FINANCIAL STRUCTURE OF CONSTRUCTION FIRMS, LEVERAGE AND LIQUIDITY Presented by Christopher kaniiru m’ ithai B50/71686/08

FINANCIAL STRUCTURE FINANCIAL STRUCTURE OF CONSTRUCTION OF CONSTRUCTION

FIRMS, LEVERAGE AND FIRMS, LEVERAGE AND LIQUIDITYLIQUIDITY

Presented by Christopher Presented by Christopher kaniiru m’ ithai kaniiru m’ ithai B50/71686/08B50/71686/08

Introduction Introduction Finance is an important theme of management. After all the Finance is an important theme of management. After all the

objectives objectives ofof the organisations are normally expressed in the organisations are normally expressed in financial terms as are many of targets used to assess the financial terms as are many of targets used to assess the performance of the organisation. Increasingly, senior performance of the organisation. Increasingly, senior positions in the management of organizations are positions in the management of organizations are occupied by those with financial management training occupied by those with financial management training and experience. The main two financial objectives are; and experience. The main two financial objectives are;

(a)(a) Liquidity in the short term meaning that cash flow or Liquidity in the short term meaning that cash flow or working capital is generated, thus enabling debts to be working capital is generated, thus enabling debts to be paid and the firm’s current activities to be financed.paid and the firm’s current activities to be financed.

(b)(b) (b) Profitability in long term, meaning that the surplus (b) Profitability in long term, meaning that the surplus and revenues over costs, thus enabling the cycle of and revenues over costs, thus enabling the cycle of production to be renewed over time, and funds to be production to be renewed over time, and funds to be provided for replacing capital and expansion of activities.provided for replacing capital and expansion of activities.

Capital structureCapital structure Capital structure relates to proportions of total capital which are Capital structure relates to proportions of total capital which are

on the hand, borrowed funds and on the other hand equity on the hand, borrowed funds and on the other hand equity (owners’) funds. This proportion is known as gearing capital. (owners’) funds. This proportion is known as gearing capital. The higher the proportion of borrowed funds to owners funds, The higher the proportion of borrowed funds to owners funds, that is non-equity to equity then the higher is said to be the that is non-equity to equity then the higher is said to be the gearing. gearing.

In deciding what gearing strategy a firm should adopt some of the In deciding what gearing strategy a firm should adopt some of the points to be considered are:-points to be considered are:-

Lenders will feel their investment is fairly secure if there are Lenders will feel their investment is fairly secure if there are sufficient shareholders to carry the risk therefore, the firm will sufficient shareholders to carry the risk therefore, the firm will be able to borrow at reasonable rates of interest.be able to borrow at reasonable rates of interest.

However as borrowing increase- that becomes higher- lenders However as borrowing increase- that becomes higher- lenders will feel less secure as the number of shareholders taking the will feel less secure as the number of shareholders taking the risk diminishes. Therefore higher interest rates will be risk diminishes. Therefore higher interest rates will be demanded as risk premium. demanded as risk premium.

Shareholders may be attracted by higher gearing because in Shareholders may be attracted by higher gearing because in times of high profit the lenders will receive a fixed return, times of high profit the lenders will receive a fixed return, leaving a great amount to be shared among the fewer equity leaving a great amount to be shared among the fewer equity shareholders.shareholders.

Capital structure cont’dCapital structure cont’d However shareholders in this highly geared situation However shareholders in this highly geared situation

are carrying a more concentrated risk, so they are carrying a more concentrated risk, so they require a higher potential return to attract them.require a higher potential return to attract them.

The management of a firm wishes to undertake fast The management of a firm wishes to undertake fast growth, the higher borrowing may be the only way to growth, the higher borrowing may be the only way to raise the required funds quickly enough.raise the required funds quickly enough.

Choices have to be made balancing all these factors. If Choices have to be made balancing all these factors. If there is a booming property market there may be there is a booming property market there may be temptation to strive for fast growth by borrowing temptation to strive for fast growth by borrowing heavily. This carries risk that if interest rates rise, heavily. This carries risk that if interest rates rise, the regular debt payment will soar, threatening the the regular debt payment will soar, threatening the survival of the firm due to lack of liquidity. This is an survival of the firm due to lack of liquidity. This is an all too familiar story in the construction and property all too familiar story in the construction and property industries of the 1990s following the boom and industries of the 1990s following the boom and subsequent bust of late 1980s.subsequent bust of late 1980s.

Capital structure cont’dCapital structure cont’d PUBLIC FINANCE STRUCTUREPUBLIC FINANCE STRUCTURE Organizational structureOrganizational structureThe finance and project structure are indistinguishable. The The finance and project structure are indistinguishable. The

public sector is responsible for financing, developing and public sector is responsible for financing, developing and operating the asset. There is no separate contractual operating the asset. There is no separate contractual arrangement for financing projectsarrangement for financing projects

Capital StructureCapital StructurePublic institutions borrow funds to finance projects usually the Public institutions borrow funds to finance projects usually the

government gives a sovereign guarantee to lender to repay government gives a sovereign guarantee to lender to repay all funds. Project funding might be raised from a all funds. Project funding might be raised from a combination of equity and debt. The debt will be shown as combination of equity and debt. The debt will be shown as a liability on the government’s balance sheet.a liability on the government’s balance sheet.

Capital structure cont’dCapital structure cont’d Corporate Finance StructureCorporate Finance Structure This type of project finance structure is associated with This type of project finance structure is associated with

private sector institutions using their own capital for private sector institutions using their own capital for funding projects. This mainly applies to projects that are funding projects. This mainly applies to projects that are limited in size and do not require outside financing. This is limited in size and do not require outside financing. This is due to the fact that private companies are able to absorb due to the fact that private companies are able to absorb this financial commitment in their balance sheetthis financial commitment in their balance sheet

Organizational StructureOrganizational Structure Project finance is not a separate incorporation of the private Project finance is not a separate incorporation of the private

company, under this scheme the private companies company, under this scheme the private companies existing structure would govern the project/asset am dots existing structure would govern the project/asset am dots cash flows. By doing so, private companies could hold cash flows. By doing so, private companies could hold large risky assets on their balance sheetslarge risky assets on their balance sheets

Capital structure cont’dCapital structure cont’d Capital StructureCapital Structure A private company may choose to use its own equity or to A private company may choose to use its own equity or to

borrow funds to develop the asset in question and borrow funds to develop the asset in question and guaranties to repay lenders from its available operating guaranties to repay lenders from its available operating income and its capital of assets Loans under this system income and its capital of assets Loans under this system are based on the recourse debt method. Each project has are based on the recourse debt method. Each project has its own characteristics that may alter the standard format its own characteristics that may alter the standard format of the optimal capital structure. suggested that corporate of the optimal capital structure. suggested that corporate capital structure is influenced by variables such as fixed capital structure is influenced by variables such as fixed assets, no – debt tax shield, investment opportunities, firm assets, no – debt tax shield, investment opportunities, firm size, volatility probability of bankruptcy and the uniqueness size, volatility probability of bankruptcy and the uniqueness of the product or service offered by the firm.of the product or service offered by the firm.

Capital structure cont’dCapital structure cont’d Project Finance StructureProject Finance Structure Project finance is defined as the creation of a legally Project finance is defined as the creation of a legally

independent project company financed with non-recourse independent project company financed with non-recourse debt for the purpose of investing in a capital asset, usually debt for the purpose of investing in a capital asset, usually with a single purpose and limited life. Project financing uses with a single purpose and limited life. Project financing uses the projects future revenues as the basis for raising capital the projects future revenues as the basis for raising capital to fund the construction and operation of an asset over a to fund the construction and operation of an asset over a specified period. The system is based on the paradigm that specified period. The system is based on the paradigm that the private sector uses its resources to build, maintain the private sector uses its resources to build, maintain manage and operate public assets. Project financings are manage and operate public assets. Project financings are extremely complex. It may take a much longer time to extremely complex. It may take a much longer time to structure, negotiate and document a project financing than structure, negotiate and document a project financing than a traditional financing, and the legal fees and related costs a traditional financing, and the legal fees and related costs associated with project financing can be very high. associated with project financing can be very high.

SOURCES OF FINANCESOURCES OF FINANCE

All individuals and organizations need a variety of types of All individuals and organizations need a variety of types of finance for different purposes. This is equally true to firms finance for different purposes. This is equally true to firms as it is for consumers, households and the government. For as it is for consumers, households and the government. For instance a family contemplating the purchase of a house is instance a family contemplating the purchase of a house is unlikely to finance this by a bank overdraft but will instead unlikely to finance this by a bank overdraft but will instead turn to a specially designed source of finance for this turn to a specially designed source of finance for this purpose namely a mortgage. purpose namely a mortgage.

Similarly, firms need certain types of finance to provide for Similarly, firms need certain types of finance to provide for their short-term day to day needs of maintaining liquidity their short-term day to day needs of maintaining liquidity and other types to provide funds for long term investment and other types to provide funds for long term investment which lays the foundation for profitability. Therefore to which lays the foundation for profitability. Therefore to summarise financial needs:summarise financial needs:

Short-term finance is required to meet the objective of Short-term finance is required to meet the objective of liquidity.liquidity.

Long-term finance is required to meet the objective of Long-term finance is required to meet the objective of profitabilityprofitability

Sources of Finance cont’d Sources of Finance cont’d Short-Term FinanceShort-Term Finance Short-term finance is required to maintain liquidity, and Short-term finance is required to maintain liquidity, and

therefore the source of working capital to keep the firm therefore the source of working capital to keep the firm operating on daily basis. Many firms fail through lack of operating on daily basis. Many firms fail through lack of liquidity rather than lack of long –term profitability. liquidity rather than lack of long –term profitability.

Firm may use short-term finance in a number of waysFirm may use short-term finance in a number of ways Hold cash balances to pay immediate bills and for emergenciesHold cash balances to pay immediate bills and for emergencies Extend credit to customers –that is – provide debtors possibly Extend credit to customers –that is – provide debtors possibly

in accordance standard practice in a given industry.in accordance standard practice in a given industry. Hold stock of finished goods awaiting sale or delivery to Hold stock of finished goods awaiting sale or delivery to

customers.customers. Hold stocks of materials and components awaiting Hold stocks of materials and components awaiting

incorporation into the production process.incorporation into the production process. Pay for work in progress in case of the ongoing works in Pay for work in progress in case of the ongoing works in

construction projectsconstruction projects The more working capital that is tied up in items, the greater The more working capital that is tied up in items, the greater

the strain on firm’s finances. the strain on firm’s finances.

Sources of Finance cont’dSources of Finance cont’d

The main types of short term finances available are: The main types of short term finances available are: Bank credit: Bank credit: Overdrafts work on the basis that is granted Overdrafts work on the basis that is granted

certain drawing rights by the bank up to a prescribed limit. certain drawing rights by the bank up to a prescribed limit. Thus the firm borrows on a flexible basis according to its Thus the firm borrows on a flexible basis according to its needs at a given time. Therefore the faster it is able to needs at a given time. Therefore the faster it is able to collect debt then the less interest charges will be incurred. collect debt then the less interest charges will be incurred. So construction projects, the quicker a contractor receives So construction projects, the quicker a contractor receives interim payments from clients the better.interim payments from clients the better.

Trade Credit:Trade Credit: This has always been a standard practice in This has always been a standard practice in construction and many other industries. Essentially, it construction and many other industries. Essentially, it means that goods are supplied on credit basis. A certain means that goods are supplied on credit basis. A certain period, within which payment must be made, is normally period, within which payment must be made, is normally prescribed, be it 14days, 21days, 28days e.t.c. A firm using prescribed, be it 14days, 21days, 28days e.t.c. A firm using trade credit is therefore using somebody else’s money to trade credit is therefore using somebody else’s money to finance its activities. This means that it is using the other finance its activities. This means that it is using the other firm, or creditor, as if it were a bank. Using firms as firm, or creditor, as if it were a bank. Using firms as creditors is the other side of the coin to extending credit to creditors is the other side of the coin to extending credit to firms, as described above. firms, as described above.

Sources of Finance cont’dSources of Finance cont’d Factoring Factoring This type of credit involves the use of a third party to collect This type of credit involves the use of a third party to collect

debts on a routine basis. Factors may be specialists, debts on a routine basis. Factors may be specialists, financial organizations or subsidiaries of more general financial organizations or subsidiaries of more general financial institutions. Where factoring is used, all invoices financial institutions. Where factoring is used, all invoices are issued through the factor, thus breaking a direct are issued through the factor, thus breaking a direct contract between supplier and customer. This is a possible contract between supplier and customer. This is a possible disadvantage, although it should be noted that the disadvantage, although it should be noted that the supplier’s name will still appear, possibly with some supplier’s name will still appear, possibly with some qualifying word or phrase in brackets-‘Samuel (sales)’, qualifying word or phrase in brackets-‘Samuel (sales)’, instead of plain ‘Samuel’. The way the system normally instead of plain ‘Samuel’. The way the system normally operates is that the factor will pay the firm a substantial operates is that the factor will pay the firm a substantial proportion of the invoice value immediately, thus improving proportion of the invoice value immediately, thus improving cash flow cash flow

Sources of Finance cont’dSources of Finance cont’d Factoring Factoring This type of credit involves the use of a third party to This type of credit involves the use of a third party to

collect debts on a routine basis. Factors may be specialists, collect debts on a routine basis. Factors may be specialists, financial organizations or subsidiaries of more general financial organizations or subsidiaries of more general financial institutions. Where factoring is used, all invoices financial institutions. Where factoring is used, all invoices are issued through the factor, thus breaking a direct are issued through the factor, thus breaking a direct contract between supplier and customer. This is a possible contract between supplier and customer. This is a possible disadvantage, although it should be noted that the disadvantage, although it should be noted that the supplier’s name will still appear, possibly with some supplier’s name will still appear, possibly with some qualifying word or phrase in brackets-‘Samuel (sales)’, qualifying word or phrase in brackets-‘Samuel (sales)’, instead of plain ‘Samuel’. The way the system normally instead of plain ‘Samuel’. The way the system normally operates is that the factor will pay the firm a substantial operates is that the factor will pay the firm a substantial proportion of the invoice value immediately, thus improving proportion of the invoice value immediately, thus improving cash flow. cash flow.

Sources of Finance cont’dSources of Finance cont’d Long-term financeLong-term finance Long term-finance is for investment in assets which will be Long term-finance is for investment in assets which will be

used to enhance profitability in the long term. These assets used to enhance profitability in the long term. These assets may include: may include:

Tangible items or fixed assets such as land, buildings, Tangible items or fixed assets such as land, buildings, machinery and vehicles. machinery and vehicles.

Intangible assets such as goodwill, which may be built up Intangible assets such as goodwill, which may be built up over time. over time.

These intangible items may be difficult to measure and These intangible items may be difficult to measure and value but certainly count as investment assets because value but certainly count as investment assets because finance would have been expended on them, perhaps in the finance would have been expended on them, perhaps in the form of employee training which has a long term benefit for form of employee training which has a long term benefit for the effectiveness and reputation of the firm. the effectiveness and reputation of the firm.

There are basically two main sources of long term finance:There are basically two main sources of long term finance: Owners’ fundsOwners’ funds Borrowed fundsBorrowed funds

Sources of Finance cont’dSources of Finance cont’d Owner’s funds, tOwner’s funds, these include:hese include: Funds provided by the original entrepreneur to start the Funds provided by the original entrepreneur to start the

company.company. Receipts from shares sold if the company ‘goes public’.Receipts from shares sold if the company ‘goes public’. Any ploughed back profit retained in the business. Any ploughed back profit retained in the business. These funds represent the permanent capital of the firm.These funds represent the permanent capital of the firm. In theory the owners, or shareholders, are risk-taking In theory the owners, or shareholders, are risk-taking

investors and will be prepared to forego an income now in investors and will be prepared to forego an income now in exchange for a greater return in the future.exchange for a greater return in the future.

Borrowed fundsBorrowed funds Funds may be borrowed from a number of sources, but Funds may be borrowed from a number of sources, but

share the characteristic that they represent a regular drain share the characteristic that they represent a regular drain on the firm’s financial resources due to interest charges. on the firm’s financial resources due to interest charges. The most straight forward way to borrow is from banks or The most straight forward way to borrow is from banks or some other financial institutions on a long-term basis. some other financial institutions on a long-term basis.

Sources of Finance cont’dSources of Finance cont’d Financial InstitutionsFinancial Institutions Financial Institution is the general term used in the property Financial Institution is the general term used in the property

industry to describe pension funds, insurance companies, industry to describe pension funds, insurance companies, life assurance companies, investment trusts and unit trusts. life assurance companies, investment trusts and unit trusts. They invest in property directly and indirectly through the They invest in property directly and indirectly through the ownership of shares in property investment companies and ownership of shares in property investment companies and development companies development companies

Banks and building societies Banks and building societies Banks who participate in the funding of development Banks who participate in the funding of development

include both local and foreign clearing and merchant banks. include both local and foreign clearing and merchant banks. Bank lending may take the form of “corporate” lending to a Bank lending may take the form of “corporate” lending to a company by means of overdraft facilities or short-term company by means of overdraft facilities or short-term loans. loans.

Sources of Finance cont’dSources of Finance cont’d Joint venture partnersJoint venture partners: A development company may : A development company may

raise finance to secure the acquisition of land by forming a raise finance to secure the acquisition of land by forming a partnership or a joint venture company with their party to partnership or a joint venture company with their party to carry out a specific development projects. The basic carry out a specific development projects. The basic principles behind forming a partnership from the principles behind forming a partnership from the developers’ point of view is to secure either finance or land developers’ point of view is to secure either finance or land in return for a share in the profits of the development in return for a share in the profits of the development scheme or the joint venture company.scheme or the joint venture company.

Government assistance: Government assistance: There are grants available from There are grants available from the government to developers directly or through a the government to developers directly or through a partnership with local authorities. partnership with local authorities.

Methods of Development Finance: Methods of Development Finance: There are many There are many methods of obtaining development finance from the various methods of obtaining development finance from the various sources of development finance cited above. The choice of sources of development finance cited above. The choice of both source and method of development finance will both source and method of development finance will depend on how much equity (the construction firm own depend on how much equity (the construction firm own capital) that the firm is able and willing to commit to a capital) that the firm is able and willing to commit to a scheme. scheme.

Sources of Finance cont’dSources of Finance cont’d Forward – funding with an institution: Forward – funding with an institution: Forward-funding is the Forward-funding is the

method of development finance which involves a pension fund or method of development finance which involves a pension fund or insurance company agreeing to provide short-term development insurance company agreeing to provide short-term development finance and to purchase the completed property as an finance and to purchase the completed property as an investment.investment.

Bank loans Bank loans :For many firms, especially the smaller ones, :For many firms, especially the smaller ones, forward-funding is difficult to obtain as they are unable to provide forward-funding is difficult to obtain as they are unable to provide the requested guarantees. the requested guarantees.

Corporate loans: Corporate loans: Development companies can arrange overdraft Development companies can arrange overdraft facilities or loan facilities with clearing banks secured on their facilities or loan facilities with clearing banks secured on their assets. With corporate lending the bank is concerned with the assets. With corporate lending the bank is concerned with the strength of the company, its assets, profits and cash-flow. strength of the company, its assets, profits and cash-flow. Corporate loans can be obtained at lower interest rates than Corporate loans can be obtained at lower interest rates than project loans. project loans.

Project loans: Project loans: Project loans can be arranged which are secured Project loans can be arranged which are secured against a specific development project. Banks normally provide against a specific development project. Banks normally provide loans which represent 65-70% of the development value or 70-loans which represent 65-70% of the development value or 70-80% of the development cost. The banks limit their total loan to 80% of the development cost. The banks limit their total loan to allow for the risk of a reduction in value of the scheme during the allow for the risk of a reduction in value of the scheme during the period of the loan period of the loan

Sources of Finance cont’dSources of Finance cont’dProject loans are attractive to the smaller trading companies as Project loans are attractive to the smaller trading companies as

they are not worth enough to fund their full development they are not worth enough to fund their full development program through corporate loans.program through corporate loans.

There are variations on the basic project loan. These include;There are variations on the basic project loan. These include;(a)(a) Investment loansInvestment loans – Development companies wishing to – Development companies wishing to

retain a development, can secure the option to convert the retain a development, can secure the option to convert the project loan into an investment loan on the completion of the project loan into an investment loan on the completion of the project once is let, usually up until the first rent review. project once is let, usually up until the first rent review. Alternatively the developer may agree a combined project and Alternatively the developer may agree a combined project and investment loan from the outset. investment loan from the outset.

(b)(b) ““Mezzanine” finance Mezzanine” finance – A project loan may be split into – A project loan may be split into different layers known as “senior” debt and “mezzanine” debt different layers known as “senior” debt and “mezzanine” debt if the developer is unable to provide the normal equity if the developer is unable to provide the normal equity requirement or wishes to increase the amount of the loan requirement or wishes to increase the amount of the loan above the normal loan to cost ratios. The ‘senior’ debt usually above the normal loan to cost ratios. The ‘senior’ debt usually represents the first 70% of the cot of the development scheme represents the first 70% of the cot of the development scheme like a straight forward project loan. This debt may represent like a straight forward project loan. This debt may represent more than 70%. If the development is pre-let or pre-sold. more than 70%. If the development is pre-let or pre-sold. When a developer wants to borrow more of the cost of the When a developer wants to borrow more of the cost of the project than 70%, additional money may be raised in the form project than 70%, additional money may be raised in the form of ‘mezzanine’ finance. of ‘mezzanine’ finance.

Sources of Finance cont’dSources of Finance cont’d

(c) Syndicated project loans (c) Syndicated project loans – the necessary development – the necessary development finance may need to be borrowed from more than one finance may need to be borrowed from more than one bank. In particular, large loans are more likely to be bank. In particular, large loans are more likely to be syndicated among a group of banks by a ‘lead’ or agent syndicated among a group of banks by a ‘lead’ or agent bank.bank.

(d) Interest rate options (d) Interest rate options – the development company may – the development company may wish to protect themselves from the risk of change in the wish to protect themselves from the risk of change in the base rate over the period of the development project, base rate over the period of the development project, particularly when the market is uncertain, in this instance particularly when the market is uncertain, in this instance the developer may seek fixed interest loans which may the developer may seek fixed interest loans which may tie it to a high rate of interest for along time so that they tie it to a high rate of interest for along time so that they may not be able to gain from subsequent reductions.may not be able to gain from subsequent reductions.

Sources of Finance cont’dSources of Finance cont’d Corporate finance Corporate finance There are various methods available of raising equity and debt There are various methods available of raising equity and debt

finance from institutional investors via the stock finance from institutional investors via the stock exchange. These include:exchange. These include:

(a) Equity finance (a) Equity finance which may be through: new shares, which may be through: new shares, right issues or retained earnings right issues or retained earnings

(b) Debt finance: (b) Debt finance: Debt finance instruments may be secured Debt finance instruments may be secured on specific property assets or the property assets of the on specific property assets or the property assets of the company as a whole. This is done by use company as a whole. This is done by use

Bonds:Bonds: A bond is effectively on ‘I owe you’ note secured on a A bond is effectively on ‘I owe you’ note secured on a specific investment property specific investment property

DebenturesDebentures – These are securities which can be traded on – These are securities which can be traded on the stock market. They are issued by companies to the stock market. They are issued by companies to institutional investors whereby the institution effectively institutional investors whereby the institution effectively lends money at a rate of interest below market levels in lends money at a rate of interest below market levels in return for a share in the company’s potential growth. return for a share in the company’s potential growth.

LIQUIDITY PLANNING AND LIQUIDITY PLANNING AND LEVERAGELEVERAGE

LeverageLeverage Mean Means the use of various financial instruments or s the use of various financial instruments or borrowed capital, such as margin, to increase the potential borrowed capital, such as margin, to increase the potential return of an investment. return of an investment. The amount of debt used to finance a firm's assets. A firm The amount of debt used to finance a firm's assets. A firm with significantly more debt than equity is considered to be with significantly more debt than equity is considered to be highly leveraged. Leverage is most commonly used in real highly leveraged. Leverage is most commonly used in real estate transactions through the use of mortgages to estate transactions through the use of mortgages to purchase a home. purchase a home.

Leverage helps both the investor and the firm to invest or Leverage helps both the investor and the firm to invest or operate. However, it comes with greater risk. operate. However, it comes with greater risk.

Liquidity Planning And Leverage Liquidity Planning And Leverage Cont’dCont’d

The Balance Sheet and the Statement of Income are The Balance Sheet and the Statement of Income are essential, but they are only the starting point for essential, but they are only the starting point for successful financial management. Apply Ratio successful financial management. Apply Ratio Analysis to Financial Statements to analyze the Analysis to Financial Statements to analyze the success, failure, and progress of your business.success, failure, and progress of your business.

Ratio Analysis enables the business Ratio Analysis enables the business owner/manager to spot trends in a business and owner/manager to spot trends in a business and to compare its performance and condition with to compare its performance and condition with the average performance of similar businesses in the average performance of similar businesses in the same industry. the same industry.


Balance Sheet Ratio AnalysisBalance Sheet Ratio Analysis: Important Balance Sheet : Important Balance Sheet Ratios measure liquidity and solvency (a business's ability Ratios measure liquidity and solvency (a business's ability to pay its bills as they come due) and leverage (the extent to pay its bills as they come due) and leverage (the extent to which the business is dependent on creditors' funding). to which the business is dependent on creditors' funding). They include the following ratios:They include the following ratios:

Liquidity RatiosLiquidity Ratios: These ratios indicate the ease of turning : These ratios indicate the ease of turning assets into cash. They include the Current Ratio, Quick assets into cash. They include the Current Ratio, Quick Ratio, and Working Capital.Ratio, and Working Capital.

Current RatiosCurrent Ratios: The Current Ratio is one of the best : The Current Ratio is one of the best known measures of financial strength. It is figured as shown known measures of financial strength. It is figured as shown below:below:

Current Ratio = Total Current Assets / Total Current Current Ratio = Total Current Assets / Total Current LiabilitiesLiabilitiesThe main question this ratio addresses is: "Does The main question this ratio addresses is: "Does

your business have enough current assets to meet the your business have enough current assets to meet the payment schedule of its current debts with a margin of payment schedule of its current debts with a margin of safety for possible losses in current assets, such as safety for possible losses in current assets, such as inventory shrinkage or collectable accounts?" inventory shrinkage or collectable accounts?"


If you feel your business's current ratio is too low, If you feel your business's current ratio is too low, you may be able to raise it by:you may be able to raise it by:

Paying some debts. Paying some debts. Increasing your current assets from loans or other Increasing your current assets from loans or other

borrowings with a maturity of more than one borrowings with a maturity of more than one year. year.

Converting non-current assets into current assets. Converting non-current assets into current assets. Increasing your current assets from new equity Increasing your current assets from new equity

contributions. contributions. Putting profits back into the busPutting profits back into the bus


Quick RatiosQuick Ratios: The Quick Ratio is sometimes called the : The Quick Ratio is sometimes called the "acid-test" ratio and is one of the best measures of liquidity. "acid-test" ratio and is one of the best measures of liquidity. It is figured as shown below:It is figured as shown below:

Quick Ratio = Cash + Government Securities + Receivables Quick Ratio = Cash + Government Securities + Receivables / Total Current Liabilities/ Total Current LiabilitiesThe Quick Ratio is a much more The Quick Ratio is a much more exacting measure than the Current Ratio. By excluding exacting measure than the Current Ratio. By excluding inventories, it concentrates on the really liquid assets, with inventories, it concentrates on the really liquid assets, with value that is fairly certain. It helps answer the question:value that is fairly certain. It helps answer the question:

An acid-test of 1:1 is considered satisfactory unless the An acid-test of 1:1 is considered satisfactory unless the majority of your "quick assets" are in accounts receivable, majority of your "quick assets" are in accounts receivable, and the pattern of accounts receivable collection lags and the pattern of accounts receivable collection lags behind the schedule for paying current liabilities.behind the schedule for paying current liabilities.


Working CapitalWorking Capital: Working Capital is more a measure of : Working Capital is more a measure of cash flow than a ratio. The result of this calculation must be cash flow than a ratio. The result of this calculation must be a positive number. It is calculated as shown below:a positive number. It is calculated as shown below:

Working Capital = Total Current Assets - Total Current Working Capital = Total Current Assets - Total Current LiabilitiesLiabilities

Bankers look at Net Working Capital over time to determine Bankers look at Net Working Capital over time to determine a company's ability to weather financial crises. Loans are a company's ability to weather financial crises. Loans are often tied to minimum working capital requirements.often tied to minimum working capital requirements.

Leverage RatioLeverage Ratio: This Debt/Worth or Leverage Ratio : This Debt/Worth or Leverage Ratio indicates the extent to which the business is reliant on debt indicates the extent to which the business is reliant on debt financing (creditor money versus owner's equity):financing (creditor money versus owner's equity):

Debt/Worth Ratio = Total Liabilities / Net WorthDebt/Worth Ratio = Total Liabilities / Net WorthGenerally, Generally, the higher this ratio, the more risky a creditor will perceive the higher this ratio, the more risky a creditor will perceive its exposure in your business, making it correspondingly its exposure in your business, making it correspondingly harder to obtain creditharder to obtain credit


Income Statement Ratio AnalysisIncome Statement Ratio Analysis

The following important State of Income Ratios measure The following important State of Income Ratios measure profitability:profitability:

()Gross Margin Ratio()Gross Margin Ratio This ratio is the percentage of sales This ratio is the percentage of sales dollars left after subtracting the cost of goods sold from net dollars left after subtracting the cost of goods sold from net sales. It measures the percentage of sales dollars remaining sales. It measures the percentage of sales dollars remaining (after obtaining or manufacturing the goods sold) available (after obtaining or manufacturing the goods sold) available to pay the overhead expenses of the company.to pay the overhead expenses of the company.

Comparison of your business ratios to those of similar Comparison of your business ratios to those of similar businesses will reveal the relative strengths or weaknesses businesses will reveal the relative strengths or weaknesses in your business. The Gross Margin Ratio is calculated as in your business. The Gross Margin Ratio is calculated as follows:follows:

Gross Margin Ratio = Gross Profit / Net SalesGross Margin Ratio = Gross Profit / Net SalesReminder: Reminder: Gross Profit = Net Sales - Cost of Goods SoldGross Profit = Net Sales - Cost of Goods Sold


Net Profit Margin Ratio:Net Profit Margin Ratio:This ratio is the percentage of sales This ratio is the percentage of sales dollars left after subtracting the Cost of Goods sold and all dollars left after subtracting the Cost of Goods sold and all expenses, except income taxes. It provides a good opportunity expenses, except income taxes. It provides a good opportunity to compare your company's "return on sales" with the to compare your company's "return on sales" with the performance of other companies in your industry. It is performance of other companies in your industry. It is calculated before income tax because tax rates and tax calculated before income tax because tax rates and tax liabilities vary from company to company for a wide variety of liabilities vary from company to company for a wide variety of reasons, making comparisons after taxes much more difficult. reasons, making comparisons after taxes much more difficult. The Net Profit Margin Ratio is calculated as follows:The Net Profit Margin Ratio is calculated as follows:

Net Profit Margin Ratio = Net Profit Before Tax / Net SalesNet Profit Margin Ratio = Net Profit Before Tax / Net Sales Management Ratios: Management Ratios: Other important ratios, often referred to Other important ratios, often referred to

as Management Ratios, are also derived from Balance Sheet as Management Ratios, are also derived from Balance Sheet and Statement of Income information.and Statement of Income information.

Inventory Turnover Ratio: Inventory Turnover Ratio: This ratio reveals how well This ratio reveals how well inventory is being managed. It is important because the more inventory is being managed. It is important because the more times inventory can be turned in a given operating cycle, the times inventory can be turned in a given operating cycle, the greater the profit. The Inventory Turnover Ratio is calculated as greater the profit. The Inventory Turnover Ratio is calculated as follows:follows:

Inventory Turnover Ratio = Net Sales / Average Inventory at Inventory Turnover Ratio = Net Sales / Average Inventory at CostCost


Accounts Receivable Turnover RatioAccounts Receivable Turnover Ratio: This ratio : This ratio indicates how well receivables accounts are being indicates how well receivables accounts are being collected. If receivables are not collected reasonably in collected. If receivables are not collected reasonably in accordance with their terms, management should rethink accordance with their terms, management should rethink its collection policy. If receivables are excessively slow in its collection policy. If receivables are excessively slow in being converted to cash, liquidity could be severely being converted to cash, liquidity could be severely impaired. Getting the Accounts Receivable Turnover Ratio impaired. Getting the Accounts Receivable Turnover Ratio is a two step process and is calculated as follows:is a two step process and is calculated as follows:

Daily Credit Sales = Net Credit Sales Per Year / 365 (Days) Daily Credit Sales = Net Credit Sales Per Year / 365 (Days) Accounts Receivable Turnover (in days) = Accounts Accounts Receivable Turnover (in days) = Accounts Receivable / Daily Credit SalesReceivable / Daily Credit SalesReturn on Assets RatioReturn on Assets Ratio: : This measures how efficiently profits are being generated This measures how efficiently profits are being generated from the assets employed in the business when compared from the assets employed in the business when compared with the ratios of firms in a similar business. A low ratio in with the ratios of firms in a similar business. A low ratio in comparison with industry averages indicates an inefficient comparison with industry averages indicates an inefficient use of business assets. The Return on Assets Ratio is use of business assets. The Return on Assets Ratio is calculated as follows:calculated as follows:

Return on Assets = Net Profit Before Tax / Total Assets Return on Assets = Net Profit Before Tax / Total Assets


Return on Investment (ROI) RatioReturn on Investment (ROI) Ratio:The ROI is perhaps :The ROI is perhaps the most important ratio of all. It is the percentage of return the most important ratio of all. It is the percentage of return on funds invested in the business by its owners. In short, on funds invested in the business by its owners. In short, this ratio tells the owner whether or not all the effort put this ratio tells the owner whether or not all the effort put into the business has been worthwhile. If the ROI is less into the business has been worthwhile. If the ROI is less than the rate of return on an alternative, risk-free than the rate of return on an alternative, risk-free investment such as a bank savings account, the owner may investment such as a bank savings account, the owner may be wiser to sell the company, put the money in such a be wiser to sell the company, put the money in such a savings instrument, and avoid the daily struggles of small savings instrument, and avoid the daily struggles of small business management. The ROI is calculated as follows:business management. The ROI is calculated as follows:

Return on Investment = Net Profit before Tax / Net Return on Investment = Net Profit before Tax / Net WorthWorthThese Liquidity, Leverage, Profitability, and These Liquidity, Leverage, Profitability, and Management Ratios allow the business owner to identify Management Ratios allow the business owner to identify trends in a business and to compare its progress with the trends in a business and to compare its progress with the performance of others through data published by various performance of others through data published by various sources. The owner may thus determine the business's sources. The owner may thus determine the business's relative strengths and weaknessesrelative strengths and weaknesses

FINANCIAL STATEMENTSFINANCIAL STATEMENTS Financial statementsFinancial statements are formal records of the financial are formal records of the financial

activities of a business, person, or other entity.activities of a business, person, or other entity. An enormous amount of financial information exists about a An enormous amount of financial information exists about a

firm, and there are legal obligations that some of this firm, and there are legal obligations that some of this information has to be published and made available for information has to be published and made available for investors, customers and the public at large.investors, customers and the public at large.

Financial includes:Financial includes:1) Balance sheet1) Balance sheet: also referred to as statement of financial : also referred to as statement of financial

position or condition, reports on a company's assets, position or condition, reports on a company's assets, liabilities, and ownership equity at a given point in time. liabilities, and ownership equity at a given point in time. The reason for this is that the balance sheet does not The reason for this is that the balance sheet does not measure performance over a period of time, but is more of measure performance over a period of time, but is more of an instantaneous ‘snapshot’ an instantaneous ‘snapshot’

Financial Statements cont’dFinancial Statements cont’d

2) Income statement2) Income statement: also referred to as Profit : also referred to as Profit and Loss statement (or a "P&L"), reports on a and Loss statement (or a "P&L"), reports on a company's income, expenses, and profits over a company's income, expenses, and profits over a period of time. Profit & Loss account provide period of time. Profit & Loss account provide information on the operation of the enterprise. information on the operation of the enterprise. These include sale and the various expenses These include sale and the various expenses incurred during the processing state. incurred during the processing state.

3) Statement of retained earnings3) Statement of retained earnings: explains : explains the changes in a company's retained earnings the changes in a company's retained earnings over the reporting period.over the reporting period.

4) Statement of cash flows4) Statement of cash flows: reports on a : reports on a company's cash flow activities, particularly its company's cash flow activities, particularly its operating, investing and financing activitiesoperating, investing and financing activities

Financial Statements cont’dFinancial Statements cont’d

Purpose of financial statementsPurpose of financial statements The objective of financial statements is to provide The objective of financial statements is to provide

information about the financial position, performance and information about the financial position, performance and changes in financial position of an enterprise that is useful changes in financial position of an enterprise that is useful to a wide range of users in making economic decision.to a wide range of users in making economic decision.

Owners and managers require financial statements to Owners and managers require financial statements to make important business decisions that affect its continued make important business decisions that affect its continued operations.operations. Employees also need these reports in making Employees also need these reports in making collective bargaining agreements (CBA) with the collective bargaining agreements (CBA) with the management, in the case of labor union or for individuals in management, in the case of labor union or for individuals in discussing their compensation, promotion and rankings. discussing their compensation, promotion and rankings.

Prospective investors make use of financial statements to Prospective investors make use of financial statements to assess the viability of investing in a business. Financial assess the viability of investing in a business. Financial analyses are often used by investors and are prepared by analyses are often used by investors and are prepared by professionals (financial analysts), thus providing them with professionals (financial analysts), thus providing them with the basis for making investment decisions. the basis for making investment decisions.

Financial Statements cont’dFinancial Statements cont’d Financial institutions (banks and other lending companies) Financial institutions (banks and other lending companies)

use them to decide whether to grant a company with fresh use them to decide whether to grant a company with fresh working capital or extend debt securities (such as a long-working capital or extend debt securities (such as a long-term bank loan or debentures) to finance expansion and term bank loan or debentures) to finance expansion and other significant expenditures. other significant expenditures.

Government entities (tax authorities) need financial Government entities (tax authorities) need financial statements to ascertain the propriety and accuracy of taxes statements to ascertain the propriety and accuracy of taxes and other duties declared and paid by a company. and other duties declared and paid by a company.

Vendors who extend credit to a business require financial Vendors who extend credit to a business require financial statements to assess the creditworthiness of the business. statements to assess the creditworthiness of the business.

Media and the general public are also interested in financial Media and the general public are also interested in financial statements for a variety of reasons. statements for a variety of reasons.

TYPES OF LEGAL BUSINESS TYPES OF LEGAL BUSINESS ENTITIESENTITIES

One of the first decisions that you will have to make in starting One of the first decisions that you will have to make in starting a firm is how it should be structured. This decision will have a firm is how it should be structured. This decision will have long-term implications, and you may wish to consult with an long-term implications, and you may wish to consult with an accountant and/or attorney to help you select the form of accountant and/or attorney to help you select the form of ownership that is best for you.ownership that is best for you.

The choice will involve some of the following considerations: The choice will involve some of the following considerations: The size and nature of the firm, both now and in the future. The size and nature of the firm, both now and in the future. The level of control you wish to exercise. The level of control you wish to exercise. The level of structure you are willing to deal with. The level of structure you are willing to deal with. The firm's vulnerability to lawsuits. The firm's vulnerability to lawsuits. Tax implications of the relevant structures. Tax implications of the relevant structures. Expected profit (or loss) of the business. Expected profit (or loss) of the business.

Types Of Legal Business Entities Types Of Legal Business Entities Cont’dCont’d

1) Sole Proprietorships: 1) Sole Proprietorships: Solo firms are the classic vision of Solo firms are the classic vision of the practice of law. The solo firm is owned by one person. the practice of law. The solo firm is owned by one person. Sole proprietors own all the assets of the firm and the Sole proprietors own all the assets of the firm and the profits generated by it. They also assume complete profits generated by it. They also assume complete responsibility for any of its liabilities or debts. In the eyes of responsibility for any of its liabilities or debts. In the eyes of the law and the public, the owner is one in the same with the law and the public, the owner is one in the same with the solo firm.the solo firm.

Advantages of a Sole ProprietorshipAdvantages of a Sole Proprietorship Easiest and least expensive form of ownership to organize. Easiest and least expensive form of ownership to organize. Sole proprietors are in complete control, and within the Sole proprietors are in complete control, and within the

parameters of the law, may make decisions as they see fit. parameters of the law, may make decisions as they see fit. Sole proprietors receive all income generated by the Sole proprietors receive all income generated by the

business to keep or reinvest. business to keep or reinvest. Profits from the business flow directly to the owner's Profits from the business flow directly to the owner's

personal tax return. personal tax return. The business is easy to dissolve, if desired.The business is easy to dissolve, if desired.


Disadvantages of a Sole ProprietorshipDisadvantages of a Sole Proprietorship Sole proprietors have unlimited liability and are Sole proprietors have unlimited liability and are

legally responsible for all debts against the legally responsible for all debts against the business. Their business and personal assets are business. Their business and personal assets are at risk. at risk.

May be at a disadvantage in raising funds and are May be at a disadvantage in raising funds and are often limited to using funds from personal savings often limited to using funds from personal savings or consumer loans. or consumer loans.

May have a hard time attracting high-caliber May have a hard time attracting high-caliber staff. staff.

Some employee benefits such as owner's medical Some employee benefits such as owner's medical insurance premiums are not directly deductible insurance premiums are not directly deductible from business income (only partially deductible from business income (only partially deductible as an adjustment to income). as an adjustment to income).


2) Partnerships2) Partnerships In a Partnership, two or more people share ownership of a firm. In a Partnership, two or more people share ownership of a firm.

Like proprietorships, the law does not distinguish between the Like proprietorships, the law does not distinguish between the business and its owners. The partners should have a legal business and its owners. The partners should have a legal agreement that sets forth how decisions will be made, profits will agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be be shared, disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out, and admitted to the partnership, how partners can be bought out, and what steps will be taken to dissolve the partnership when needed.what steps will be taken to dissolve the partnership when needed.

Advantages of a PartnershipAdvantages of a Partnership Partnerships are relatively easy to establish; however time should Partnerships are relatively easy to establish; however time should

be invested in developing the partnership agreement. be invested in developing the partnership agreement. With more than one owner, the ability to raise funds may be With more than one owner, the ability to raise funds may be

increased. increased. The profits from the business flow directly through to the partners' The profits from the business flow directly through to the partners'

personal tax returns. personal tax returns. Prospective employees may be attracted to the business if given Prospective employees may be attracted to the business if given

the incentive to become a partner. the incentive to become a partner. The business usually will benefit from partners who have The business usually will benefit from partners who have

complementary skills. complementary skills.


Disadvantages of a PartnershipDisadvantages of a Partnership Partners are jointly and individually liable for Partners are jointly and individually liable for

the actions of the other partners. the actions of the other partners. Profits must be shared with others. Profits must be shared with others. Since decisions are shared, disagreements can Since decisions are shared, disagreements can

occur. occur. Some employee benefits are not deductible Some employee benefits are not deductible

from business income on tax returns. from business income on tax returns. The partnership may have a limited life; it may The partnership may have a limited life; it may

end upon the withdrawal or death of a partner. end upon the withdrawal or death of a partner.


Types of Partnerships that should be considered:Types of Partnerships that should be considered: General Partnership: General Partnership: Partners divide responsibility for Partners divide responsibility for

management and liability as well as the shares of profit or loss management and liability as well as the shares of profit or loss according to their internal agreement. Equal shares are assumed according to their internal agreement. Equal shares are assumed unless there is a written agreement that states differently. unless there is a written agreement that states differently.

Limited Partnership and Partnership with limited liabilityLimited Partnership and Partnership with limited liability“: “: Limited" means that most of the partners have limited liability (to Limited" means that most of the partners have limited liability (to the extent of their investment) as well as limited input regarding the extent of their investment) as well as limited input regarding management decisions, which generally encourages investors for management decisions, which generally encourages investors for short-term projects or for investing in capital assets. This form of short-term projects or for investing in capital assets. This form of ownership is not often used for operating retail or service ownership is not often used for operating retail or service businesses. Forming a limited partnership is more complex and businesses. Forming a limited partnership is more complex and formal than that of a general partnershipformal than that of a general partnership

Joint Venture: Joint Venture: Acts like a general partnership, but is clearly for a Acts like a general partnership, but is clearly for a limited period of time or a single project. If the partners in a joint limited period of time or a single project. If the partners in a joint venture repeat the activity, they will be recognized as an ongoing venture repeat the activity, they will be recognized as an ongoing partnership and will have to file as such as well as distribute partnership and will have to file as such as well as distribute accumulated partnership assets upon dissolution of the entity.accumulated partnership assets upon dissolution of the entity.


3) Limited Liability Company (LLC)3) Limited Liability Company (LLC): The LLC is a : The LLC is a relatively new type of hybrid business structure relatively new type of hybrid business structure that is now permissible in most states. It is that is now permissible in most states. It is designed to provide the limited liability features designed to provide the limited liability features of a corporation and the tax efficiencies and of a corporation and the tax efficiencies and operational flexibility of a partnership. Formation operational flexibility of a partnership. Formation is more complex and formal than that of a is more complex and formal than that of a general partnership.general partnership.

The owners are members, and the duration of the The owners are members, and the duration of the LLC is usually determined when the organization LLC is usually determined when the organization papers are filed. The time limit can be continued, papers are filed. The time limit can be continued, if desired, by a vote of the members at the time if desired, by a vote of the members at the time of expiration. of expiration.


4)Limited Liability Partnership (LLP)4)Limited Liability Partnership (LLP) LLPs are organized to protect individual partners from LLPs are organized to protect individual partners from

personal liability for the negligent acts of other partners or personal liability for the negligent acts of other partners or employees not under their direct control. LLPs are not employees not under their direct control. LLPs are not recognized by every state and those that do sometimes recognized by every state and those that do sometimes limit LLPs to organizations that provide a professional limit LLPs to organizations that provide a professional service, such as medicine or law, for which each partner is service, such as medicine or law, for which each partner is licensed. Partners report their share of profits and losses on licensed. Partners report their share of profits and losses on their personal tax returns.their personal tax returns.

5) Professional Service Corporation (PS)5) Professional Service Corporation (PS) A PS must be organized for the sole purpose of providing a A PS must be organized for the sole purpose of providing a

professional service for which each shareholder is licensed. professional service for which each shareholder is licensed. The advantage here is limited personal liability for The advantage here is limited personal liability for shareholders. shareholders.


Limited Partnership (LP)Limited Partnership (LP) LPs have complex formation requirements, and require at LPs have complex formation requirements, and require at

least one general partner who is fully responsible for least one general partner who is fully responsible for partnership obligations and normal business operations. partnership obligations and normal business operations. The LP also requires at least one limited partner, often an The LP also requires at least one limited partner, often an investor, who is not involved in everyday operations and is investor, who is not involved in everyday operations and is shielded from liability for partnership obligations beyond shielded from liability for partnership obligations beyond the amount of their investment. LPs do not pay tax, but the amount of their investment. LPs do not pay tax, but must file a return for informational purposes; partners must file a return for informational purposes; partners report their share of profits and losses on their personal report their share of profits and losses on their personal returns.returns.

Non-ProfitsNon-Profits These are formed for civic, educational, charitable, and These are formed for civic, educational, charitable, and

religious purposes and enjoy tax-exempt status and limited religious purposes and enjoy tax-exempt status and limited personal liability. Non-profit corporations are managed by a personal liability. Non-profit corporations are managed by a board of directors or trustees. Assets must be transferred to board of directors or trustees. Assets must be transferred to another non-profit group if the corporation is dissolved.another non-profit group if the corporation is dissolved.

REFFERENCESREFFERENCES Stephen L (1996) Stephen L (1996) management of construction industrymanagement of construction industry, ,

Addison Wesly Longman Addison Wesly Longman "Presentation of Financial Statements" Standard IAS 1, "Presentation of Financial Statements" Standard IAS 1,

International Accounting Standards Board. Accessed 24 International Accounting Standards Board. Accessed 24 June 2007.June 2007.

http://www.zeromillion.com/business/financial/financial-http://www.zeromillion.com/business/financial/financial-ratio.html#ixzz0XY61SeQuratio.html#ixzz0XY61SeQu

Jordan W R (2006) Jordan W R (2006) fundamentals of corporate financefundamentals of corporate finance 7th 7th edition McGraw-hilledition McGraw-hill

Brooks, Rory, and Jim Read. "Mezzanine Gains Ground." Brooks, Rory, and Jim Read. "Mezzanine Gains Ground." Investors Chronicle.Investors Chronicle. October 21, 1994. October 21, 1994.

Campbell, Katharine. "Development Capital is Industrial Campbell, Katharine. "Development Capital is Industrial Strength." Strength." Financial Times.Financial Times. December 2, 1997. December 2, 1997.

Gross, Kent, and Amin Amiri. "Flexible Financing with Gross, Kent, and Amin Amiri. "Flexible Financing with Mezzanine Debt." Mezzanine Debt." Journal of Business Strategy.Journal of Business Strategy. March- March-April 1990.April 1990.

ENDENDThank you.Thank you.

Documents

FINANCIAL STRUCTURE OF CONSTRUCTION FIRMS, LEVERAGE AND LIQUIDITY Presented by Christopher kaniiru m’ ithai B50/71686/08