FINANCE PERIODICAL

• Financial Planning

  - Plays a vital role in the success of any business organization. It sets out road maps intended to guide, coordinate, and control actions undertaken by the firm in order to achieve objectives

  - Managers are able to set a clear direction of where they want the business to be within a given span of time
• Long-term/Strategic Financial Plans

  - Layout the direction of the firm through intended actions whose anticipated results are expected to produce an impact within the firm for a period of five to ten years

  - Longer time period.
• Short-term financial plans

  - Expected to occur for a short period of time

  - Cover one to two years financial plans

  - Outputs commonly include operating budgets, cash budgets as well as projected financial statements.
• Profit Planning

  - Project the firms result of operations and overall financial position for a given period of time, on the basis of both historical information and assumptions about the near future.

  - Assumption include estimating future sales growth, cost of inventories among others
• Budgets

  - A plan expressed in quantitative terms, which emphasizes the resource use and resource allocation of an entity over specific period of time
• Budget preparation

  - A planning and control tool often utilized by most decision makers.

  - It facilitates the quantification of plans.
• KINDS OF BUDGET:

  A. Master Budget – represents the overall plan of an organization for a given period. It Is aggregation of all lower level budgets in the organizations.

  B. Flexible Budget – a budget that allows for varying provisions based on given level of activity. Usually prepared at the end of the period.

  A. Sales Budget – a financial plan that estimates a company’s total revenue in an specific time period
• Sales Forecast (the most important assumption) – prediction of the firm’s sales over a specific period, based on internal and external information.

  - Key input in sales budget would be the expected number of units to be sold by the entity.
• B. Purchases Budget - contains estimated number of units the firm needs to purchase for a specific time period.

  Key Inputs: beginning inventory, desired ending inventory, and estimated sales in unit.
• C. Cash Budget - shows the planned inflows and outflows of cash in the entity for a given period of time.

  - Aid the firm toward estimating its short –term cash requirements

  - Divided into cash receipts and cash disbursements schedules.
• WORKING CAPITAL MANAGEMENT

  - Specifically refers to the efficient management of the firms current assets (Cash, receivables, and inventory) and Liabilities (short-term payables).
• Working Capital

  - Refers to the current assets, which represents portion of the investment that circulates in one form to another conducting the ordinary course of the business.

  - Sources of liabilities: obligations to suppliers for goods purchase, salaries to employees, and other obligations incurred as part of the business.

  - Current asset and Current Liabilities

  - If the firms currents asset exceed its current liabilities, the firm has a positive working capital. If the current liabilities exceed current assets, the firm has a negative working capital.
• The level at which a firm maintains its current assets and current liabilities involves a trade-off between profitability and risk
• CURRENT ASSETS:

  • High level of current assets = lower risk of insolvency as there are enough assets to pay obligations when due, but it decreases profitability
  • Holding more current assets means missing out on potential opportunities for profit maximization
  • Excess cash for current assets prevents insolvency but could have been invested to increase profitability
• CURRENT LIABILITIES:

  • Higher level of current liabilities contributes to profitability as they are less costly in terms of interest costs
  • More current liabilities increase the risk of insolvency as there are more obligations maturing soon that may not be payable when due
• ACCOUNTING RECEIVABLE MANAGEMENT

  - Open account. There is no agreement and contract

  Five C’s:

  1. Character

  2. Capacity

  3. Capital

  4. Collateral

  5. Condition
• Cash Conversion Curve – A firm’s operating cycle begins from the time goods for sale are purchased to the eventual collection of cash from the sale are purchased to the eventual collection o cash from the sale of these goods.
• Average Age of Inventory

  - The average amount of time it takes for a company to sell its inventory

  Average Collection Period

  - The number of days between the dates that credits sales were made and the dates that money was receive/collected from the customers

  - Days sales in account receivables

  - Calculate: Average accounts receivable/ average credit sales per day
• INVENTORY MANAGEMENT

  Financial Manager – plays a crucial role in overseeing that the firm maintains an appropriate quantity of inventory, not too much and not too little.
• Cost of Holding Inventories:

  1. Ordering Cost

  2. Inventory Carrying Cost

  3. Opportunity Cost of funds blocked

  4. Shortage

  Risk of Holding Inventory:

  1. Price decline

  2. Product deterioration

  3. Product obsolescence
• ABC INVENTORY

  Group A = items which has the highest investments in peso

  - Daily basis

  Group B = items that account for the second largest investments in inventory

  - Relaxed monitoring

  Group C = composed of large of numbers of items relatively lower investments