Finance for Founders:

Managing your Finances

MIN HAN TUN
CO-FOUNDER/ACADEMIC DIRECTOR
MATRIX INSTITUTE OF PROFESSIONALS

by Matrix Institute of Professionals

“ Never stop learning: for when we stop learning we stop growing “

Instructor Profile
Min Han Tun, CFA
Current Roles
• Academic Director and Co-founder@ Matrix Institute of Professionals
• Partner @ Matrix Solutions Business Advisory Group
• Director, Corporate Internal Audit @ United Paints Group Co. Ltd.
• Director @ Hotel H Valley Myanmar Co. Ltd.

Education

• Chartered Financial Analyst (CFA)

• B.Sc. in International Business & Finance, Elizabethtown College

Industry Experience

• Manufacturing, Education, Investment & Research, Consulting,

Accounting & Finance, Hospitality
Key Contents
Financial
Statements
Overview

Investment
KPIs and
Decision
Metrics
Making

Excel Templates Live Session

▪ Budgeting ▪ Merging Technology
▪ Working Capital ▪ Q&A
▪ Capex Business
▪ Ratios Budgeting
Value
Financial Statements Overview
Financial Statements

Balance Sheet P&L Statement Cash Flow Statement

Know your Statements: Know your Business

Links Between Financial Statements
P&L Balance Sheet
Cash Flow Statement
ငငွေသာား စားဆငားမှု စာရငား (Cash Flow Statement)
လုပငနားလညပတခြငားမှ ရငသာ/သုားငသာ ငငွေသာား Cash Flow from Operating Activities

Customers မ ာား မှ,အာား ရငငွေ (+), ငပားငငွေ (-) Working Capital Changes

အင ကွေားငကာကြခြငားင ကာင ရငငွေ (+) အရငကာလထက ကုနင ကွေားမ ာားတုားမ ာားမှု (-), ငလ ာနညားမှု (+)

လုပငနား အသုားစရတမ ာား (-) အရငကာလထက ကုန ကမားတုားမ ာားမှု (-), ငလ ာနညားမှု (+)

တနဖုားငလ ာ စရတမ ာား (+) အရငကာလထက မမရှင (Supplier င ကွေားမ ာားတုားမ ာားမှု (+), ငလ ာနညားမှု (-)

ရငားနှားခမြှုပနှခြငားမှ ရငသာ/သုားငသာ ငငွေသာား Cash Flow from Investing Activities

ပုငသ ပစစညားမ ာား ဝယယူခြငား (-)

ပုငသ ပစစညားမ ာား ငရာငားြ ခြငား (+)

ဘဏ္ဍာငရားဆင
ု ရာမှ ရငသာ/သုားငသာ ငငွေသာား Cash Flow from Financing Activities
Cash in
အရငားအနှား ရှယယာငြေါ်ခြငား (+)၊ ခပနငပားခြငား (-)
ဘဏငြ ားငငွေရယူခြငား (+)၊ ခပနဆပခြငား (-) Cash Out
Cash is King!
Investment Decision Making
Investment Questions
• What is the purpose? (expansion, replacement, operations)
• What is the investment for? (capital expenditure, working capital)
• How do we fund the investment?
• How long does it take?
• What are the returns from investments?
• What are my working capitals throughout each phase?
Investment Feasibility (Finance View)
• Key Assumptions
• Setup Costs and Sunk Costs
• Capital Structure (Debt or Equity)
• Working Capital
• Capital Expenditure
• Key Revenue and Cost Drivers
• Budgeting (Sales, Operations, COGS)
• Key Financial Ratios (Return Ratios)
Fund Raising – Debt or Equity

Equity Financing Debt Financing

• Dividends • Interest Payments

• Variable • Fixed Payments
• Share Profits and Risks • No need to Share Profits
• No obligation for Regular Payments • Obligation to Pay Back Regularly

ROI, ROE, Operating Profit, Net Operating Profit, Interest Coverage,

Profit Solvency Ratio, Debt Ratio
Different Rounds of Fund Raising

• Expansion Capital
• Startup Capital
• Series A
• Series B
• Series C
• Mezzanine Financing
• IPO
CAPEX vs. Working Capital

CAPEX vs. Working Capital

CAPEX Working Capital

Purchase Fixed Assets (Land, Building, Inventory, Customer Credit, Supplier Debts
Machinery, Software…) for expansion and and the Cash Conversion Cycle
growth
Cash Outflows vs. Inflows

Cash Outflows vs. Cash Inflows

Uses of Cash Sources of Cash

CAPEX Capital (Debt + Equity)

Working Capital Cash from Operations
Dividends & Interests
Cash Flow Statement
ငငွေသာား စားဆငားမှု စာရငား (Cash Flow Statement)
လုပငနားလညပတခြငားမှ ရငသာ/သုားငသာ ငငွေသာား Cash Flow from Operating Activities

Customers မ ာား မှ,အာား ရငငွေ (+), ငပားငငွေ (-) Working Capital Changes

အင ကွေားငကာကြခြငားင ကာင ရငငွေ (+) အရငကာလထက ကုနင ကွေားမ ာားတုားမ ာားမှု (-), ငလ ာနညားမှု (+)

လုပငနား အသုားစရတမ ာား (-) အရငကာလထက ကုန ကမားတုားမ ာားမှု (-), ငလ ာနညားမှု (+)

တနဖုားငလ ာ စရတမ ာား (+) အရငကာလထက မမရှင (Supplier င ကွေားမ ာားတုားမ ာားမှု (+), ငလ ာနညားမှု (-)

ရငားနှားခမြှုပနှခြငားမှ ရငသာ/သုားငသာ ငငွေသာား Cash Flow from Investing Activities

ပုငသ ပစစညားမ ာား ဝယယူခြငား (-)

ပုငသ ပစစညားမ ာား ငရာငားြ ခြငား (+)

ဘဏ္ဍာငရားဆင
ု ရာမှ ရငသာ/သုားငသာ ငငွေသာား Cash Flow from Financing Activities
Cash in
အရငားအနှား ရှယယာငြေါ်ခြငား (+)၊ ခပနငပားခြငား (-)
ဘဏငြ ားငငွေရယူခြငား (+)၊ ခပနဆပခြငား (-) Cash Out
Cash is King!
Decision Making Process
IDENTIFY
Type of Investment
•Required Investment
•Replacement Investment
•Expansion Investment
•Diversification investment
EVALUATE CHOOSE MONITOR
Input Decision Rule Performance Evaluation
•Expected cash flow •Net Present Value •Monitor magnitude and
stream •Profitability Index timing of cash flows
•Discount rate •Internal rate of return •Check project still meets
•Payback period selection criterion
•Decide on continuation or
abandonment
•Review steps if failure rate
is high
NPV & IRR
• Net Present Value
• Discounting all future cash flows from the project,
and compare it against today’s cost of investment NPV > 0, Invest
• Key Ratio in Finance NPV < 0, Reject

• Internal Rate of Return

• % Rate of Return from the Project
• Compared against opportunity cost (required rate of
return) IRR > Required Rate of Return, Invest
IRR< Required Rate of Return, Reject
Evaluating Phase
Investment appraisal methods

Considering the time value of Ignoring the time value of

money concept money concept

•Net present value •Payback period

•Profitability Index •Accounting rate of return
•Internal rate of return
NPV > 1, OK
IRR > Cost of Capital, OK
Key Ratios: Cash Burn Rate

• Cash Burn Rate = Total Cash Position

Change/Specified Time Period

• Time Before Cash Runs Out = Cash

Reserves/Burn Rate

• Working Capital Required/Burn Rate

Ref: investopedia
Key Ratios: Breakeven Analysis

Breakeven Qty = Total Fixed Costs

(Sales – COGS) per product/service
Contribution Margin

Breakeven Sales = Breakeven Qty x Sales per unit

Or
Breakeven Sales = Total Fixed Cost / Contribution Margin
%

Download the Free Breakeven Template at Matrix

Website.
https://www.matrixinstitute.com.mm/forum/general-
discussions
P&L
Key Ratios: Payback Period

• How many years and periods it will take to recover the initial investment in a capital investment
• A Breakeven Analysis
• Investment / Cash Flow Each Year

(500) 150 150 150 150 150 150 150 150

0 1 2 3 4 5 6 7 8
Payback period = 3.33 years

Balance Sheet Cash Flow Statement

Return Ratios
PROS CONS
• Return on Investment = Final Value – Initial Value
• Easy to calculate • No time period is
• Intuitive and good considered
Cost of Investment
measure

PROS CONS
• Return on Equity = Net Income
• Good measure to see • Inconsistent profits or
Shareholders’ Equity how much return excessive debts
shareholders are earning

• Return on Net Operating Profit after Tax (NOPAT) PROS CONS

Invested Capital = • Detailed analysis of the • More difficult to
Total Debt + Total Equity + Non- company’s operating calculate
Operating Cash & Investments return on invested capital

P&L Balance Sheet

Interest Coverage
• Interest Coverage Ratio = Earnings before Interest and Taxes (EBIT)
Interest Expense

Variation: EBITDA / Interest Expense

How many times Operating Profit can cover the

fixed interest expenses

This ratio is used by debt capital providers.

P&L
Return of Capital

Return of Capital
Capital = Debt + Equity

• Interest and Principal

• Dividend and Capital Gains

 Case 2: Working Capital (Stock, Supplier,
Customer)
On Cash On Cash Paid
credit Payment to credit by
Suppliers Customers
Inventory Inventory
purchased Sold

1 Dec 14 Dec 16 Dec 16 Jan 2022

2021 2021 2021
Raw, WIP,
Finished
Days of Inventory on Hand (DOH) Days Sales Outstanding (DSO)
Cash
AP
Days Payable Outstanding (DPO)
AR
Cash Conversion Cycle (CCC) Accrued
DOH + DSO - DPO Stock
Budgeting
Budgeting – Some Questions
• Why do we budget?
• Have we budgeted for our businesses?
• Should we do it? What are the benefits?
• How can we benefit from it?

There is no 100% Right Budget: Not its

Purpose
Assumptions
• Must reflect reality
• Must be well-thought
• Must be practical
• Must be timely

Overestimate your costs and

Underestimate your income
Financial Projections: What should we check?
3-Year Projection, 5-Year Projection

• Conservative vs. Aggressive?

• Capacity?
Future Projections
• Resources?
• Funding?

It is often said there are two types of

forecasts: “lucky” or “wrong”
~ Control Magazine
Know Your Costs
Direct vs. Indirect Cost Cost Budgets
Budgeting Templates
• Sales Budget
• Operating Budget
• Capital Expenditure Budget
Business Value
Business Value Calculation
Return on Invested
Capital (ROIC)
Cash Flow

Revenue Growth Value

Cost of Capital
Value Component Definition

• Return on Invested Capital (ROIC) = တစ္ေထာင္ရင္းတိုင္း ဘယ္ေလာက္ျပန္ရသလဲ။

– တစ္ႏွစ္အျမတ္ / လိုပ္ငန္းတြင္းရင္းႏွီးမွိုေငြ (ေခ းေငြ+ကိုယ္ပိုင္ေငြ)

• Revenue Growth = လိုပ္ငန္းတိုးတက္ႏိုွန္း

– [ (ဒီႏွစ္ေရာင္းရေငြ / မႏွစ္ကေရာင္းရေငြ ) – 1 ] x 100%

• Cost of Capital = လိုပ္ငန္းအရင္းအႏွီးမ ား (ဥပမာ - ဘဏ္ေခ းေငြ၊ မမတို႔ရဲ ႔ ေငြ) ေတြရဲ ႔ စရတ္
– အရင္းအႏွီး x ဘဏ္တိုးႏွိုန္း
– အရင္းအႏွီး x မမတြင္ရွေသာေငြကို အျခားတြင္ ရင္းႏွီးပါက ရရွမည့္ အျမတ္
Principles of Value Creation

High ROIC → Increase Growth

Low ROIC → Increase ROIC First

*if the business is small size, then growth is ok.
Value Creation

3% 800 1100 1400 1600

Growth
High ROIC → Increase Growth
6% 600 1100 1600 2100
Low ROIC → Increase ROIC First
*if the business is small size, then growth is ok.
9% 400 1100 1900 2700

7% 9% 13 25
ROIC % %
Ref: McKinsey
Some Key Ratios for Investments
Ratio Equation Interpretation
Return on Invested Net Operating Profit less Adj. How much return from invested capital?
Capital Taxes / Total Invested Capital $100 invest → $15 profit

Return on Equity Net Income / Shareholders’ How much return shareholders receive?
Equity
Revenue Growth Sales Growth Year-over-Year Sustainable Sales Growth

Debt/Equity Total Debt / Total Equity How much money did your firm borrow
compared to money you put in?
Profit Margin Net Income / Sales How much return from every $1 of Sales?

EBITDA Earnings before Interest, Tax, A proxy for profitability of a business

Debt and Amortization
Value Drivers from Operations
Human Techno-
Capital logy

Product/ Strong and Scalability

Strategic Customer
Service
Base
Recurring & Access
Vision Offering Cash Flows to Capital

Marketing Platforms
& and
Branding Resources
KPI and Metrics
KPI Setting
• Business Performance Management
• Plan, Do, Check, Act (PDCA) cycle that leads back to itself for continuous improvement
• BPM starts with a focus on setting business strategy by providing planning, budgeting
and forecasting tools.
• It focuses on both financial and operational management against KPIs and then
provides feedback
• All of this then ties back to the goals set in the business strategy so the course can be
corrected over time.
• Continuous Monitoring and Improvement Required
• Tone at the Top and Commitment at the Top
Financial KPIs
• Return on Investment (ROI)
• Return on Equity (ROE)
• Return on Assets (ROA)
• Payback Period
• Sales Growth
• Profit Margin
• Costing Variance
• Revenue per Employee
• Breakeven Numbers and Sales
Operational KPIs
• Inventory Turnover and Days
• Receivable Turnover and Days
• Payables Turnover and Days
• Cash Ratio
• Current Ratio
• Productivity Ratio
Per-User Economics

Customer Acquisition Cost Conversion Rate

Average Purchase
Customer Metrics & Frequency

Customer Lifetime Value

Daily/Monthly Active Users

Balanced Score Cards

Business scorecards, such as

the balanced scorecard or
custom scorecards, provide
similar information but are
often in a spreadsheet style
overview and may track
results against a minimum
goal and a stretch goal for
each KPI for a given week or
month.

Ref: https://www.intrafocus.com/balanced-scorecard/
Value-Added or Not

Ref: 2020 FP&A Trend Survey

Role of Finance in Digitalization

Ref: Digital FP&A Board

Finance Talents

Ref: Microsoft Corporation

Popular Accounting Software in Myanmar
အက ျိုးကက ျိုးဇျိုး
• Automation ပပြုလုပ်ပပေးပြင်ေး
• Reports မျ ေးကု လျင်ပမန်စ
ထုတပ ် ပေးပြင်ေး
• ထပ က်မှု ပမငမ ် ေးပြင်ေး
• စမ်ေး ည် တက်ပြင်ေး
• Analytical မျ ေး ပပြုလုပ်နင ု ပ် ြင်ေး

Costs
• ပုမှန ် Excel, Ledger မျ ေးထက်
ပ ေးကကေးပြင်ေး
• ကျွမ်ေးကျင်ဝန်ထမ်ေး လအ ု ပ်ပြင်ေး
(IT, Accountant)
• အသေးု မြျနင ု ပ် ြင်ေး
ERP System Modules
Visualization in Power BI
 Ref: Finance Analytics Institute USA

HR Development

Continuous
Learning &
တည်က ောက်ရမည် Area Development
Transformation in Finance
KEY Areas of Transformation Today Tomorrow

Strategic Planning, Target Setting, Financial Planning, Forecasting, Tax/Treasury Planning

PLAN

TRANSACT Supplier Payments, Employee Payments, Customer Receipts, Cash Management

ACCOUNT Transaction accounting, Asset Accounting, Tax Accounting

CONTROL Account Close/Reconciliation, Error Processing, Internal Audit

COMPLY Statutory Reporting, Tax Filing, Statutory Compliance, Policy Compliance

REPORT Enterprise Performance Reporting, Financial Reporting, Management Reporting

ANALYZE Portfolio Analysis, Performance Analysis, Investment Analysis

Business Advisor, Strategy Execution Support, M&A Support, Board of Directors Engagement
ADVISE

Focus of Professionals Mostly Digitalized (>80%)

Ref: Digital FP&A Board
Maturity Scorecard Ref: Digital FP&A Board

Basic Developing Defined Advanced Leading

CULTURE Traditional Traditional Slightly Analytical Moderately Analytical Embraces Change
Analytic-Based Decision Making
PEOPLE Accountants Accountants & Accountant & CPA, MBA, Data Multi-Disciplined Approach
Big 4 MBA Scientists Continuous Skills Training &
Development
PROCESS No Formal Inconsistent, Defined Process, Enterprise-Wide On-Demand Integrated
Process Manual Process Guidance Process Processes; 3-Wa Driver Model
ANALYTICS No Basic Structure Defined Multidimensional Leading Analytical Drivers
Established Descriptive Analytical Drivers Analytical Drivers Predictive & Descriptive
Analytical Analytics Descriptive Predictive Analytics Analytics (AI,ML)
Drivers Analytics Easy Scenario Analysis Multidimensional Scenario
Basic Reports Analysis
TECHNOLOGY Forms, Basic Planning Defined Planning Driver Based Planning Integrated, Flexible, Self-Service
Spreadsheets, Model & BI Model ERP Advanced BI Systems
No BI Defined BI Collaborative Planning Automated, Real Time Systems

BUSINESS Non-Existing Basic FP&A Defined FP&A Storong FP&A Collaborative

PARTNERING Business Partnering Challenging
Some Tools to Incorporate in Business
• Google Workspace, Microsoft Team, Facebook Workplace
• Accounting Software - Quickbooks, Sage, Zero
• ERP systems
Enterprise Resource Planning

• Organize, define and

standardize business
processes to enable
effective system-wide
planning and control
• Harness all available
internal information to
help produce external
advantage
ERP System Modules
Customer Supplier
Relationship Finance Relationship
Management Assets
Management
(CRM) Accounts Payable (A/P) (SRM)
Sales Accounts Receivable
(A/R) Procurement
Pricing General Ledger
Billing Purchase Orders
Quotes Contracts
Available-to-Promise Requirements
Sales Orders Vendor Lists

Human
Resources ERP Relational Logistics
Personnel Database Quality
Payroll Management
Time Clock Receiving
Manage-
Shared Master Data Issuing
ment Warehousing
Travel Planning Manufacturing Inventory
Strategic Planning,
Shop Floor Control
Forecasting & Analysis
Sales & Operations Production Orders
Planning
Master Production
Schedule
Material Require-
ments Planning
Moving to ERP