Finance I

Home » » Finance » Finance I
Finance No Comments


1. Extent and nature of financial management.

2. Financial reasons applicable to financial management.

3. Costing Relations volumes and profitability.

4. Financial Forecast

5. Cash Budget

6. Current Assets Management

1. Extent and nature of financial management.

Careers in finance.

* Money market and capital.

* Financial institutions: banks, credit institutions, insurance and savings.

* Financial Instruments

* Mortgages

* Certificates.

* Investment: brokerage firms, mutual funds, insurance companies,

* Financial Consulting: sales, securities and investment analysis.

* Financial management:

* Business

* Industrial

* Trade

* Public Administration

* Etc.

Financial management in the nineties.

* 1900: Legal aspects of mergers and new business creation.

* 1930: Bankruptcies and reorganizations.

* 1940: Finance descriptive and external analysis and administration.

* 1960: Inflation and its effects, deregulation of financial firms and financial service creation and very diversified.

* 1990: It is important to:

* Computer technology

* Globalization of business, this is due to:

* Progress in transport and communications

* Political Conglomerate consumers who want to buy at low cost and high quality.

* Increase in the cost of new product development.

* Industry maquiladora.

Importance of financial management:

Non-financial executives.

Financial Administrator Responsibility: acquiring and using funds in order to maximize the value of the company.

Specific activities of the financial manager:

* Preparation of forecasts and planning.

* Financial and investment decisions of major importance.

* Coordination and control.

* How to deal with the financial markets.

Alternative forms of business organizations.

* Individuals: Companies of a single individual, it is so simple and inexpensive, reduced tax provisions, it is difficult to obtain large sums of capital, you have unlimited liability for the debts of the business life is the life of the subject.

* Legal entities: Business of two or more people, low cost and ease of development, the total responsibility for his actions, difficulty transferring ownership and difficulty in obtaining large sums of capital.

* Corporations: unlimited life, easy to transfer its shares, limited liability is firmly established more complex, large and expensive procedures.

Maximizing corporate value.

* Limited liability, the lower the risk, the higher its value.

* Increased opportunities for growth, depend on the ability of the company to attract capital.

* Liquidity its fair market value, the ease with which you can sell an asset and convert it into cash at a fair market value.

* Fiscal charges that according to an appropriate fiscal policy is favorable.

Place of finance in a typical business organzacin

Large Enterprise

Small Business

Company goals:

* Maximizing shareholder wealth (earnings per share, shareholder value).

* Incentive Management leading to the maximization of shareholder wealth.

* If managers deviate from this goal at risk of being fired by:

a) hostile corporate takeover.

b) Seizure Litigation.

3. Social responsibility

4. Maximizing stock price and social welfare.

Business Ethics:

Set of rules of conduct or moral behavior.

Attitude of the company to employees, customers, suppliers, communities and shareholders.

Delegation of authority relations.

* Shareholders vs. Managers.

* Threat of dismissal

* Threat business acquisition

* Poison pills

* Black mail

Administrative Compensation

* Stock options for executives.

* Performance Shares.

* Shareholders vs. Creditors (bondholders).

* Put

* Put poisoned

Administrative actions aimed at maximizing shareholder wealth.

* Maximize profits.

* Earnings per share.

* Decision of dividend policies.


Utility Shareholders

Retained earnings

Share value

2. Financial reasons applicable to financial management.

Statements and financial reports

* Statement of Income

* Statement of financial position

* Statement of retained earnings

* Cash Flow Statement

* Liquidity

Current: Current Assets

Current liabilities

Quick: Current assets – inventories


* Management of debt (leverage)

Total Debt

Total Assets

* Yield or profit (margin)

Ut. / Net sales


Basic Generation = EBiT__

Total-Utility Act

Yields s / = __ Utility neta___

Total assets Total assets

Performance / DC = ___ Utility neta___


* Asset Management (activity)

Asset turnover (activity) = ___ Ventas___


Days sales = ____ cobrar___ Accounts

Annual sales / 360

Ventas____ Rotation = ____

Fixed Assets Fixed Assets

Asset Turnover = _____ ventas______

Total assets Total


Dupont graphical

Graphics designed to show the relationship between the return on investment, asset turnover, profit margin and leverage.

Uses and limitations of financial ratio analysis

Normally is used by:

* Administrators: analyze, control and improve business operations.

* Credit Analysts: To investigate the ability of companies to pay their debts. Potential problems that may arise in the analysis of reasons.

* Analysts value: They are interested in the efficiency and growth projects of companies and their ability to meet obligations and interests.

* It is difficult to develop a set of industry averages.

* Companies want to be better than average.

* Distortion inflation.

* Seasonal or cyclical factors.

* Makeup techniques.

* Accounting Practices differently.

* Financial ratio good or bad.

* Net effects of sets of reasons.

3. Costing Relations volumes and profitability.

* Financial Planning. – Projected sales, profits and assets based on alternative strategies for production and marketing, as well as deciding the financial requirements are satisfied predicted.

* Financial control. – Phase in which financial plans are implemented. The control is the feedback and adjustment process that is required to ensure that plans are followed and timely changes thereto due to unforeseen changes in the operating environment.

* Budget. – Is a plan that sets out the projected expenditure for some activity and explain where the funds come from required. Financial data consist of actual performance.

Overview of the planning process and financial control

Breakeven Analysis

Breakeven: The volume of sales at which total operating costs are equal to total sales and operating income of zero.


PEU = ____ = ______ PEc fijos_______ costs fijos_______ costs

Sales – Cost of sales 1 – Cost of sales / sales


Sales: $ 2.00 per unit

Fixed Costs: $ 40,000

Variable cost: $ 1.20 per unit

PEU = __ = ___ 40.000 50.000 40.000 __ units PEC = ___ = $ 100,000

2.00 – 1.20 1 – 1.20/2.0



Breakeven Analysis Cash

It is the point of balance that occurs when the items that do not represent cash outflows are subtracted from the fixed costs.

PEEU = Fixed Costs – Fixed Costs = PEEC depreciation – depreciation

Sales – Cost of sales 1 – Cost of sales / sales


Sale price $ 2.00

Fixed Costs: $ 40,000

Variable costs: $ 1.20 per unit

Depreciation: $ 30,000

PEU = __ = ___ 40.000 50.000 40.000 __ units PEC = ___ = $ 100,000

2.00 – 1.20 1 – 1.20/2.0

PEU = 40.000 to 30,000 = 12,500 units PEC = 40.000 to 30,000 = $ 25,000

2.00 – 1.20 1 – 1.20/2.0

Degree of operating leverage: is the percentage change in earnings resulting from a given percentage change in sales.


Gaou = ___ Q (V – CV) ___ ___ GAOc = (V – CV) _____

Q (V – VC) – CF (V – CV – CF)


Sale price $ 2.00

Fixed Costs: $ 40,000

Variable costs: $ 1.20 per unit

Units sold (Q): 100,000

30% increase in sales.

Gaou = __ 100,000 (2 – 1.2) = 2.0 GAOc ______ = ______ (2 – 1.2) = 2.0 ________

100.000 (2 – 1.2) – 40,000 200,000 – 120.000 to 40.000


30% (2.0) = 0.600000 (1 + 0.600000) 40.000 = 64.000

4. Financial Forecast

* Projected balance sheet method

* Percentage of sales method


FAN = A S – L S – MS1 (1-d)


Funds needed.

Those funds that a company must obtain externally through borrowing or by selling new common or preferred stock.

Spontaneous Generated Funds

Those funds are automatically obtained through routine business transactions.

Financing Feedback

Those effects produced on the income statement and the balance sheet as a result of the transactions executed to fund increases in assets.

Percentage of Sales Method

FEN = A S – L S – MS1 (1-d)


FEN = Additional funds (external).

A = Active is increased


L = Liabilities which increases


S = Increased Sales

S1 = Projected Sales

M = Profit Margin

d = Dividends

FEN = (0.9127) 81 807 – (0.3471) 81 807 – (0.10) 210000 (1-0.58)

FEN = 74567.07 – 28395.21 – 21000 (0.42)

FEN = 46261.86 – 8820

FEN = 37441.86

5. Cash Budget

Program showing projected cash flows (inputs, outputs and balances) of a company over a period of time.

Cash balance target set: desired cash balance plans to keep a company in order to conduct business operations.

The DuPont system of financial analysis: Development of comprehensive analysis of the reasons for turnover and profit margin on sales and shows how various reasons interact to determine the rate of return on assets (ROA).

Control returns on assets (ROA): The use of DuPont analysis system for the purposes of supervision divisional multidivisional companies.

Disadvantages in using ROA control:

* Depreciation

* Book Value of assets

* Transfer Pricing

* Time losses

* Terms industry

6. Current Assets Management

Cash management.

Cash is an “asset that does not generate profits.” You need to pay for labor, raw materials, taxes, dividends or the purchase of fixed assets. But by itself earns no interest, so the financial manager is to minimize the amount of cash that the company must maintain to allow for the completion of its normal business activities while having enough cash to:

* Take advantage of trade discounts

* Maintain creditworthiness

* To meet unexpected cash needs

* Reasons underlying cash maintenance

* Transactions. Cash balances associated with routine payments and collections are known as transactions balances.

* Compensation to banks for providing loans and services. If a bank is providing services to a client, may require you to keep a minimum balance on deposit to offset the costs resulting from the provision of such services.

* Balances prevention: a balance of cash held in reserve to cover unforeseen random fluctuations in the inflow and outflow of cash.

* Balances speculative: Used to enable the company to take advantage of any purchase of utility that might arise.

* Cash management techniques

Effective cash management includes proper management of flows both into and out of a company’s cash, which implies:

* The timing of cash flows

* Use of flotation

* Acceleration of collections

* The funds available to be taken in the time needed

* Control of disbursements.

Cash flows synchronized: Situation in which the match inflows outflows, allowing a company to maintain low balances for transactions.

Compensation checks: process followed to convert cash and deposit to the account of the beneficiary a check that has been issued and mailed.

Flotation disbursements: Value of checks we have issued but are still being processed and therefore have not been deducted by the bank balance of our account.

Collection float: The amount of checks we have received but have not yet been credited to our account.

Net float: The difference between our checkbook balance and the balance showing the bank’s books.

Accelerating cash inflows

Bank lockbox Plan: A procedure used to speed collections and reduce buoyancy. It’s worth using PO boxes installed in local areas of the payer.

Preauthorized debits: Allows funds are automatically transferred from the account of a customer to a company account at stated times, with this disbursement lose buoyancy inherent in the system based on paper transactions.

Banking Concentration: One bank of greater magnitude to which a company channeled funds from local custodian banks operating their PO boxes.

Depository transfer check: A check whose use is restricted to deposits in favor of a particular account and in a specific bank.