FINANCIAL MANAGEMENT

a) RATIO ANALYSIS
b) STATEMENT OF SOURCES AND
APPLICATION OF FUNDS
c) WORKING CAPITAL
d) MARGINAL COSTING
e) CAPITAL BUDGETING
f) CASH BUDGET
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WORKING CAPITAL
TYPES OF WORKING CAPITAL
a) PERMANENT WORKING CAPITAL
b) VARIABLE WORKING CAPITAL
 WORKING CAPITAL CYCLE / OPERATING
CYCLE
 MANAGEMENT OF STOCK LEVELS
 MANAGEMENT OF DEBTORS
 MANAGEMENT OF BANK AND CASH
BALANCES
 MANAGEMENT OF TRADE CREDIT
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WORKING CAPITAL MANAGEMENT INVOLVES:

o The level of cash needs to be on call at various dates.
o The level of inventory do we need to maintain.
o The bank overdraft.
o The period of credit do we grant to our debtors.
o Suppliers’ payments.
o Proportion of Current assets should be financed by short-term funds.
o Level of Working Capital.
METHODS OF CALCULATION:
o Cash Budget Method
o MPBF
o Turnover Method

Commercial Paper one source of finance for Working Capital

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MARGINAL COSTING
Concept of costs
• Fixed Cost
• Variable Cost
Semi Fixed / Variable
Marginal Cost = Variable Cost
Contribution = Sales – Marginal Cost
USES:
 More efficient pricing decisions can be made
 Make or Buy Decisions
 Close a department or cost centre
 Accept or Reject an order
 C-V-P Analysis
 B-E-P Analysis
 Margin of Safety
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CAPITAL BUDGETING:
 Capital budgeting involves the entire process of
planning expenditures whose returns are expected to
extend beyond one year.
Non discounting Methods
 Pay Back Method
 Rate of Return Method
Discounting Methods based on Time Value of Money
• Net Present Value Method
• IRR
• PI
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CASH BUDGET:
• Budgets are similar to standards in several ways:
They are of the future performance of our organization.
They help people within an organization plan the future
and They enable people to know how well they and the
rest of the organization have performed.
Budgetary Control:
o The comparison of actual results against budget;
o The identification, recording and communication of
controllable differences; and
o The taking of corrective action either to maintain budget
levels or to re-plan to meet recent developments.
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CASH BUDGET:
• A Cash Budget is arrived at through a
projection of future cash receipts and
cash disbursements of the firm over
various intervals of time. It reveals the
timing and amount of expected cash
inflows and outflows over the period
studied.
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CASH FLOWS STATEMENTS
o Cash flows statement is basically a
summary of all the entries that are
normally recorded in the cash book.
o Funds flow statement means the funds
received by the company and their how it
uses.
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RATIO ANALYSIS:
The term Ratio refers to the numerical or quantitative
relationship between two items / variables, expressed
in a simple mathematical form.

Balance sheet Ratios:

o Current Ratio or Working Capital Ratio
o Liquid Ratio or Quick Assets Ratio or Acid Test Ratio
o Proprietory Ratio
o Assets – Proprietoryship Ratio
o Profit and Loss Account Ratios
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Profit and Loss Account Ratios:
 Gross Profit Ratio
 Operating Ratio
 Expenses Ratio
 Net Profit Ratio
 Stock Turnover or Turnover of Inventory
Ratio
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Balance Sheet and Profit and Loss Account Ratios:
 Return on Total Resources Ratio
 Return on Own Funds Ratio
 Fixed Assets Turnover Ratio
 Debtors’ Turnover Ratio
 Earnings per Share Ratio
Liquidity Ratios:
 Current Ratio
 Net Working Capital
 Acid Test / Quick Ratio
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Turnover Ratios:
o Inventory Turnover Ratio
o Debtors’ Turnover Ratio and
o Creditors’ Turnover Ratio
Leverage / Capital Structure Ratios:
o Debt / Equity Ratio
Coverage Ratios:
 Interest Coverage Ratio
 Dividend Coverage Ratio
Thank you very much

Wish you all the Best