FULL COSTING

ALL THE COMPANY COSTS

FULL COSTINGFULL COSTING

THE PRODUCT IS EVALUATED WITH

LIMITS:LIMITS:

THE ATTRIBUTION OF GENERAL EXPENSES TO THE SINGLE PRODUCTS IS NEVER OBJECTIVE

FULL COSTING

THE “THOUGHT” THAT A PRICE THAT WILL COVER ALL COSTS, GIVES YOU SURE EARNINGS

COST CENTER AND RESPONSABILITY

COST CENTER

COMPANY “ENTITY”COMPANY “ENTITY”COMPANY “ENTITY”COMPANY “ENTITY”

TO WHICH CAN BE ATTRIBUTED

COST CENTERCOST CENTER

COSTSCOSTS

COST CENTER AIMS

COST CENTER AIMSCOST CENTER AIMSCOST CENTER AIMSCOST CENTER AIMS

THE PRICIPAL

CAN BE CONSIDERED

TO DEFINE

DESTINATION

TO ATTRIBUTE

INDIRECT COSTS TO

PRODUCT

TO LINK RESPONSABILITY

AND COSTS

COST CENTER CLASSIFICATION

COST CENTERSCOST CENTERS

IT CAN BE DEVIDED

BASING ON ACTIVITY:

PRODUCTION COST CENTER

OVERHEAD COST CENTER

AUXILIAR COST CENTER

ALL THE

WHICH ARE DIRECTLY INVOLVED IN THE

PRODUCTION COST CENTERPRODUCTION COST CENTER

IT’S POSSIBLE TO CLASSIFY AS

COMPANY ENTITIESCOMPANY ENTITIES

OVERHEAD COST CENTERS

OVERHEAD COST CENTERSOVERHEAD COST CENTERSOVERHEAD COST CENTERSOVERHEAD COST CENTERS

IT’S POSSIBE TO CLASSIFY AS

WHICH ARE INVOLVED IN

GENERAL ACTIVITY MANAGEMENT:

ALL THE

SALES, PURCHASES, PRODUCTION MANAGEMENT,

RESEARCH AND DEVELOPMENT, FINANCE

PRODUCT COSTS

PRODUCT COST PRODUCT COST

RAW MATERIAL

EXTERNAL SERVICES/PRODUCTION

INTERNAL MANUFACTURING COSTS

HAS TO BE COMPOSED BY

PRODUCT COSTS

RAW MATERIAL

PRODUCT COSTS

EXTERNAL SERVICESEXTERNAL SERVICES

THE NUMBER OF “OPERATIONS” EXTERNALLY MADE

PURCHASE PRICE OF EVERY OPERATION

EXTERNAL SERVICES COSTS

DEPENDS ON

PRODUCT COSTS

MANUFACTURING COSTSMANUFACTURING COSTS

THE NUMBER OF “OPERATIONS” INTERNALLY MADE

MANUFACTURING COST CENTER RATES

DEPENDS ON

PRODUCT COSTS

PRODUCT COSTSPRODUCT COSTS

DEPENDS ON THE SYSTEM WE HAVE CHOSEN, AND THE IMPACT OF THE DIFFERENT SYSTEM

WILL CHANGE ONLY THE MANUFACTURING COST, SO WE WILL HAVE:

VARIABLE MANUFACTURING COST AND VARIABLE PRODUCT COST

TOTAL MANUFACTURING COST AND FULL PRODUCT COST

4. BUSINESS PLAN

Preparing a business plan

What is a business plan? Writen resume of

past, present and futureactivities of your business.

Business itinerer of how to get from present position to one which is projected in future.

Goal of preparing business plan?

Document which is used as a standard for: checking your planed business ideas

and projects tracking realisation of your elementary

planed business activities with current realised results

evaluation of projects at insurance additional needed capital for its realisationu

Parametars of business plan (1)

Start-up Development of existing firm New project > new firm

Parametars of business plan(2)

Structure of owner Caracter of program / action Owner’s capital

Time dimension of business plan Aiming additional sources and

level of capital It is optimal to prepare chronological

Business plan based on term which shows investment term of repayment of capital.

Elemens of Business plan Basic elements of business plan are: Cover page Resume Description of firm (company profile) Market analysis (branch analysis, activity) Production programme and production plan Human recources plan Selling plan Marketing plan Financial plan Plan of future development Addition

On cover page it is shown:- firm- title of business plan- relate period - author(s)

Cover page

Resume (1) This part of Business plan is compiled in

the end of its preparing, and it is placing on its beginning.It represent “window” of Business plan.It should be concise, descriptive and comprehensible, with size of one or two pages.It illuminate only the most important and key results which are obtained during preparing all other elements of business plan.

Resume (2)

It is especially important to point up key details linked to:

programme/activity, technology, equipment and production

process, concurrent in product/service, market, and especially financial construction which

should give concise ilustration of level and dynamics of necessary investment, and also flow of assets repayment.

Description of firmHere are given basic information about firm, which should demonstrate its business profile, and it includes data like:- business place,- type of ownership, level and sources of capital,- authority team (CV of management),- form of organisation,- available assets and liabilities, - business propaganda,- positional capital of firm, good will, and other.

Market analysis (branch analysis, activity) In this part you shoud give answers on theese questions:

How large is production in country? How large is growth? Which are the most important regions? How large is volume of selling? Which are the basic trends? How is economy and loyal environment? Who is concurrent? What are the advantages og concurrent? What are the main barriers in entering the

market?

Production programme and production plan (1)

This part of Business plan should give answers on next questions:

Identifying production programme (merit of product and assortment).

What are the main features of production process?

Choice of technology and necessary equipment.

Who are productors and delivers of equipment?

Production programme and production plan (2) Which are and how are solved technical

demands (electrical energy, water i canalization and other) for using selected technology?

What kind of objects and location are needed?

Identifying of raw material and delivers for realisation of production programme.

Is all proces of production performed substantively and who are other under-performers?

How big are costs of production? What are future investments in

equipment?

Human recources plan

Here is necessary to define next elements:

What are the tasks and works? What functions are officiated? Who are performers? How big are refunds and

obligations?

Selling plan

In this part you should make analysis of selling which is believed to be accomplished on market. To do that next is necessary:

Create calculation of costs and form prices of products.

Forecast selling with more scenarios. Setup organisation of selling. Make buyers analysis.

Marketing planThis part is most important for succesful realisation of Business plan. According to that it is necessary to do market analysis with answers to next questions:

What is aim group, apropos who are potential buyers of product?

What are like prices on market? How to do product promotion? Which are distribution chanels? What kind of advertising to use? How big are advertising expences?

Financial planThis is together the most important and most complexed part of business plan. It shows financial adequacy of entering in business. To do it on valid way you shoul analyse next:

Initial and operative capital Income statement Balance sheet Cash flow analysis Break-even point Summary of amortization and credits.

Plan of future development

This part of business plan should indicate on main directions and goals in next period.

Addition

In this part is content all necessary materials and documentation which are important for realisation of whole business and Business plan.

Realisation of business plan

It is necessary, as especially important for realisation of Business plan, to notice that in process of animation and attraction of potential partners or/and external buyers for realisation of Business plan, and during of process of negotiation with them, you should:

approach pheasantly and proceed selectively.

CLASIFICATION OF BUSINESS PLAN

It is shown that you do not ought to give completed Business plan to all potential partners, but it is suggested its clasification on three parts, which are:

Resume with letter of purpose, Business plan without addition, and Addition. This three parts should be dimensioned

on that way to stop possible unauthorized malversation!

RESUME of Business plan

RESUME of Business plan should show that the project is:

Attractive for market, Reliable fof investment, Mutualy profitable for potential

partner and investitor.

Business plan

Business plan should give arguments from Resume and show that project is in:

management, organization, technology, production, market and marketing, cadre, optimaly quantitively and qualitively

dimensionised.

Addition

Addition, with special details and clasified business data which are related on:

business politics (know-how), positional capital (good will) firm potential (who are buyers and

providers) should affirm that the project is

objectively efficient.

Phases of realisation

Realisation process sholud be guided in next three phases:

Resume with letter of purpose, Business plan without addition,

and Addition.

First phase First phase is delivery of Resume with letter of

purpose to all potential business addresses, like: business banks and institutional development

funds, public economy chambers and other business

and profession associations, private investment funds and “business angels”, existing business partners (buyers and

providers), potential business partners (producers and

sellers of equipment, tools and raw material), and all other informal contacts (relatives, friends

and similar).

Second phase

Second phase is delivery of Business plan to selectively interested potential partners and/or creditors, by negotiations for:

affirmig grade of their interest, and outline limit under which they are

ready for business cooperation.

Third phase

Third phase is showing Addition to selected external subjects with whom is entered in final phase of negotiation and their direct decision of willing for product realisation, where are defined final modes of relation in project realisation.

5. SOURCES OF FINANCING

SOURCES OF FINANCING

Business banks Republic fund for development Regional guarantee fund Investment funds

Second day

2. RATIO ANALYSIS

RATIO ANALYSIS

Liquidity ratios Solvency ratios Efficency ratios Profitability ratios Productivity ratios Net capital turnover analysis

RATIO ANALYSIS

BALANCE SHEET

ASSETS LIABILITIES

Fixed assets 60.000Own sources (owner’s equity)

102.000

Current assets:- reserve- requirement- cash

96.00046.50034.50015.000

Long-term credits

12.000

Short-term credits

42.000

TOTAL 156.000 TOTAL 156.000

LIQUIDITY RATIOS

Measure the ability of a firm to meet its short-term financial obligations. It is used:

Current ratio Quick ratio (Acid Test ratio) Cash ratio

Current ratio

CURRENT ASSETSCR = ------------------------------------ SHORT-TERM OBLIGATIONS

96.000CR = ------------------- = 2,29 1

42.000

Quick ratio (Acid Test ratio)

CASH + REQUIREMENTQR = -------------------------------------

SHORT-TERM OBLIGATIONS

15.000+34.500QR = --------------------- = 1,21

42.000

Cash ratio

CASHCR = ------------------------------------ SHORT-TERM OBLIGATIONS

15.000CR = ------------------ = 0,351

42.000

SOLVENCY RATIO

Sources structure of financing ratio shows real abilities of business

Debt ratio shows the level of owing

Sources structure of financing ratio

OWNER’S EQUITYSSFR = -----------------------------

BORROWED EQITY

102. 000SSFR = ------------ = 1,891 54. 000

Debt ratio

BORROWED FINANCING SOURCES DR = ------------------------------------------

TOTAL BUSINESS ASSETS

54.000 DR = ------------ x 100 = 34,6 % 156. 000

EFFICENCY RATIO

Usually it is used:Reserve turnover ratioRequirement ratio (from buyers)Obligation ratio (toward provider)

Reserve turnover ratio

PRICE OF REALISED PRODUCTSRTR = ----------------------------------------------- AVERAGE TOTAL RESERVE

150.000RTR = ------------------------------ = 3,2

1/2 ( 46.500 + 47.400)

360 DAYS

AVERAGE PERIOD OF RESERVE KEEPING = ----------------------------------

RESERVE TURNOVER RATIO

Requirement ratio

INCOME OF REALISED PRODUCTS

TURNOVER BUYERS RATIO = -------------------------------------------------------- AVERAGE TOTAL BUYERS

360 DAYSAVERAGE PERIOD OF PAYMENT = --------------------------------- TURNOVER BYERS RATIO

Obligation ratio

PRICE OF REALISED PRODUCTSTURNOVER PROVIDERS RATIO = --------------------------------------------------

---------- AVERAGE TOTAL PROVIDERS

360 DAYSAVERAGE PERIOD OF RECONCILE OBLIGATIONS =

-------------------------------------- TURNOVER PROVIDERS

PROFITABILITY RATIO

It is used:Meter of net gainReturn on total assets

Meter of net gain

NET GAIN MNG = ------------------------------------------------- INCOME OF PRODUCT REALISATION

45.000MNG = --------------- = 15%

300.000

Return on total assets

NET GAIN RETURN ON TOTAL ASSETS =

----------------------- . . AVERAGE ASSETS

45.000 RETURN ON TOTAL ASSETS= -------------------- =

29% . 156.000

NET CAPITAL TURNOVER ANALYSIS

NCT = ( R + RE + C ) – STO R - reserve RE - requirement C - cash STO - short-term obligations

Break-even point

Break-even point can be shown by following formula: TFC BEP = ------------- U – VC/Uwhere is: TFC – total fixed costs, U – unit selling price, VC/U variable costs per unit

total profit (TP) = total costs (TC)

TP = unit selling price (U) x quantity of product (P) and TC = total fixed costs (TFC) + total variable costs (TVC) U x P = TFC + TVC TVC = VC/U x U U x P = TFC + ( VC/U x U) P ( U - VC/U) = TFC TFC P = -------------- U - VC/U

Third day

3. ACCOUNTING CONTROL

TARGETS

RELEVANT ASPECTS OF COST MANAGEMENT

WHAT’S THE TARGET OF: MANAGEMENT CONTROL

MANAGEMENT CONTROL TARGETS

WHAT’S MANAGEMENT CONTROL?

IT’S A DEFINED SYSTEM WITH:

* PROCEDURES* RESULTS

IT HAS NOT TO BE CONSIDERED A “UNA TANTUM ANALYSIS” OR A SUBPRODUCT OF GENERAL LEDGER

PRINCIPAL FEATURES OF MANAGEMENT CONTROL

HOW CAN YOU PROJECT A MANAGEMENT CONTROL SYSTEM

IT HAS TO BE DEFINED AS “SPECIFIC” SYSTEM FOR EACH COMPANY IT HAS TO BE DEFINED ACCORDING TO THE DECISONS

COSTS CLASSIFICATION WE WILL HAVE TO KNOW THE DIFFERENT WAYS TO CLASSIFY COSTS

RELEVANT ASPECTS FOR COMPANY MANAGEMENT

AN EFFICIENT COMPANY MANAGEMENT

1.1. SKILLS TO MANAGE THE DIFFERENT “AREAS” IN SKILLS TO MANAGE THE DIFFERENT “AREAS” IN THE COMPANYTHE COMPANY

2.2. AN INFORMATION SYSTEMAN INFORMATION SYSTEM

3.3. HUMAN RESOURCES ABLE TO REACH ECONOMICAL HUMAN RESOURCES ABLE TO REACH ECONOMICAL TARGETSTARGETS

SKILLS TO MANAGE THE DIFFERENT “AREAS” IN THE COMPANY

SALESSALES

NOT ONLY SALES, BUT

MARGINS

OPTIMIZE PRODUCTION COSTS :

* MAKE OR BUY* MANUFACTURING DEVELOPMENTPRODUCTIONPRODUCTION

ANALYSE GENERAL EXPENSES AND DECIDE

WHO WILL BE RESPONSABLE OF THEMGENERAL GENERAL EXPENSESEXPENSES

INFORMATION SYSTEM (IS)THE FAST EVOLUTION OF MARKET

ASK FOR

INFORMATION SYSTEMINFORMATION SYSTEM

WHICH GIVES THE POSSIBILITY OF

ANALYSE

RESULTSSUPPORT DECISIONS

INFORMATION SYSTEMINFORMATION SYSTEMINFORMATION SYSTEM

GENERAL LEDGERGENERAL LEDGER MANAGEMENT MANAGEMENT CONTROLCONTROL

•IT’S FOR LAW

•ONLY AMOUNTS

•IT’S FOR INTERNAL MANAGEMENT

* AMOUNTS AND QUANTITY UNIT SALESUNITS PRODUCTION

OVERHEADSEFFICIENCY AND PRODUCTIVITYAND SO ON ………

INFORMATION SYSTEM

ECONOMICS RESULTS ANALYSISECONOMICS RESULTS ANALYSISECONOMICS RESULTS ANALYSISECONOMICS RESULTS ANALYSIS

CAN BE DONE WITH

MANAGEMENT MANAGEMENT CONTROLCONTROL

INCOME STATEMENT

IN UE FORMAT

INCOME STATEMENT

COST OF SALES

FORMAT

ECONOMICS REPORTS

INCOME STATEMENT

ACCOUNTING ACCOUNTING CONTROLCONTROL

GLOBAL GLOBAL RESULTSRESULTS

PRODUCT LINE PRODUCT LINE RESULTSRESULTS

HUMAN RESOURCES ABLE TO REACH ECONOMICAL TARGETS

RESULTSRESULTS TOTALTOTAL COMPANYCOMPANY

•SELLING

•PRODUCTION

MANAGERSMANAGERS

SALES MANAGER

FACTORY MANAGER

VARIABLEVARIABLECOSTSCOSTS

GROSS MARGIN

•RESEARCH & DEVELOPMENT

•SELLING

•ADMINISTRATIVE

AND GENERAL

SELLIN AND ADMINISTRATIVE

MANAGERS

FIXEDFIXEDCOSTSCOSTS

SALES MANAGER

GENERAL MANAGER

INCOME STATEMENT

THE INCOME STATEMENT FOR MANAGEMENT ACCOUNTING

THE PRINCIPAL AIMSTHE PRINCIPAL AIMS

OF INCOME STATEMENT FOR MANAGEMENT ACCOUNTING ARE

TO GIVE A SYNTHETICAL VISION OF ECONOMICAL RESULTS TO SUPPORT DECISIONS1

TO GIVE EVIDENCE TO :- OPERATING RESULTS- NOT OPERATING RESULTS

TO ANALYSE MARGING OF DIFFERENT PRODUCT LINES OR BUSINESS AREAS3

TO DEFINE DIFFERENT LEVELS OF MARGINS TO EVALUATE :- CONTRIBUTION MARGIN- MANUFACTURING MARGIN AND EBIT- CASH FLOW (OPERATING AND FINAL)

DIFFERENT MARGINS AND RESULTS

CONTRIBUTION MARGIN

GROSS MARGIN/PROFIT

OPERATING PROFIT (EBIT)

GENERAL EXPENCES

DEPENDS BY VARIABLE AND FIX COSTS

IT DEPENDS BY ALL MANUFACTURING COSTS

IT DEPENDS BY ALL THE OPERATING COSTS

NOT OPERATING COSTS

FINANCIAL

EXTRAORDINARY

FISCAL

TYPE CONTENTS

BANK INTEREST AND CHARGES

NON RECURRENT INCOMES OR COSTS

TAXES ON PROFITS

COSTING METHODCOSTING METHODCOSTING METHODCOSTING METHOD

THE COICE OF

IT’ S BASED ON

RECEIVERS AND USE

MANUFACTURING

PROCESS

COMPANY

ORGANIZATION

THE DIFFERENT METHODS WE CAN USE FOR

CAN BE SINTHETYZED IN

FULLFULLCOSTINGCOSTING

MANUFACTURING MANUFACTURING COSTINGCOSTING

DIRECT DIRECT COSTINGCOSTING

EVALUATE COSTSEVALUATE COSTS

COST CALSSIFICATION

ACCORDING TO WHAT YOU HAVE TO

EVALUATE:

• PRODUCT

• COST CENTRE

DIRECT COSTSDIRECT COSTS

OBJECTIVELY IMPUTABLE TO PRODUCT OR COST CENTRE

I.E.: RAW MATERIALS, DIRECT LABOUR COST

INDIRECT COSTSINDIRECT COSTS

SUBJECTIVELY IMPUTABLE WITH “LOGICAL METHODS”

I.E.: GENERAL EXPENSES, FINANCIAL COSTS

ACCORDING TO THE RELATION WITH VOLUMES

•PRODUCTION

•SALES

THEY CHANGE PROPORTIONALLY, IN RELATION WITH VOLUMES

I.E.:RAW MATERIALS, DIRECT LABOUR COST, COMMISSIONS

FIXED COSTSFIXED COSTS

THEY DO NOT CHANGE IN RELATION WITH VOLUMES, BUT THEY ARE LINKED TO TIME

I.E.:EMPLOYEES LABOUR COST., AMMORTISATION, SHOWS AND EXIBITION, …..

COSTS CLASSIFICATIONCOSTS CLASSIFICATION DESCRIPTIONDESCRIPTION

FULL COSTING

FULL COSTINGFULL COSTINGFULL COSTINGFULL COSTING

CAN BE DONE ON TWO LEVELS

MANUFACTURING

COSTTOTAL COST

MANUFACTURING COSTS

MANUFACTURING COSTMANUFACTURING COSTMANUFACTURING COSTMANUFACTURING COST

THE METHOD OF

IS BASED ON THE PRODUCT EVALUTION WITH ALL

COSTS CONCERNED WITHCOSTS CONCERNED WITH

TOTAL COSTS

TOTAL COSTTOTAL COSTTOTAL COSTTOTAL COST

THE METHOD OF

IS BASED ON THE PRODUCT EVALUTION WITH

MANUFACTURING COSTSMANUFACTURING COSTS GENERAL EXPENSESGENERAL EXPENSES

DIRECT COSING

VARIABLE COSTVARIABLE COSTVARIABLE COSTVARIABLE COST

THE METHOD

IS BASED ON THE PRODUCT EVALUATION WITH

DEPENDING ONDEPENDING ON

SALESSALESDEPENDING ONDEPENDING ON

PRODUCTIONPRODUCTION

DIRECT COSTING

VARIABLE COSTS

LIMITS:LIMITS:

1. POSSIBLE DIFFICULTIES IN DIVIDING COSTS INTO VARIABLE AND FIXED

2. PRODUCT IS EVALUATED WITH ONLY “FEW” COSTS

DIRECT COSTING

VARIABLE COSTS

1. THE VARIABLE COST IS THE “MINIMUM LEVEL” TO ACCEPT A SALES PRICE

2. DIRECT COSTING CORRECTLY SUPPORT STRATEGIES FOR INCREASING SALES VOLUMES

FULL COSTING

LIMITS:LIMITS:

THE ATTRIBUTION OF GENERAL EXPENSES TO THE SINGLE PRODUCTS IS NEVER OBJECTIVE

FULL COSTING

THE “THOUGHT” THAT A PRICE THAT WILL COVER ALL COSTS, GIVES YOU SURE EARNINGS

COST CENTER AND RESPONSABILITY

COST CENTER

COMPANY “ENTITY”COMPANY “ENTITY”COMPANY “ENTITY”COMPANY “ENTITY”

TO WHICH CAN BE ATTRIBUTED

COST CENTERCOST CENTER

COSTSCOSTS

COST CENTER AIMS

COST CENTER AIMSCOST CENTER AIMSCOST CENTER AIMSCOST CENTER AIMS

THE PRICIPAL

CAN BE CONSIDERED

TO DEFINE

DESTINATION

TO ATTRIBUTE

INDIRECT COSTS TO

PRODUCT

TO LINK RESPONSABILITY

AND COSTS

COST CENTER CLASSIFICATION

COST CENTERSCOST CENTERS

IT CAN BE DEVIDED

BASING ON ACTIVITY:

OVERHEAD COST CENTER

AUXILIAR COST CENTER

ALL THE

WHICH ARE DIRECTLY INVOLVED IN THE

PRODUCTION COST CENTERPRODUCTION COST CENTER

IT’S POSSIBLE TO CLASSIFY AS

OVERHEAD COST CENTERS

OVERHEAD COST CENTERSOVERHEAD COST CENTERSOVERHEAD COST CENTERSOVERHEAD COST CENTERS

IT’S POSSIBE TO CLASSIFY AS

WHICH ARE INVOLVED IN

GENERAL ACTIVITY MANAGEMENT:

ALL THE

SALES, PURCHASES, PRODUCTION MANAGEMENT,

RESEARCH AND DEVELOPMENT, FINANCE

PRODUCT COSTS

RAW MATERIAL

PRODUCT COSTS

RAW MATERIAL

PRODUCT COSTS

EXTERNAL SERVICESEXTERNAL SERVICES

THE NUMBER OF “OPERATIONS” EXTERNALLY MADE

PURCHASE PRICE OF EVERY OPERATION

EXTERNAL SERVICES COSTS

DEPENDS ON

PRODUCT COSTS

MANUFACTURING COSTSMANUFACTURING COSTS

THE NUMBER OF “OPERATIONS” INTERNALLY MADE

MANUFACTURING COST CENTER RATES

DEPENDS ON

PRODUCT COSTS

PRODUCT COSTSPRODUCT COSTS

DEPENDS ON THE SYSTEM WE HAVE CHOSEN, AND THE IMPACT OF THE DIFFERENT SYSTEM

WILL CHANGE ONLY THE MANUFACTURING COST, SO WE WILL HAVE:

VARIABLE MANUFACTURING COST AND VARIABLE PRODUCT COST

TOTAL MANUFACTURING COST AND FULL PRODUCT COST

Fourth day

4. BUSINESS PLAN

Preparing a business plan

What is a business plan? Writen resume of

past, present and futureactivities of your business.

Business itinerer of how to get from present position to one which is projected in future.

Goal of preparing business plan?

Document which is used as a standard for: checking your planed business ideas

and projects tracking realisation of your elementary

planed business activities with current realised results

evaluation of projects at insurance additional needed capital for its realisationu

Start-up Development of existing firm New project > new firm

Parametars of business plan(2)

Structure of owner Caracter of program / action Owner’s capital

Time dimension of business plan Aiming additional sources and

level of capital It is optimal to prepare chronological

Business plan based on term which shows investment term of repayment of capital.

Elemens of Business plan Basic elements of business plan are: Cover page Resume Description of firm (company profile) Market analysis (branch analysis, activity) Production programme and production plan Human recources plan Selling plan Marketing plan Financial plan Plan of future development Addition

On cover page it is shown:- firm- title of business plan- relate period - author(s)

Cover page

Resume (1) This part of Business plan is compiled in

the end of its preparing, and it is placing on its beginning.It represent “window” of Business plan.It should be concise, descriptive and comprehensible, with size of one or two pages.It illuminate only the most important and key results which are obtained during preparing all other elements of business plan.

Resume (2) It is especially important to point up key details

linked to: programme/activity, technology, equipment and production

process, concurrent in product/service, market, and especially financial construction which

should give concise ilustration of level and dynamics of necessary investment, and also flow of assets repayment.

Description of firmHere are given basic information about firm, which should demonstrate its business profile, and includes data like:- business place,- type of ownership, level and sources of capital,- authority team (CV of management),- form of organisation,- available assets and liabilities, - business propaganda,- positional capital of firm, good will, and other.

Market analysis (branch analysis, activity) In this part you shoud give answers on theese questions:

How large is production in country? How big is growth? Which are the most important regions? How big is volume of selling? Which are the basic trends? How is economy and loyal environment? Who is concurrent? What are the advantages og concurrent? What are the main barriers in entering the

market?

Production programme and production plan (1)

This part of business plan should give answers on next questions:

Identifying production programme (merit of product and assortment).

What are the main features of production process?

Choice of technology and necessary equipment.

Who are productors and delivers of equipment?

Production programme and production plan (2) Which are and how are solved technical

demands (electrical energy, water i canalization and other) for using selected technology?

What kind of objects and location are needed?

Identifying of raw material and delivers for realisation of production programme.

Is all proces of production performed substantively and who are other under-performers?

How big are costs of production? What are future investments in

equipment?

Human recources plan

Here is necessary to define next elements:

What are the tasks and works? What functions are officiated? Who are performers? How big are refunds and

obligations?

Selling plan

In this part you should make analysis of selling which is believed to be accomplished on market. To do that next is necessary:

Create calculation of costs and form prices of products.

Forecast selling with more scenarios. Setup organisation of selling. Make buyers analysis.

Marketing planThis part is most important for succesful realisation of Business plan. According to that it is necessary to do market analysis with answers to next questions:

What is aim group, apropos who are potential buyers of product?

What are like prices on market? How to do product promotion? Which are distribution chanels? What kind of advertising to use? How big are advertising expences?

Financial planThis is together the most important and most complexed part of business plan. It shows financial adequacy of entering in business. To do it on valid way you shoul analyse next:

Initial and operative capital Income statement Balance sheet Cash flow analysis Break-even point Summary of amortization and credits.

Plan of future development

This part of business plan should indicate on main directions and goals in next period.

Addition

In this part is content all necessary materials and documentation which are important for realisation of whole business and Business plan.

Realisation of business plan

It is necessary, as especially important for realisation of Business plan, to notice that in process of animation and attraction of potential partners or/and external buyers for realisation of Business plan, and during of process of negotiation with them, you should:

approach pheasantly and proceed selectively.

CLASIFICATION OF BUSINESS PLAN

It is shown that you do not ought to give completed Business plan to all potential partners, but it is suggested its clasification on three parts, which are:

Resume with letter of purpose, Business plan without addition, and Addition. This three parts should be dimensioned

on that way to stop possible unauthorized malversation!

RESUME of Business plan

RESUME of Business plan should show that the project is:

Attractive for market, Reliable fof investment, Mutualy profitable for potential

partner and investitor.

Business plan

Business plan should give arguments from Resume and show that project is in:

management, organization, technology, production, market and marketing, cadre, optimaly quantitively and qualitively

dimensionised.

Addition

Addition, with special details and clasified business data which are related on:

business politics (know-how), positional capital (good will) firm potential (who are buyers and

providers) should affirm that the project is

objectively efficient.

Phases of realisation

Realisation process sholud be guided in next three phases:

Resume with letter of purpose, Business plan without addition,

and Addition.

First phase First phase is delivery of Resume with letter of

purpose to all potential business addresses, like: business banks and institutional development

funds, public economy chambers and other business

and profession associations, private investment funds and “business angels”, existing business partners (buyers and

providers), potential business partners (producers and

sellers of equipment, tools and raw material), and all other informal contacts (relatives, friends

and similar).

Second phase

Second phase is delivery of Business plan to selectively interested potential partners and/or creditors, by negotiations for:

affirmig grade of their interest, and outline limit under which they are

ready for business cooperation.

Third phase

Third phase is showing Addition to selected external subjects with whom is entered in final phase of negotiation and their direct decision of willing for product realisation, where are defined final modes of relation in project realisation.

Fifth day

5. SOURCES OF FINANCING

SOURCES OF FINANCING

Business banks Republic fund for development Regional guarantee fund Investment funds

Desa Petrovic - Financial management

Economy & Finance

SCIENTIFIC ABSTRACT PETROVIC, L. - PETROVIC, R. · title: scientific abstract petrovic, l. - petrovic, r. subject: scientific abstract petrovic, l. - petrovic, r. keywords

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