Fin 413 Sim Weeks 6-7

College of Business Administration Education
2nd Floor, SS Building

Bolton Street, Davao City
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Continuation:
Table of Contents 135
Module 3: Analyzing Financial Statement (week 6 to week 7/10 days) 137
A Caveats 138
Analyzing Working Capital 141
Nature of Capital Investment Analysis 142
Methods Use in Evaluating Capital Investments 143
Average Rate of Return 144
Cash Payback Method 146
Net Present Value Methods 148
Calculating Net Present Value 149
Calculating Present Value Method 150
Capacity Utilization Analysis 154
Relationship Between Profits and Capacity Utilization 155
Problems with Capacity Analysis 157
Analyzing Financing Options 158
Debt Funding 158
Equity Funding 159
Financing Options- Advantages and Disadvantages 160
Creating Forecast- Ratio Analysis 162
Improving Shareholder’s Value 164
Indicators on Improving Shareholder’s Value 165
Tax Organization 166
Role of Tax Manager 167
Other Tasks Performed 168
Tax versus Book Accounting 169
Classification of Accounts According to Modern Approach 171
Asset Accounts 172
Liability Accounts 172
Capital or Owner’s Equity Account 173
Withdrawal Accounts 174
Revenue or Income Accounts 175
Expense Accounts 175
Classification of Accounts According to Traditional Approach 176
Personal Accounts 177
Real Accounts 178
Nominal Accounts 179
Valuation Account 180
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Reasons to Purchase Software 182

Defining System Requirements 183
Existing System Documentation 185
Joint Session 186
The Steps Required to Conduct a Joint Session 187
Preparing the Request For Proposal- (RFP) 188
Important Requirements Before the Distribution of the Request Proposal 190
G-3. Self-Help 191
H-3. Let’s Check (Exercises: Multiple Choice) 193
I-3. Let’s Analyze (Activity: Solving Problem) 195
J-3. Nutshell 197
K-3. Question and Answer List 198
L-3. Keywords Index 199
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F-3. Essential Knowledge (Concepts, Theories, Lessons,

Computations)
Module 3: Financial Analysis, Taxes, and Financial

Information System
(Duration: Week 6 to week 7 or 10 days)
At the end of this module, the students:
• will be able to measure how a controller effectively and efficiently manages different
business activities and uncertainties.
• will be able to learn how to analyze working capital, financing options, and evaluating
capital investments.
• will be able to differentiate the relationship between profit versus capacity utilization,
and tax versus book accounting.
• will be able to know the classification of financial accounts in the modern and
traditional approaches.
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These are measurements that give the controller a better idea of the company's
operations' status. A controller uses analysis to do a thorough job, more effectively
and efficiently, which is essential in running a business.
Hence, the management mainly the CFO may give his controller a caveat to list
down priorities of his tasks. The first few priorities concern more on creating and
improving the accurateness of the cash forecasting system. This requires him to be
knowledgeable about the company's payables, receivables, contracts, and
expenditures.
The controller's next group of priorities are the measurement systems. This allows
him to see the different problems likely to arise and its impact on the company.
Next in line is to review his constituent's capabilities, work assignments and
schedules, and training developments. He was checking the areas that require his
attention and the probable appearance of risks.
Other items that controller should know about to plot strong management in the
course of business uncertainties are as follows:
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Branding
A controller should have sufficient knowledge of corporate branding activities
before releasing a report to management that recommends deep cuts in marketing costs
to save money. Branding is creating the company’s name, symbol, or design that
identifies signifies or differentiate their unique products to other companies’ products.
Company Organization
A constant reorganization would result in altered or changing reporting
relationships. For example, a controller may find that the sales department expenses
are rapidly surpassing the budget due to the reorganization. Knowledge of
organizational structure will set the course of action by a controller.
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Competitors
A “sudden change” in sales may be the cause of the entrance of a new business
competitor or rivals. It resulted in an increase in sales due to the demise of a competitor.
Eventually, it sends all of its customers to the company.
A controller may strongly recommend doubling of production capacity if needed to supply the
demand of clients. He should have a thorough knowledge of what is happening in the industry.
Goal
If a company has established a stretch goal that will be difficult to reach, a controller
should expect strains on the organization that will appear/result in using the appropriate
measurement.
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Analyzing Working Capital
WHAT IS WORKING CAPITAL
• Working capital refers to the funds being invested in current assets, sundry debtors,
inventories, cash, and bank balance.
• It measures how much in liquid assets a company has/available to build its business.
Working Capital = Current Assets – Current Liabilities
• Positive working capital is required to ensure that a firm can continue operations and
that it has sufficient funds to satisfy both maturing short-term debt and upcoming
operational expenses.
• An increase in working capital indicates that the business has either increased current
assets (that is received cash or other existing assets) or has decreased current liabilities
• If existing assets are less than current liabilities; an entity has a working capital
deficiency, also called a working capital deficit.
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Nature of Capital Investment Analysis
Capital budgeting is the process by which management plans, evaluates, and controls
long-term investments in the company’s fixed assets.
Management plans to evaluate and control investments in fixed assets, whether short
or long-term.
Capital investments involve a long-term commitment of funds, thus signifies more
significant returns.
Investments must earn a reasonable rate of return.
The process should include a plan for encouraging and rewarding employees for
submitting proposals.
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Methods Use in Evaluating

Capital Investments
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1. Average Rate of Return- (ARR)

The Average Rate of Return (also known as “Accounting Rate of Return” is a financial
ratio used in capital budgeting, representing the average annual amount of cash flow
generated over the life of an investment.
Formula:
For example, Company Z has an initial investment in Unit Investment Trust Funds
(UITF) for $300,000. It is expected to generate returns on the following years:
1st year: $25,000

2nd year: $36,000
3rd year: $34,000
4th year: $25,000
$ 120,000 / 4 years = $30,000 (the average amount)
Thus, the Average Rate of Return is 10% (calculated by dividing $30,000 to the
company’s initial investment of $300,000 x 100%).
Analysis: The ARR calculation does not account/consider the concept of the “time
value of money.” Therefore, the “cash flows in later periods are worth less than cash
flows in more recent periods.” (Bragg, 2018)
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Another Example:
The financial controller of Company Z is considering two investments (A and B) with the
same comparable level of risks to be included in one of their portfolio investments. Please
determine which investment should be selected based on the following data:
Particulars Investment A Investment B

Initial investment $250,000 $150,000
Annual net earnings:
Year 1 $60,000 $75,000
Year 2 $40,000 $50,000
Year 3 $35,000 $40,000
Estimated life (years) 3 3
Average Annual Net

Earnings $45,000 $55,000
Average Rate of Return 18% 37%
Financial Analysis (recommendation):
Based on the final output/result, the financial controller should prefer to invest in
"Investment B" because of its higher average return, which is 37% as compared to A, which
has 18% only. It didn't matter even if investment A had a higher initial investment of $250,000
compared to investment B with $150,000.
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2. Cash Payback Method
It is a tool in determining the payback period, meaning the time required to earn back
the amount invested.
It is used to evaluate the proposed capital investments/projects as it estimates how long
a particular plan will take to cover its original investment. Therefore, it helps decide
which project/investments to invest in and which to avoid.
Formula:
Cash payback period= Cost of investment / Annual net cash flow
For example, you need to decide whether to purchase a new computer set costing $800.
You expect the computer to increase your net cash flow by $500 per year. What is the
cash payback period?
Solution:
Cash payback period= Cost of investment / Annual net cash flow
= $800 / $500 per year
= 1.6 years
Analysis:
It would take 1.6 years to pay back the $800 cost of investment. Note that the
cash payback period doesn’t account for the concept of the time value of money, and
other factors that may impact an investor/purchaser’s decision.
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Another example (applying the cash payback method when annual net cash
flows change each year).
Suppose that your new $800 computer set is expected to yield different net cash flows
every year as follows:
Year Initial Investment Net Cash Flow Cumulative Net
Cash Flows
2020 ($800)
2021 $350 $350
2022 200 550
2023 600 1,150
2024 400 1,550
Financial Analysis:
Obviously, the computer set will be fully paid off in 2023 (when cumulative net cash
flows of $1,150 exceed the initial investment of $800). To be more specific, the $800 cost will
be fully recovered sometime during 2023. You start the year 2023 with $550 in cash flows. A
total of $600 additional dollars are received during 2023, making a total of $1,150. “Because
this approach neglects the time value of money, managers should use a more sophisticated
model, such as the net present value method, before investing company funds into any project.”
(Boyd, 2020)
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3. Net Present Value Methods
The Net Present Value (NPV) is a method widely used in determining the current value
of all future cash flows generated by the initial capital investments or a project.
Application of this method will help the financial controller, investors, and business people
decide as to which project/s would generate the highest profit.
NPV takes into consideration all the inflows and outflows, time value of money, and the
risks involved. Thus, it is a comprehensive tool in making an investment account.
NPV is used in capital budgeting and investment planning to analyze the profitability of a
projected investment or project.
The main limitation of NPV is its assumption in determining the rate of return. When
assumed higher, it can show false negative NPV, and if the lower back is taken, it will
show invalid profitability of the project. This resulted in a wrong decision
making.Generally, NPV can be calculated with the formula:
NPV = ⨊(P/ (1+i)t ) – C
Where:
P = Net Period Cash Flow
i = Discount Rate (or rate of return)
t = Number of time periods
C = Initial Investment or cost
Alternatively, calculate the present value of your expected profits and subtract your
expenses (cash outflow) to calculate NVP for a given period.
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Calculating Net Present Value

Problem: You operate a small fruit shake stand and consider buying an electric juicer online
for $150 (your initial investment). Based on your research, the juicer usually breaks after
three(3) years (period). Your expected cash inflows are as follows:
1st year - $70
2nd year - $60
3rd year - $50
You feel confident that if you invested your money in stock, you would earn 5% (in
decimal its .05) annually, thus your discount rate. Compute for the NPV.
In this problem you are analyzing 3 years, so you’ll need to use the formula three times,
by calculating your yearly discounted cash flows as follows:
1st year : 70 / (1 + 0.05)^1 = 70 / 1.05 = $66.67
2nd year: 60 / (1 + 0.05)^2 = 60 / 1.1025 = $54.42
3rd year: 50 / (1 + 0.05)^3 = 50 / 1.1576 = $43.19
Therefore, the final projected NPV value of the juicer would be:
66.67 + 54.42 + 43.19 – 150 = $14.28
Analysis:
Since the answer/result, which is $14.28, is a positive (not negative sign), you’ll probably
decide to buy the electric juicer. It will give you the required return rate of 5% annually plus
(on top) an additional of $14.28
This is more profitable when compared to your other alternative investment of putting your
money in the stock market.
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Calculating Present Value Method
The time value of money concept is used in many business decisions. This concept is an
important consideration in capital investment analysis.
The Present Value Formula:
Present Value (PV) = ____FV____

(1+r/n)n*t
Where :
FV = future value
r = rate of return
n = number of compounding periods; annually (1), semi-annually (2), quarterly (4),
monthly (12), and daily (365 days)
t = no. of years
How much would I have to invest today that pays

12% interest compounded quartery, so that I have
a balance of $20,000 in the account at the end of
10 years?
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Solution:
4x10
PV= $20,000 / (1 + .12/4)
= $20,000 / 3.262037792
= $6,131.14
Another Example:
The present value of $11,576.25 discounted at 5%
annually for three years is:
1x3
PV= $11,576.25 / (1 + 0.05/1)
= $11,576.25 / 1.157625
= $10,000
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Exercises: Solving Problem

Problem: How much would I have to deposit in an account today that pays 8% interest annually
so that I have a balance of Php30,000 in the account at the end of 2 years?
Solution:
Semi-Annual Compounding:
Quarterly Compounding:
Monthly Compounding:
Daily Compounding:
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Solution/Computation to the Problem
Problem: How much would I have to deposit in an account today that pays 8% interest annually
so that I have a balance of Php30,000 in the account at the end of 2 years?
Solution: PV= P30,000 / (1 + 0.08/1) 1x2

= P30,000 / 1.1664
= P25,720.16
Semi-Annual Compounding: PV= P30,000 / (1 + 0.08/2) 2x2

= P30,000 / 1.16985856
= P25,644.12
Quarterly Compounding: PV= P30,000 / (1 + 0.08/4) 4x2

= P30,000 / 1.171659381
= P25,604.71
Monthly Compounding: PV= P30,000 / (1 + 0.08/12) 12x2

= P30,000 / 1.172887932
= P25,577.89
Daily Compounding: PV= P30,000 / (1 + 0.08/365) 365x2

= P30,000 / 1.173490296
= P25,564.76
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Capacity Utilization Analysis

It is a proper application that will reveal an abundance of information that leads directly to
better utilization of equipment and processes and capital cost savings and improved
profits.
This is an important concept and often used as a measure of utilizing the company’s
resources more efficiently. It means making the most of the resources available nor
maximizing its usage and purpose.
Capacity utilization has a direct impact on profits and cash flows. This is the primary
responsibility of the modern controller. He can use current information on capacity
utilization and recommend improvements to increase potential revenue generation.
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Relationship Between Profits and

Capacity Utilization
1. Capacity is made up of either human or machine resources.
Human resources are people employed by a company that plays a vital role in
business viability and continuous success. Hiring qualified, and skillful workforce would
maximize their potentials and well-being. It inspires them to work better, thereby
maximizing their abilities and knowledge to perform their tasks and activities in a short
period.
Improving the efficiency of the company’s machine resources will produce more
products while consuming fewer costs or expenses. It can improve production speed
while maintaining excellent quality.
2. Capacity Utilization in the production process.
The bottleneck operations are a point of congestion in a production system (such
as an assembly line or a computer network) that occurs when workloads arrive too
quickly for the production process to handle.
To maximize the company’s productivity, a sound production plan should be
implemented which addresses the material, workforce, financial and technical resources
of the company.
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Relationship Between Profits and Capacity

Utilization
3. Capacity utilization information in the determination of pricing levels.
A monthly survey on capacity utilization should be implemented to keep
updated with the products' supply and demand. This would manifest the capacity
utilization of the workforce and machines. It would also help determine the current
price levels, whether still competitive when compared to their competitors.
4. Capacity analysis can be used to alter profit levels through mergers and
acquisitions.
Depending on the purpose of the mergers and acquisition, this will increase
capacity utilization while minimizing costs. Mergers and acquisitions were able to
combine or synergize the resources, skills, talents, and expertise, thereby maximizing
the available resources of the two companies. It's becoming more competitive and
valuable to the business industry.
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Problems with Capacity Analysis

The capacity of a machine or bottleneck operation can vary significantly over time.
There are either a large number of small jobs running through a process.
The sales department may promise customers that work will begin very soon on their
orders (revenue-related problem).
Using functional capacity as the standard measure of how much work can still be loaded
into the production system.
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ANALYZING FINANCING OPTIONS

(two types of funding)
1. DEBT FUNDING
It is an agreement to pay interest on loaned money, which eventually must be
returned to the creditor.
It may also be collateralized against certain company assets in the event of default.
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ANALYZING FINANCING OPTIONS

(two types of funding)
2. EQUITY FUNDING
• It is the payment made by an owner through their purchased common or preferred
shares of stock.
• The company needs not payback the owner, nor is there any stated interest rate.
• No collateral.
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Financing Options (Advantages and

Disadvantages)
Financing Option Advantages Disadvantages
Leasing Tangible assets wear out It can be (very) expensive.

quickly; thus, leasing them
can be a good
replacement/options. The
sale/lease makes the
availability of cash.
Loans Not a very expensive Needs an asset as loan

form/type of funding collateral
Common Stock This can raise enough Very high returns among
funds and no need to pay shareholders in the form of
back its capital. dividends payments (non-
taxable).
Convertible Securities This improves the The earnings per share will
debt/equity ratio, as it reduce. Controlling
avoids paying bond debt, shareholders will weaken
thus reduces interest when conversions to
payments. shares occur.
Preferred Stock This avoids paying back Interest expense isn’t

the principal amount deductible.
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Financing Options (Advantages and

Disadvantages)
Financing Option Advantages Disadvantages
Stock Rights This is a simple way as This will not retain

far as raising funds from ownership interest as
the existing shareholders before to the stock rights
is a concern. offering in the same
proportion.
Warrants Bond interest rates can This may not strengthen

be reduced the owner/s controlling
the company. This will
also dilute earnings per
share.
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Creating Forecast
Ratio Analysis
Stockholders typically use ratio analysis to objectively appraise the financial condition
of a company and to identify its vulnerabilities and strengths.
Profitability Ratios
Liquidity Ratios
Leverage (capital structure) ratios
Operating ratios
Cash ratios
Valuation ratios
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Improving
Shareholder’s Value and Tax
Organization
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Improving Shareholder’s Value
Shareholder’s value
This is the value given to stockholders in a company based on the firm's ability to sustain
and grow profits over time. This also represents the financial worth; the owners received for
owning shares of stock of the company.
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Indicators on Improving Shareholder’s Value

Increase unit price
This is to increase the price of the company’s product. Here the company assumes that the
company continues to sell or produce the same number of products; however, it may tend to
increase its price per unit. This is to generate more profit and wealth.
Sell more units
The company assumes to sell more products to generate more growth sales. The more
products to sell, the more profits or income this could make/contribute to the company. Also, to
effectively reduce the expenses incurred per-unit cost, as a result of adding/creating shareholder
value.
Increase fixed cost utilization
Increasing fixed cost utilization is close to selling more products, with the common goal of
decreasing the fixed cost per unit. This is maximizing the usage/performance of machinery used
for production but then reducing the related cost/expenses.
Decrease/Reducing the unit cost of products.
This is by means of lowering the overhead cost per unit or item by increasing the production
volume and paying less for rent and utilities.
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Tax Organization
A business or other organization whose primary goal is making money (a profit), as opposed
to a non- profit organization which focuses a goal such as helping the community and is
concerned with money only as much as necessary to keep the organization operating.
Controllers are responsible for compliance with the law pertaining to tax related payments
and submission of legal documents concerning tax compliance, including filing tax returns.
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Role of Tax Manager
Tax Managers are responsible for keeping businesses compliant with various local, state,
and federal tax regulations.
They implement measures and develop policies for dealing with various areas relating to
taxes.
Tax Managers perform an estimation analysis, planning, research and oversee audits.
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Other tasks performed:
Administering tax audits.
Adhering to tax regulations.
Investigating new tax laws and developments.
Identifying issues that may arise in tax dealings.
Reporting to directors and senior executives.
Organizing quarterly and annual income tax provisions.
Forecasting quarterly global tax rate.
Documenting process for Research and Development (R&D).
Record keeping of foreign income tax filings.
Reconciling income tax accounts.
Calculating income tax payments.
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TAX vs BOOK ACCOUNTING
Tax basis accounting is defined by the Internal Revenue Code (IRC) and related revenue
rulings / precedents. The IRC is designed to help you determine your taxable income and
deductible expenses
Financial accounting or "Book Accounting" is primarily based on GAAP, which is defined by
the Financial Accounting Standards Board (FASB). The main goals of financial accounting
are to provide business owners, investors, and other stakeholders with accurate, relevant
and comparable financial information.
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According to:
1. Modern Approach
2. Traditional Approach
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Modern Approach
According to modern approach, the accounts are classified as:
1. asset accounts
2. liability accounts
3. capital or owner’s equity accounts
4. withdrawal accounts
5. revenue/income accounts
6. expense accounts.
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1. Asset accounts
Assets are things or items of value owned by a business and are usually divided into
tangible or intangible.
Tangible assets are physical items such as building, machinery, inventories, receivables,
cash, prepaid expenses, and advance payments to other parties.
Intangible assets usually include non-physical items and rights. Examples of intangible
assets include goodwill, trademarks, copyrights, patent rights, and brand recognition, etc.
2. Liability accounts
Liabilities are obligations or debts payable to outsiders or creditors.
The title of a liability account usually ends with the word “payable.” Examples include
accounts payable, bills payable, wages payable, interest payable, rent payable and loan
payable, etc.
Any revenues received in advance is also a liability of the business and is known as
”unearned revenue.” For example, a marketing firm may receive a marketing fee from its
client for the future quarter in advance. Such unearned income would be recorded as a
liability as long as the related marketing services against it are not provided to the client
who has made the advance payment.
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3. Capital or owner’s equity accounts

Capital is the owner's claim against the business's assets and is equal to total assets,
not all liabilities to external parties.
The balance in the capital account increases with the introduction of new capital and
profits earned by the business and decreases as a result of withdrawals and losses
sustained by the company.
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4. Withdrawal accounts
Withdrawals are cash or assets taken by a business owner for his personal use.
In sole proprietorship and partnership, an account titled as drawings account is used to
account for all withdrawals.
In the corporate form of business, withdrawals are more systematic and usually termed as
distributions to stockholders. The account used for recording such distributions is known
as a dividend account.
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5. Revenue or income accounts
Revenue is the inflow of cash as a result of primary activities such as provision of services
or sale of goods.
The term income usually refers to the net profit of the business derived by deducting all
expenses from revenue generated during a particular period of time.
6. Expense accounts
Any resource expended or service consumed to generate revenue is known as an
expense.
Examples of expenses include salary expense, rent expense, wages expense, supplies
expense, electricity expense, telephone expense, depreciation expense, and
miscellaneous expense.
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Traditional approach
According to traditional approach, the accounts are classified into four types:
1. personal accounts
2. real accounts
3. nominal accounts
4. valuation accounts
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1. Personal accounts
The accounts related to real persons and organizations are classified as personal accounts.
Examples of personal accounts include John’s account, Peter’s account, Procter and
Gamble’s account, Vibrant Marketing Agency’s account and City bank’s account etc.
The business keeps a separate account for each individual and organization for the purpose
of ascertaining the balance “due from” or “due to” them.
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2. Real accounts
Real accounts are accounts related to assets or properties (both tangible and intangible)
owned by a business enterprise.
A separate account for each asset is maintained to account for increases and decreases
in that asset.
Examples of real accounts include cash account, inventory account, investment account,
plant account, building account, goodwill account, patent account, copyright account, etc.
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3. Nominal accounts
The accounts related to incomes, gains, expenses, and losses are classified as nominal
accounts.
These accounts usually serve to accumulate data needed for preparing an income
statement, also termed as ‘profit and loss account’ of the business for a particular period.
Examples of nominal accounts include sales account, purchases account, wages account,
salary account, interest account, rent account, gain on sale of fixed assets account and loss
on the sale of fixed assets account, etc.
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4. Valuation account
Valuation account (also known as contra account) is an account used to report the carrying
value of an asset or liability in the balance sheet.
A famous example of a valuation account is the accumulated depreciation account.
Companies maintaining fixed assets in the books of accounts at their original cost also
maintain an accumulated depreciation account for each fixed asset.
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Reasons to Purchase
Software
and
Defining System
Requirements
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Reasons to purchase software
One of the reasons is for automation of the organization task as well as reporting the progress
or lags in the organization’s activity.
Second, is the capability of making or accomplishing several processes that creates complex
and time consuming when done manually.
Another reason is for the productivity of the business or organizations.
To centralize all the data and making it accessible from anywhere.
Improve the efficiency and productivity of the business regardless of its size and structural
complexity.
For an essential, quick, and accurate calculation, and to stay competitive with the other
business.
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Defining System Requirements

System requirements are the configuration that a system must have for hardware or software
applications to run smoothly and efficiently.
System requirements are often indicated in the download page (for downloadable products).
It can broadly be classified as functional requirements, data requirements, quality
requirements, and constraints.
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Existing System
Documentation & Joint
Session
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Existing System Documentation
After the questionnaires and executive interviews have been completed, and the other
sources of information reviewed, the existing manual and automated financial system must
be documented. These factors should be included in this documentation:
The key objective of the order ( e.g., to maintain the general ledger and produce
financial reports)
Who supports the system
The primary system inputs, edits, controls, and outputs (reports)
All system interfaces and special features
The volume of transactions processed by the system
The approximate costs of the operating system
Also, if the system is automated, it is important to note:
- the hardware platform on which it operates
- the language in which it is written
- its age
- the approximate amount invested in the system
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Joint Session
Conducting joint sessions with the employees who will be using and supporting the system
is an effective and efficient means of ensuring a thorough system requirements survey.
The benefits of conducting joint sessions include the development of a complete
Specification Requirements Document- (SRD) and improved user buy-in.
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The steps required to conduct a joint

session include:
1. Prepare the “straw man” requirements for each application. These requirements generally are
based on research previously conducted by the organization or information obtained from software
vendors, computer-related literature, or IS consultant.
2. The joint session distributes the requirements document to the employees interested in or
affected by the specific application.
Conduct a joint session or meeting for each application area. During sessions, which are
generally facilitated by a selection team member or a consultant, the participants are asked
to do the following:
Prioritize each requirement ( state whether the need is required, desired, optional, or not
applicable)
Identify additional requirements
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Preparing the Request for Proposal- (RFP)

Planning
The RFP process is planned, including the RFP team's selection, identification of the chosen
bidders, creation of the RFP timeline, requirements development, and production of the response
evaluation criteria.
Preparation
During this stage, the RFP draft is prepared and produced using the designated and
appropriate format.
Review
The RFP draft is reviewed to ensure that all documentation requirements are met, and
comments and feedback are provided.
Revision
The RFP draft is revised to reflect the required changes as identified in the "review" phase.
Approval
The revised RFP is approved by all decision making stakeholders, and the final version is
produced.
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Preparing the Request for Proposal- (RFP)
Distribution and Support
The approved RFP is distributed to the selected bidders, and submission support is
provided as needed, including an RFP bidders conference (if required).
Response Evaluation
Received RFP responses are reviewed and evaluated according to the established
criteria.
Selection
The RFP winning proposal and alternative are selected, and the recorded RFP is used
to create a documented project Statement of Work (SOW) as needed. The losing bidders are
notified to close the RFP process.
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Important Requirements before the

Distribution of the Request Proposal
Recommendation
You have a network of professionals who have likely gone through similar processes of
outsourcing website design, or marketing campaigns, or press release documentation. Ask
around! When companies have good experiences, they're more than happy to share that with
their networks.
Research
You've already assigned, or are part of, a competent and knowledgeable team
overseeing this proposal's creation.
Contacts
Working in your industry has undoubtedly caused you to meet people at launch parties,
or networking events, or professional conferences. Look through your stack of collected
business cards to see if any of the people who made an impression on you are in the same
industry who can help you.
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G-3. Self-Help
Below are the different available resources to help you further understand the lesson:
Altman, E. I. (2019). Corporate financial distress, restructuring, and bankruptcy. Wiley. BC

658.15 AI7c 2019
Ashworth, D. (2019). Role of a Financial Controller. [online] Quantify. Available at:

https://thequantifygroup.com/2019/06/27/role-of-a-financial-controller/ [Accessed 27 June
2019].
Bianco, D. (2020). Controller. [online] Reference for Business. Available at:

https://www.referenceforbusiness.com/encyclopedia/Con-Cos/Controller.html [Accessed 25
Apr. 2020].
Booth, M. (2020). Organization of the Finance Function. [image] Available at:

https://images.app.goo.gl/jSdeECqVYG59wD5h8/ [Accessed 27 Apr. 2020].
Boyd, K. (2020). The cash payback method of cost estimation. [online] www.dummies.com.
Available at: https://www.dummies.com/business/operations-management/the-cash-payback-
method-of-cost-estimation/ [Accessed 26 June 2020].
Bragg, S. (2018). Average rate of return. [online] www.AccountingTools.com. Available at:

https://www.accountingtools.com/articles/2017/5/8/average-rate-of-return [Accessed 26 June
2020].
Brigham, E.F. (2019). Fundamentals of financial management. 15 th ed. Cengage Learning,

Inc. BC 658.15 B76f 2019
Bruner, R. (2014). Case Studies in Finance. Wiley. BC 332.1 M38v 2014
Depersio, G. (2016). Controller: Job Description & Average Salary. [online]

www.investopedia.com. Available at:
https://www.investopedia.com/article/professionals/011416/controller- [Accessed 14 Jan.
2016].
Edmonds, T.P. [et al.]. (2014). Fundamental managerial accounting concepts. New York, NY:
McGraw-Hill Education. BC 658.1511 F96 2014
Epstein, L. (2019). Reading financial reports for dummies. 3 rd ed. John Wiley & Sons. BC
657.3 Ep8r 2019
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G-3. Self-Help
Investopedia, (1999). Sharper insight, better investing. [online] Available at:
https://www.investopedia.com [Accessed 21 Apr. 2020].
Lawson, R. (2016). How Controllers Become Business Partners. [image] Available at:
https://images.app.goo.gl/mxC2YCb2GHENpgqb6 [Accessed 18 May 2020].
Lawson, R. (2016). How Controllers Become Business Partners. [online] sfmagazine.com.

Available at: https://sfmagazine.com/post-entry/july-2016-how-controllers-become-partners/
[Accessed 18 May 2020].
Leo, D. I. (2018). The financial advisor’s success manual: how to structure and grow your
financial services practice. American Management Association. BC 332.6 L55f 2018
Marshall, L. (2017). The Changing Role of a Financial Controller. [online] HunterCampbell.

Available at: https://www.huntercampbell.co.nz/changing-role-financial-controller/ [Accessed
18 May 2020].
Massari, Gianfrate and Zanetli (2014). The valuation of financial companies: tools and
techniques to value banks, insurance companies and other financial institutions. Wiley. BC
332.1 M38v 2014
Nason, Rick (2018). Essentials of financial risk management: practical concepts for the
general manager. Business Expert Press. BC 658.155 N18e 2018
Pharoo, B. (2014). Function of management. [image] Available at:

https://images.app.goo.gl/KvDPmhgSHTgjHPt58 [Accessed 8 Apr. 2015].
QUANTIFY (2019). The Role of a Financial Controller. [video]. Available at:
https://youtu.be/BNSyxSayVfM [Accessed 27 Jul. 2019].
Rogers, S. (2014). Entrepreneurial finance: finance and business strategies for the serious
entrepreneur. McGraw-Hill. BC 658.1592 R63e 2014
Schilling, M.A. (2020). Strategic management of technological innovation. 6 th ed. McGraw-Hill

Education. BC 658.4012 Sch3s 2020
Young, M. R. (2014). Financial fraud prevention and detection: governance and effective
practices. Hoboken, NJ: Wiley. BC 362.88 Y84f 2014
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H-3. Let’s Check (Exercises)

Note: Directly through BB- LMS.
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H-3. Let’s Check (Exercises)

Note: Directly through BB- LMS.
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I-3. Let’s Analyze (activities/exercises)

Solving Problem:
Problem 1. The financial controller of Company Z is considering to invest in either Stock A or

Stock B. Both have the same comparable level of risks. He wants to include
one of this stock in his portfolio. Please determine which investment should be
selected based on the data provided below:
Particulars Stock A Stock B

Initial investment $200,000 $350,000
Annual net earnings:
Year 1 $45,000 $50,000
Year 2 $35,000 $40,000
Year 3 $25,000 $35,000
Estimated life (years) 3 3
Average Annual Net

Earnings ? ?
Average Rate of Return ? ?
Requirements:
1. What is Average Annual Net Earnings of Stock A and Stock B?
2. What is the Average Rate of Return of Stock A and Stock B?
3. What is your final analysis/recommendation?
Problem 2. How much should I invest today in time deposit that pays 8% interest
compounded monthly, so that I have a balance of $8,000 in the account at the end of 2
years? (Solve for the present value)
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I-3. Let’s Analyze (activities/exercises)

Problem 3. Mr. Sy plans to purchase a sewing machine for $ 650 which he expects to yield
different net cash flows every year as follows:
Year Initial Investment Net Cash Flow Cumulative Net
Cash Flows
2020 (650)
2021 $250 $250
2022 100 350
2023 200 550
2024 550 1,100
Requirement
1. Using the concept of Cash Payback Method, please state your financial
analysis of the above data.
Solve for the Present Value Method

Problem 3. How much should I invest today in time deposit that pays 8% interest
compounded annually, so that I have a balance of $8,000 in the account at the
end of 2 years? Solve also if:
Problem 4. Compounded semi-annually
Problem 5. Compounded quarterly
Problem 6. Compounded monthly
Problem 7. Compounded daily using 365 days
Thank you.
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J-3. Nutshell
What is a better source/option for financing a business project, debt funding, or equity
funding? Keep your nutshell to no more than six sentences.
Nutshell, as it is, should be clear and concise. Thank you.
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K-3. Question and Answer List
Kindly list down all your questions on some issues or topics of your concern
that needs to be answered.
Question: Answer:
1.
2.
3.
4.
5.
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L-3. Keywords Index

What comes-out in your mind if you see this word or phrase:
Financing options Profitability ratio Liquidity ratio Capacity utilization
Analyzing working Present value Tax organization Average rate of return

capital
Shareholder’s value Debt funding branding Time value of money
leverage caveats Equity funding Joint session
System Real accounts Valuation Nominal accounts

documentation account
Cash flows System Personal account Real account

documentation
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College of Business Administration Education

2nd Floor, SS Building

Table of Contents 135

Module 3: Analyzing Financial Statement (week 6 to week 7/10 days) 137

Reasons to Purchase Software 182

F-3. Essential Knowledge (Concepts, Theories, Lessons,

Module 3: Financial Analysis, Taxes, and Financial

At the end of this module, the students:

business activities and uncertainties.

and tax versus book accounting.

operations' status. A controller uses analysis to do a thorough job, more effectively

and efficiently, which is essential in running a business.

knowledgeable about the company's payables, receivables, contracts, and

Next in line is to review his constituent's capabilities, work assignments and

attention and the probable appearance of risks.

course of business uncertainties are as follows:

A controller should have sufficient knowledge of corporate branding activities

identifies signifies or differentiate their unique products to other companies’ products.

A constant reorganization would result in altered or changing reporting

are rapidly surpassing the budget due to the reorganization. Knowledge of

organizational structure will set the course of action by a controller.

competitor or rivals. It resulted in an increase in sales due to the demise of a competitor.

Eventually, it sends all of its customers to the company.

Analyzing Working Capital

WHAT IS WORKING CAPITAL

inventories, cash, and bank balance.

Working Capital = Current Assets – Current Liabilities

deficiency, also called a working capital deficit.

Nature of Capital Investment Analysis

long-term investments in the company’s fixed assets.

Capital investments involve a long-term commitment of funds, thus signifies more

Investments must earn a reasonable rate of return.

Methods Use in Evaluating

1. Average Rate of Return- (ARR)

generated over the life of an investment.

(UITF) for $300,000. It is expected to generate returns on the following years:

1st year: $25,000

company’s initial investment of $300,000 x 100%).

flows in more recent periods.” (Bragg, 2018)

determine which investment should be selected based on the following data:

Particulars Investment A Investment B

Average Annual Net

Average Rate of Return 18% 37%

Financial Analysis (recommendation):

compared to investment B with $150,000.

2. Cash Payback Method

the amount invested.

It is used to evaluate the proposed capital investments/projects as it estimates how long

which project/investments to invest in and which to avoid.

Cash payback period= Cost of investment / Annual net cash flow

cash payback period?

Cash payback period= Cost of investment / Annual net cash flow

= $800 / $500 per year

other factors that may impact an investor/purchaser’s decision.

flows change each year).

every year as follows:

Year Initial Investment Net Cash Flow Cumulative Net

2021 $350 $350

2022 200 550

2023 600 1,150

2024 400 1,550

3. Net Present Value Methods

decide as to which project/s would generate the highest profit.

Present Value (PV) = FV