Objectives of Management  Modern equipment and techniques

Accountants should be employed to facilitate the

selection, accumulation, transmission,
1. Planning analysis and safeguarding of
 involves quantifying and interpreting information
the effects on the organization of  Computer applications
planned transactions.  Network Communication Systems

2. Reporting 7. Verification
 both internal and external needs for  Evaluation
information about future events  Management accountants assure the
 May concern financial, physical, and accuracy and reliability of information
human resources, markets and derived from the accounting system.
regulatory environments in which
entities operate. 8. Administration
 Includes development and maintenance
3. Controlling of an effective and efficient
 Interpret all forms of internal and management accounting organization.
external information.
 Communicate the implications of the
information being review, including its Financial Accounting VS
relevance and reliability. Management Accounting
 Provide information to executive
operating in functional areas who can FINANCIAL ACCOUNTING
make use of it to achieve desirable
 Concerned with income determination
performance.
and asset valuation
 Prepares statements in accordance with
4. Resource Management
GAAP
 Involves implementing a system of
 Prepares general purpose statements
reporting that is aligned with the
that can be used by external and internal
organizational responsibilities
use
 4M’s
 Historical in nature
a. Money
 Emphasize/objective type of data
b. Manpower
c. Management MANAGEMENT ACCOUNTING
d. Machinery
 Concerned with decision-making
5. Information Systems Development  Management needs
 Must meet the needs of all people who  Prepares special purposes reports for
require information to perform their internal users
jobs.  Future-oriented
 Make use of subjective data as long as
Design and development of the overall
it is relevant
management information system implies
Standards in the
 Determining output required by users
 Specifying the data inputs needed to practice of management
obtain the required output accounting
 Managing and securing the data bases
1. Professional competence
 Developing the requirements for a
- Don’t accept jobs you don’t have any
processing system that converts input to
experience.
output

2. Due professional care

6. Technological Implementation
 - A member shall exercise due o Serves 2 functions, primary and
professional care in the performance of secondar
an engagement
- Consequences of action. Step 3: Innovation

o Alternative ways that allow reduction

3. Planning and supervision
- Sufficient relevant data
- Shall obtain sufficient relevant data to
afford a reasonable basis for
conclusions or recommendations.
change or modification in the existing
components and functions
o Producing new ideas
Step 4: Evaluation and Selection

4. Forecasts o Estimates the value of each idea

- A member shall not permit his name to generated during innovation phase and
be used in conjunction with any selects the best.
forecast of future transactions o Involves checking the feasibility and
- Should have a basis but not 100% sure. cost of various ideas presented

Step 5: implementing, monitoring, and

5. Role of MAS Practitioner corrective actions
- MAS practitioner should not assume the
role management. o Involves implementing the selected
alternative
6. Understanding w/client
- An oral or written understanding should 2. SWOT Analysis
be reached with the client concerning  Primary objective is to help
the nature, scope and limitations of the organizations develop full awareness of
MAS engagement to be performed. all the factors involved in making a
business decision
7. Client benefit
- Disclose what is to be expected from 3. Internal Analysis
you.  Highlight the organization’s strengths
and weaknesses in relation to its
8. Communication of Results competencies.

Analytical Techniques
1. Value analysis
 A method to achieve cost reduction by
analyzing the utility or value of a
product, service.
Steps of Value Analysis
Step 1: familiarization to gain information
o Involves the team familiarizing itself
with the process, product, or services
that requires value analysis
o You are sure
Step 2: Analysis to identify problem areas
o Analysis is focused on breaking down
the functions of the subject in question
4. External Analysis
PEST Analysis
o Political: international trade barriers,
and regulatory environment change
o Economic: interest rates, exchange
rates, inflation
o Socio-demographic (Social): issues
such as population and age cohort
changes
o Technological: scientific advances,
R&D investment
ANALYSIS TECHNIQUE AVAILABLE
TO MANAGEMENT ACCOUNTING
1. Internal Factors
 If it is considered as internal resources
 Financial resources (funding sources of
income and investment opportunities)
  Physical Resources (location, facilities,
and equipment)
 Human Resources (employee,
volunteers, and target audiences)
 Access to natural resources, trademarks,
patents, and copyrights
 Current Processes (employee programs,
department hierarchies, and software
systems like CRM software)
STEPS OF INTERNAL ANALYSIS
Step 1: Set Goal
Step 2: Pick a Template Framework
- GAP Analysis
- SWOT Analysis
Step 3: data Collation
Step 4: Framework Time
Step 5: Create your Plan
2. External Factors
 Market Trends (new product,
technology and advancements and
shifts in audience needs)
 Economic Trends (local, national, and
international financial trends)
 Funding (donations. Legislation and
other sources)
 Demographics
 Relationships with suppliers and
partners
 Political, environmental, and economic
regulations
Internal Users
 PEST ANALYSIS (Political, economic,
sociodemographic, technological)
3. Porter’s Five Forces
a. Competition in the Industry
- Refers to the number of competitors
and their ability to undercut a company.
- The larger the number of competitors,
along with the number of equivalent
product and services they offer, the
lesser the power of a company.
b. Potential of New Entrants into an
Industry
- The less time and money it costs for a
competitor to enter a company’s market
and be an effective competitor, the more
an established company’s position
could be significantly weakened
Bakit mahirap/madaling magstart ng
business
 Replicability of the service of the
product.
c. Power of Supplies
- Addresses how easily suppliers can
drive up the cost of inputs
< Demand > Supply
d. Power of Customers
- Ability that customers have to drive
prices lower on their level of power is
one the five forces
> Demand < Supply
e. Threat of Substitutes
- Can be used in place of a company’s
products or services pose a threat
Stakeholders
 Can be internal or external to an
organization
 Internal are people whose interest in a
company comes through a direct
relationship such as employment,
ownership, investment, managers.
 External are those who do not directly
work with a company but are affected
somehow by the actions and outcome of
the business, such as government,
creditor. Customers, academe.
1. Management
- Uses financial reports for analyzing the
performance of the company in relation to
other similar companies as well as the
entity’s own performance over a period of
time.
2. Employees
- Concerned about the financial health of
the company and their future financial
incentives. As well as their job security
depending upon the company’s
profitability.
3. Shareholder/owners
- Those who have invested in the company
want their investment to be safe.

4. Creditors
- Include both short-term as well as long-
term lenders.
- Those who supply the basic raw material
goods to the firm.
- Liquidity
5. Investors
- Need information about the profitability
and financial position of a company
before investing their resources.
6. Taxing Authorities
- Need financial information to assess the
tax liability of an entity as well as to
authenticate information provided by the
company while filing returns
- Profitability of the company.
7. Competitors
- Competing against each other require
financial statements of their competitors
so that they can evaluate their
performance and financial conditions.
8. Regulatory Authorities
- To protect the interest of investors and to
safeguard them from malpractices,
regulatory agencies
- Permit = SEC, legitimate corporation
9. Government
- Use to compile statistics relating to the
profitability of the industry, computation
of national income, compile national
accounts.
10. Stock Exchanges
- Use financial information in connection
with the listing of securities.
External Users
1. Foreign Investor
 Globalization has resulted in the free flow
of investment from one country to
another.
 Currency exchange
Information Systems
- Combination of software, hardware, and
telecommunication networks to collect
useful data, especially in an organization.
- Information is the result of analyzing and
interpreting pieces of data while data is the
individual figures, numbers, or graphs.
Hardware
- Physical component of the technology
- Includes computer, hard disks, keyboard.
- Hardware cost has decreased rapidly while
its speed and storage capacity has increased
significantly.
Software
- Can be 2 types: system software and
application software
- Application software is designed to manage
particular tasks by the users
Data
- Collection of facts and is useless by
themselves, but when collected and
organized together, it can be powerful for
business operations.
Telecommunication
- Used to connect with the company
system/other devices.
Operations Support System
- Mainly supports a specific type of operation
in a business.
Management Information System
- Second category of information system,
consisting of hardware and software
integration allowing the organization to
perform its core functions.
Decision Support System
- Analyses the rapidly changing information.
Executive
- Help in making senior-level decisions for
an organization.
  Much more rigorous test of a company’s
ability to meet its short-term debt.

C. Cash Flow Liquidity Ratio

 Considers cash flow from operating
CHAPTER 2 activities in addition to the truly liquid
assets.
Financial Ratios Analysis
(Cash+ MS +COA )
 Comparison in fraction, proportion,
decimal, % form of two significant figures.
Current Liab

Limitations of FRA D. Working Capital to Total Assets

 Indicates relative liquidity of total assets
1. Ratios must be used only as financial tools, and distribution of resources employed
that is, indicators of weakness or strength.
2. Computed directly from the company’s FS,
WorkingCapital
without adjustment. Total Assets
3. Composite of many different figures-some
covering a time period, others an instant
time and still others representing averages. E. Defensive Interval Ratio
4. Ratios to be meaningful should be  Measures length of time in days the firm
evaluated with the use of certain yard stick. can operate on its present liquid
a. Company’s own experience resources
b. Other companies in the same industry
 Basis of some company if they need to
c. Standard set by management
stop their operation.
d. Rules of thumb
Quick Assets
Financial Ratios based on: Projected DailyOperational exp .
A. Liquidity – ability of the company to pay
Not all ratios are operated based on %, decimal,
its liabilities
sometimes based on days.

B. Activity – concerned with the operation of

the organization
2. ACTIVITY RATIOS
C. Leverage – concerning financing activity of
company A. Accounts Receivable
 Roughly measures how many times a
D. Profitability – focus on net income, cost company have been turned into cash
reduction during the year.

1. LIQUIDITY RATIOS Net Sales

Ave . Accounts Receivable
A. Current Ratios

Gross Sales−SRA−SD
Measure of short term debt ARTurnover=
 Paying ability B. ( AR Beg .+ AR End)/2
Average Collection Period
 H e l p s e
Current Assets the firms credit policies
Current Liab
365 Days
AR Turnover
B. Quick or Acid Test Ratio OR
 Ave . daily sales  Movement and utilization of current
assets to meet operating requirements.
( Net Sales/365)
(cos +Opex+ IncTax +Other exp .)
C. Average Current Asset
Net Sales * Other expenses excluding depreciation and
Totas Assets amortization
OR
Net COGS
Sales
Ave .Total InvestmentInv .
Ave . Merchandise I. Payable Turnover
 Measures efficiency of company in
meeting trade payable.
D. Finished Goods Inventory Turnover 
 Efficiency of the firm in managing and Net Purchases The
selling inventory.
Average Accounts Payable
COGS higher, the quicker the business pays of
its debts
Ave . Finsihed Goods

* Times – the higher the better

E. Average Sales Period * Days – the shorter the better
 # of days taken to sell the entire
inventory one time.
J. Days Cash
 Measures the average # of days to sell or
consume the average inventory  Measures the availability of cash to meet
average daily cash requirement
365
InventoryAve.
Turnover
conversion period of inventories +
K.
Ave. collection period of receivable + Average Cash Balance
Days Cash
F. Working CashOperating Costs÷ 365 days
Capital
Turnover Operating Cycle
 Indicates adequacy and activity of  Length of time required to convert cash
working capital. to finished goods, then to receivable and
then back to cash.
Net Sales
Ave .Working Capital
L. Free Cash Flow
 Excess of operating cash flow over basic
G. % of each current asset to TCA needs.
 Indicates relative investment in each
current asset Net cash from operating act. – Cash used
for investing act. And dividend
Amount of each CA item
Total CA
M. Total Asset Turnover
 Measures efficiency of firm in managing
all assets

H. Current Asset Turnover

 Total Liab
Total Equity
N. Sales of Fixed Assets
 Test roughly the efficiency of D. Fixed Assets Long-Term Liabilities
management in keeping plant, properties  Reflects extent of investment in long-term assets
employed. financed from long-term debt

Net Sales
Assets(net) ¿
Ave . ¿
¿ Assets(net )
Total longterm liab
O. Capital Intensity Ratio
 Measures efficiency of the firm to
generate sales through employment of its
resources E. Fixed Assets Total Equity
 Proportion of owner’s capital invested in
Total Assets fixed assets
Net Sales
¿ Assets (net)
Total Equity

3. LEVERAGE RATIOS
F. Fixed Assets to Total Assets
 Measures the extent of a firms financing
with debt relative equity and its ability to  Measures investment in long-term capital
cover interest and other fixed. assets
 Computing for capital structure
¿ Assets (net)
A. Debt Ratio Total Assets
 Shows proportion of all assets that are
financed with debt G. Book Value per share of ordinary share
 Measures recoverable amount in the
Total Liab event of liquidation if assets are realized
Total Assets at their book values.

Ordinary SHE
B. Equity Ratios No . of outstanding OS
 Proportion of assets provided by owners.
Reflects financial strength and caution to H. Times Interest Earned
creditors.  How many time interest expense is covered by
operations profit.
Total Equity
Total Assets Net Income b 4 ∫ ¿ Tax
Debt ratio and Equity Ratio
 Should be equal to 100% Annual ∫ . Charges
 Inverse Relationship

C. Debt to Equity Ratio I. Times Preferred dividend requirement

 Debt relative to amounts of resources earned
provided by owners.  Indicates ability to provide dividends for
preferences shareholders.
Net Income After Taxes
Pref .÷. Req .
 J. Times Fixed Charges Earned
E. Rate of Return on Assets
 Measures coverage capability more broadly than
times interest earned including other fixed  Measures overall efficiency of the firm in
charges managing assets and generating profits.

Net Profit
Ave .Total Assets

OR
Asset Turnover X Net Profit
Sinking Fund Payment after taxes
Sinking Fund b 4 Taxes= Margin
1−Tax Rate

4. PROFITABILITY AND RETURNS

TO INVESTOR
F. Rate of Return on Equity

Net Income before Taxes∧¿ charges Net Income

¿Charges Ave .Ordinary Equity
¿ ¿
¿
A. Gross Profit Margin
 Measures profit generated after
consideration of cost of product sold G. Rate of Return on Equity
 May also be computed as:
Gross Profit
N et Sales

B. Operating Profit Margin

 Measures profit generated after
consideration
Return on Assets X Equity
Operating Profit multiplier
Net Sales
Equity multiplier =
C. Net Profit Margin 1
 Measures profit Equity Ratios
Net Profit
Net Sales
H. Earnings per share
 Peso return on each

D. Cash Flow Margin Net Income

 Measures ability of the firm to translate Ave .ordinary Equity
sales to cash.

Cash Flow ¿ operations act . ¿

Net Sales