Financial

Management
Prof. Mark Jetro Cababan, CPA, MBA
Decision
Analysis
Chapter 4
CVP Analysis
A method for analyzing the
interrelationships among total cost,
volume and profits in an organization

Identifying the target sales in units or in pesos

Changing of prices for existing products
Setting prices for new products
Performance measurement tool
Type of Costs and its behavior
Fixed Costs
Type of Costs and its behavior
Variable Costs
Type of Costs and its behavior
The Graph
Example
Pricing

Pricing decisions can be:

Market-based
Cost-based
Market-based
Cost-based
SP = Unit Cost + Markup per Unit

Example:

Find the cost-based SP for the ff:

Total Variable Cost per unit $110

Total Fixed overhead costs $100,000 ($100 per unit at a 1,000-
unit level)
Desired Profit of $200,000
Enterprise
Risk
Chapter 5
Enterprise Risk
Risk is variability in expected returns.

Organizations need to identify, assess and manage

risks to achieve their objectives, including the
objective to protect the organization's assets and
avoid unexpected losses.
Risk identification
A risk framework can be helpful to facilitate the risk identification process. This provides
guidance to the risk assessment participants and helps them organize the identified threats.

Risk assessors should consider internal risk and external risk factors. It can be done through
brainstorming, interviews, document analysis, checklists (risk categories), root cause analysis,
assumptions analysis.

Once risks are identified, they can be prioritized by risk ranking or risk mapping. A risk map
graphically illustrates the impact of risks.
Risk assessment
The process of analyzing the potential effects of the identified risks. The risks should be
analyzed based on its impact and likelihood of happening.
Risk management
Organizations should implement a risk management process that will enable them to avoid
risks, reduce the negative effects of risks, prepare to accept some risks and/or transfer risks to
another party.

Key Steps in Risk Management Process

Determine the organization's tolerance for risk
Evaluate the risk exposure
Implement an appropriate risk management strategy
Monitor the risk exposure and the strategy
Investment
Decisions
Chapter 6
Capital Budgeting
The process of making long-term
investment decisions that enables an
organization to evaluate the viability of
a long-term project and whether it is
worth undertaking.
When to use?

Expansion Projects
Replacement Projects
Mandatory (compliance projects)
Others
2 aspects of capital budgeting
1. Project Dimension
Looks at projects that span multiple accounting
periods (e.g. R&D project, New Building Project)
2. Time Dimension
Lowers the current net income but has the
potential to generate high cash inflows in the
future. ( time value of money)
Stages of capital budgeting
Implementation
Identification
and control

Search Financing

Evaluation Selection
Incremental Cash flows
Capital Budgeting Methods

1. Net present Value

2. Payback Period
3. Internal Rate of Return
4. Discounted Payback Period
5. Average Accounting Rate of Return
6. Profitability Indez
NPV
NPV
Payback period
Qualitative Considerations in Capital
Investments

1. Complete information in making capital

investment decisions
2. Loan provisions may limit borrowing
3. Decision makers' risk appetite
4. Political considerations
 Capstone Project
1. Pick a topic from any of the
topics that we discussed or
reported;
2. Discuss how this topic can be
related to your current work
3. Identify a problem or an issue in
your current work in relation to
the topic
4. Recommend a solution to
address the problem or issue

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FINANCIAL
MANAGEMENT Mark Jetro Cababan, CPA, MBA