Numbers are merely the reflection of . . .

the decisions you make.

Didiek S. Wiyono, ST, MT

< didieksw@uns.ac.id , didiek_sw@yahoo.com >

Surakarta, 2010

Financial Flow Chart

Sales Plan

Every business decision leads to . . .

Production Plan
a number,
which taken together form the basis of . . .
your financials.
Staffing Plan

TQM Plan Operations Plan Marketing Plan

Cash Budget Capital Budget

Income Balance Sheet Cash Flow

Statement

1
 I still have checks!

imbroke imbroke

1.Read your statements.

2.Set policies and stick with them. 1. Income Statement - are we making a profit?
3.Use automation where practical.
4.Do not be afraid to get help. 2. Cash Flow Projections - can we pay our bills?

Remember YOU are making management decisions based on 3. Balance Sheet - how much are we worth?
this information.

2
Accounts payable Current liabilities Net profit
Accounts receivable Debt Net worth
Accumulated depreciation Depreciation Other or Intangible assets
Assets Equity Profit
Assets current Fixed costs Pro forma
Assets fixed Gross profit Others?
Cash Liabilities
Cost of goods Long term liabilities

Income:
Gross Sales - Returns & Allowances = Net Sales
1. Be conservative - Cost of Goods = Gross Profit
2. Be honest Expenses: -
3. Use standard terminology Salaries & wages; Employee benefits; Payroll taxes
4. Get realistic advice Sales Commissions; Professional Services; Rent;
5. Follow practices in your industry Maintenance; Equipment Rental; Furniture &
Equipment; Depreciation and Amortization; Insurance;
6. Choose the appropriate accounting method Interest; Utilities; Telephone; Office supplies; Postage
7. Be consistent and Shipping; Marketing & Advertising; Travel; Other.
Net income before taxes
- Provision for taxes on income
Net Income After Taxes (Net Profit)

3
Why is this the single most important Cash sales Reserve
financial statement? Collections Owner’s draw
Interest Income Net cash flow
If you can’t pay your bills, you are not going to stay in business. Loan proceeds Opening cash balance
Cost of goods
Operating expenses

Provides a snapshot of the overall financial worth of the Equity Financing: selling ownership via . . .
company. Preferred stock
Common Stock
It accounts for all the company’s assets minus all the company’s Debt Financing: taking out loans via . . .
liabilities. Mortgage loans
Short and Long Term Loans
The remaining amount is figured to be the net worth of the Investment from Principals: you or other key individuals will
company. contribute

4
Contains information you have already gathered. Why do you need to know this?

Total sales per product line You need to know . . .

Total payroll costs Fixed expenses
Calculate gross margin per product line and
Total costs and timing for additional expenses Gross profit margin (GPM)
Changes in costs or timing of financing
Other costs such as . . .

Laba-Rugi
Pemasukan
Pemasukan

Pengeluaran
Pengeluaran

Neraca

Aset Liabilitas Aset Liabilitas

“Feed You” “Eat You”

5

Pajak

Kerja untuk majikan

Pemborosan

Kerja profesional (Self employed)

Keinginan

Pendapatan pasif

Kebutuhan

Pendapatan usaha

Pinjaman untuk konsumtif HASIL KAPITAL LIKUIDITAS

Gaya hidup berlebihan (yang belum saatnya)
Gaji + +++ tidak

“Aset” tidak produktif
Kertas + - tinggi

…
Properti + + rendah

Bisnis ++/-- ++/-- rendah-tinggi

6
 “PROJECT VS EVERGREEN” Laporan Penghasilan Laporan Penghasilan
Pekerjaan Pekerjaan

Memenuhi kebutuhan orang lain Pemasukan
Pemasukan

Melihat apa yang tidak dilihat orang lain

Membeli murah menjual harga pasaran

Mengambil (bersihkan) Resiko Pengeluaran Pengeluaran

Menentang arus (hindari “panic b/s”)
Neraca

Memperpanjang rantai nilai tambah Neraca

… Aset Liabilitas
Aset

Memecahkan teka-teki 10/90 (kreatif) Liabilitas

Mencari leverage investasi yang lebih besar

Laporan Penghasilan Laporan Penghasilan

Bisnis
Pemasukan Pemasukan
Kelompok @ 5 orang (1 minggu)
Melanjutkan Tugas 06 buatlah
Pengeluaran ◦ Finacial Projection (1)
Pengeluaran

dari “ Proposal Ide Bisnis “ yang Anda Pilih!.

Neraca Neraca
Jawaban di e-mail dalam attachment file ke : didiek_sw@yahoo.com
Aset Liabilitas Aset Liabilitas

Orang Kaya Orang Kaya Raya

7

Julie Miller is evaluating a new project for her firm,
◦ Payback Period (PBP)
◦ Internal Rate of Return (IRR)
◦ Net Present Value (NPV)
◦ Profitability Index (PI)
Didiek S. Wiyono, ST, MT
< didieksw@uns.ac.id , didiek_sw@yahoo.com >
Surakarta, 2010
Basket Wonders (BW). She has determined that
the after-tax cash flows for the project will be
$10,000; $12,000; $15,000; $10,000; and $7,000,
respectively, for each of the Years 1 through 5.
The initial cash outlay will be $40,000.
8
u For this project, assume that it is 0 1 2 3 4 5
independent of any other potential
-40 K 10 K 12 K 15 K 10 K 7K
projects that Basket Wonders may
undertake. PBP is the period of time required for the

Independent -- A project whose acceptance (or cumulative expected cash flows from an
rejection) does not prevent the acceptance of other investment project to equal the initial cash
projects under consideration. outflow.

0 1 2 3 (a) 4 5 0 1 2 3 4 5

-40 K (-b) 10 K 12 K 15 K 10 K(d) 7K -40 K 10 K 12 K 15 K 10 K 7K

10 K 22 K 37 K(c) 47 K 54 K -40 K -30 K -18 K -3 K 7K 14 K

Cumulative PBP = a + ( b - c ) / d PBP = 3 + ( 3K ) / 10K

Inflows
= 3 + (40 - 37) / 10 Cumulative = 3.3 Years
= 3 + (3) / 10 Cash Flows Note: Take absolute value of last negative
= 3.3 Years cumulative cash flow value.

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 The management of Basket Wonders has set a maximum
PBP of 3.5 years for projects of this type. Strengths::
Strengths Weaknesses::
Weaknesses
Should this project be accepted? ◦ Easy to use and ◦ Does not account
understand for TVM
◦ Can be used as a measure of ◦ Does not consider cash
liquidity flows beyond the PBP
◦ Easier to forecast ST than LT ◦ Cutoff period is
Yes! The firm will receive back the initial cash flows subjective
outlay in less than 3.5 years. [3.3 Years < 3.5 Year
Max.]

IRR is the discount rate that equates the present value of the
future net cash flows from an investment project with the $40,000 = $10,000 + $12,000 +
project’s initial cash outflow.
(1+IRR)1 (1+IRR)2
$15,000 $10,000 $7,000
3
+ 4
+
(1+IRR) (1+IRR) (1+IRR)5
CF1 CF2 CFn
ICO = + +...+ Find the interest rate (IRR) that causes the discounted
(1+IRR) (1+IRR)2
1 (1+IRR)n cash flows to equal $40,000.

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$40,000 = $10,000(PVIF10%,1) + $12,000(PVIF10%,2) + $40,000 = $10,000(PVIF15%,1) + $12,000(PVIF15%,2) +
$15,000(PVIF10%,3) + $10,000(PVIF10%,4) + $ $15,000(PVIF15%,3) + $10,000(PVIF15%,4) + $
7,000(PVIF10%,5) 7,000(PVIF15%,5)
$40,000 = $10,000(.909) + $12,000(.826) + $40,000 = $10,000(.870) + $12,000(.756) +
$15,000(.751) + $10,000(.683) + $15,000(.658) + $10,000(.572) +
$ 7,000(.621) $ 7,000(.497)
$40,000 = $9,090 + $9,912 + $11,265 + $40,000 = $8,700 + $9,072 + $9,870 +
$6,830 + $4,347 $5,720 + $3,479
= $41,444 [Rate is too low!!]
low!!] = $36,841 [Rate is too high!!]
high!!]

.10 $41,444 .10 $41,444

.05 X IRR $40,000 $1,444 $4,603 .05 X IRR $40,000 $1,444 $4,603
.15 $36,841 .15 $36,841

X $1,444 .05 X $1,444 .05

$4,603 $4,603

= =

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 The management of Basket Wonders has determined that
.10 $41,444 the hurdle rate is 13% for projects of this type.
.05 X IRR $40,000 $1,444 $4,603
Should this project be accepted?
.15 $36,841

($1,444)(0.05)
$4,603
X= X = .0157 No! The firm will receive 11.57% for each dollar
invested in this project at a cost of 13%. [ IRR <
Hurdle Rate ]
IRR = .10 + .0157 = .1157 or 11.57%

Strengths::
Strengths Weaknesses::
Weaknesses NPV is the present value of an investment project’s
◦ Accounts for ◦ Assumes all cash net cash flows minus the project’s initial cash
TVM flows reinvested at the IRR outflow.
◦ Considers all
cash flows ◦ Difficulties with project
◦ Less rankings and Multiple IRRs
subjectivity
CF1 CF2 CFn
NPV = + +...+ - ICO
(1+k)1 (1+k)2 (1+k)n

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Basket Wonders has determined that the appropriate NPV = $10,000(PVIF13%,1) + $12,000(PVIF13%,2) +
discount rate (k) for this project is 13%. $15,000(PVIF13%,3) + $10,000(PVIF13%,4) + $
7,000(PVIF13%,5) - $40,000
NPV = $10,000(.885) + $12,000(.783) +
NPV = $10,000 +$12,000 +$15,000 +
$15,000(.693) + $10,000(.613) + $
(1.13)1 (1.13)2 (1.13)3 7,000(.543) - $40,000
NPV = $8,850 + $9,396 + $10,395 +
$10,000 $7,000 $6,130 + $3,801 - $40,000
+
(1.13)4 (1.13)5 - $40,000 = - $1,428

The management of Basket Wonders has determined that

the required rate is 13% for projects of this type. Strengths::
Strengths Weaknesses::
Weaknesses
Should this project be accepted? ◦ Cash flows ◦ May not include
assumed to be managerial
reinvested at the options embedded in the
hurdle rate. project. See Chapter 14.
◦ Accounts for TVM.
No! The NPV is negative. This means that the project ◦ Considers all
is reducing shareholder wealth. [Reject
Reject as NPV < 0 ] cash flows.

13
 $000s PI is the ratio of the present value of a project’s future net
Sum of CF’s Plot NPV for each
15 discount rate. cash flows to the project’s initial cash outflow.
Net Present Value

10

5 IRR CF1 CF2 CFn ICO

NPV@13%
PI = + +...+
(1+k)1 (1+k) 2 (1+k)n
0
<< OR >>
-4
0 3 6 9 12 15 PI = 1 + [ NPV / ICO ]
Discount Rate (%)

PI = $38,572 / $40,000
= .9643 (Method #1, 13-33)
Strengths::
Strengths Weaknesses::
Weaknesses
Should this project be accepted? ◦ Same as NPV ◦ Same as NPV
◦ Allows ◦ Provides only relative
comparison of profitability
different scale ◦ Potential Ranking
No! The PI is less than 1.00. This means that the projects Problems
project is not profitable. [Reject
Reject as PI < 1.00 ]

14

Kelompok @ 5 orang (1 minggu)
Basket Wonders Independent Project
Melanjutkan Tugas 07 buatlah
◦ Finacial Evaluation (2)
Method Project Comparison Decision
PBP 3.3 3.5 Accept dari “ Proposal Ide Bisnis “ yang Anda Pilih!.
Jawaban di e-mail dalam attachment file ke : didiek_sw@yahoo.com
IRR 11.47% 13% Reject
NPV -$1,424 $0 Reject
PI .96 1.00 Reject

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